G.M. Combined (U) Ltd and Others v A.K. Detergents Ltd and Others (Civil Application No. 9 of 1998) [1998] UGSC 36 (30 November 1998)

Full Case Text

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BEFORE HON. JUSTICE ' . G. W. KAHYEIHAMBA

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This is an application under rule 100 (3) of these Rules of the Supreme Court for further security for costs and security for past costs.

On 16/11/98, Kikonyogo, J. S. C., with the consent of applicants. consolidated what had been presented before court as three separate applications, namely Civil Application No: 5/98, No: 6/98 and Ho: 9/98 because they all are from the same appeal and were based on the same facts and law.

The background to these application briefly is that Respondent borrowed money from applicants, Development Finance Company of Uganda Limited and Uganda Development Bank. The loans were secured by debentures. The Respondent failed to pay the loan in accordance with the terms of the borrowing whereupon the said applicants exercised their powers under the Debentures and appointed Receivers. The receivers, in exercise of their powers,

sold the assets of the Respondent to the applicants A. K. Detergents Ltd. The Respondent filed a case in the High Court contending that the sale of its land which was part of its assets was ineffectual. Although the suit was originally against A. K. Detergents Ltd., the trial judge ordered that the other applicants be enjoined in the suit. The High Court judgment was given in favour of the Respondent. The applicants successfully appealed to the Court of Appeal. Being dissatisfied with the judgment of the Court of Appeal, Respondent appealed to the Supreme Court in Civil Appeal No: 7 of 1998. Apart from the statutory security for costs of shs. 400,000/=, the Respondents have had to give security for the sum of shs. 30,000,000/= as ordered in Civil Appeal No: 34 of 1995 decided by this court on 17th May, 1996 (unreported). The application before me is for further security for costs in this court, the High Court and the Court of Appeal.

At the commencement of this hearing, Counsel for the Respondent objected to a single justice of this court hearing this application. He contended that these applications (now consolidated) had been brought too late after the parties had submitted their arguments in writing. The arguments were in support of the main appeal. It was his view that by their acts of submission of written arguments in the appeal, the parties had closed the case on appeal.

He also argued that in his opinion for me to hear and determine this application when I am on the panel which will hear and determine the main appeal would be prejudicial to the interests of the Respondent. Mr. Kavuma cited the contents of page five of the Respondent/Appiicants written submission prepared and filed by their learned counsel, Prof. Ssempebwa where the applicants go into the merits of the appeal and upon which the justice hearing this same application will be adjudicating. He believed that this double role of mine, would not be fair to the i Respondent. Counsel argued further that as the appeal was scheduled to be heard on 3rd December, 1998, just one week away

from the present hearing of the application, any order in the application now would be tantamount to stay of execution of the proceedings in the appeal. Although there was no known authority on this aspect of the case, it was a factual situation which led counsel to consider whether justice will be done. Counsel cited Rule 49 (1) (a) of the Rules of this court which he saw as governing ancillary applications like the present one and therefore as being only suitable for decision by a full panel of the court. He therefore prayed that the application be adjourned to be considered by a full\_bench of the court. Lastly, Mr. Kavuma submitted that as the applications concerned the costs in all the three courts, it was only appropriate and fair that the issue of costs be considered by the full court. Counsel wished to emphasize that knowing as he did, the rules of court and its discretion,his present submissions were in a form of a request rather than a formal application. He still hoped that the court would appreciate the request and rule in favour of his client on this preliminary point.

Prof. Ssempebwa for the applicants opposed this request in which he saw no merit at all. He submitted that the fact that parties have made written submissions in the appeal is not a'legal basis for asserting that the parties have closed the proceedings in the appeal.

It was his view that not until the appeal is heard on the fixed date, namely, 3rd December, 1998, and the court has given its judgment, will it be said that the proceedings in the appeal have closed. He further contended that the Rules of this court contemplate applications of this nature to be heard at any time during the proceedings of a case. He referred to Rules 49, 93 (4) and iuO (3) of the Rules of this court.

Learned Counsel for the applicants further submitted that costs are always an issue in any cause before court, where a party is dissatisfied with the ruling that party can always appeal to a full court. Secondly, he further submitted that merit is one

of the grounds upon which a court hearing an application muse address to the strength of each party in the appeal before allowing or disallowing the application. In any event, counsel concluded, any adjudicator who feels that the preliminary hearing is likely to be prejudicial to a subsequent hearing has the option of disqualifying himself or herself.

Having taken into account both counsel's arguments and submissions, I rejected the request. Rule 100 (3) is clear. 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 relating to the matters in question in the appeal"

Even in cases where there is only one single trial judge, as in the case of the High Court, the judge is empowered at any time during the proceedings to hear and determine an application for costs and thereafter proceed with the hearing. Moreover, the argument that a single judge who happens to be on the panel for a subsequent hearing in the same case should disqualify himself or herself because of possible bias and let the application be heard by the full bench, instead, has no basis either in law or in logic.

After my preliminary ruling, Counsel for the parties proceeded to make submissions for the merits and demerits of the application, respectively. The hearing of the application took a full day to complete. Considering that the date for hearing the appeal was only a few days a way, I decided to make my ruling shortly after the close of the submissions by counsel. I allowed the application and indicated that I would give my reasons later.

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For the applicants, Prof. Ssempebwa submitted that the application does not fall within the exceptions listed under Rule 49 of the Rules of this court. He argued that the present applications are distinct applications for further security for

costs. If the Respondent is ordered to pay that security and does so within the time available, it is still possible to hear the appeal on the fixed date. Counsel further submitted that there are always consequential orders if the Respondent fails to pay such as an order to strike out the appeal for failure to pay further security for costs but this has never been a sound reason for refusing to hear an application for further security for costs.

Prof. Ssempebwa noted that the applications were brought under Rule 100 (3) of the Rules of this Court and they are for further security for costs. He further noted that some security had already been furnished by the Respondent but in his opinion and that of the applicants, the security for costs already provided is not enough to cover the costs already incurred, let alone, those likely to become due after the hearing of the appeal. This contention was supported by the affidavits of the applicants. Prof. Ssempebwa outlined the facts and background of the application which were given at the commencement of this ruling. Prof. Ssempebwa revealed that after successfully appealing in the Court of Appeal in Civil 7\ppeal No: 17 of 1998, the applicants were awarded costs to be paid by the Respondent in both the High Court and Court of Appeal which are not yet taxed.

Counsel for the applicant stated that one of the matters to be taken into consideration by a court hearing the application for further security for costs is the relative strength of the appeal of either party. The applicants have sworn affidavits which show that they believe that the Respondent which is a company in receivership may not be able to pay the costs if the appeal is unsuccessful. The applicants believe that the company is insolvent. Counsel further submitted that it was inevitable for the court to consider the chances of success of the Respondent. It was the view of the applicants in this case that the chances of success of a company in receivership are very low. Counsel enumerated and elaborated upon the principles which should guide the court as reflected in the decision of this same dispute in

the appeal was so advanced. In fact it is only a week or so a way before hearing. The application for further security for costs is for cash of 750,000,000 (Seven Hundred and Fifty million) shs. Counsel argued that there was no way the Respondent could raise that kind of money before the fixed date for the hearing of the appeal. He contended that any order given in respect of this application would prejudice the appeal itself. Counsel cited Premchand v. Quarry Services ltd, (1971) E. A 1972, to show that delay in making an application for further security for costs greatly affects the courts5 consideration. The onus of showing that such delay has not prejudiced the interests of the Respondent is on the applicant. Counsel cited Uganda Commercial Bank v. Multi Constructors Ltd , (supra), for his statement about delay.

Mr. Kavuma contended than the receivers/applicants had sold off the land illegally and therefore they should not take advantage of their own wrong-doing. It was his view that all the applicants in this application should not benefit by their wrongdoing. He supported this assertion with the case of Kaur a v. Morgan (1961) E. A. 462, from which he submitted that further security for costs will not be ordered where the applicant:s insolvency is shown to arise from what he alleges to be the wrongful act of the respondent. He also cited Mohammad Abdalla v. Patel, 1963 (E. A.) 447 , where such a rule is said to have been established. Counsel observed that it was not denied that the applicants sold and transferred all the assets of the Respondent to one of their number, namely, A. K. Detergents Limited, who was also a party to the^ fraud. The sale and transfer were not supposed to take place as the property was not charged. This is the very complaint to be decided on in the appeal. To allow this application would be licensing the applicants to benefit from their wrong-doing. Counsel wished it to be put on record that the Respondent has this far complied with all the orders of 'court including paying security for costs. The test in this application should not be the fact of receivership.

There are other principles to be taken into consideration. The G. M. Combined (U) Limited versus A. K. Detergents (U)Ltd, Civil Appeal No. 14 of 1995 (unreported) Prof. Ssempebwa also cited Namboro v. Kaala (1975 ) H. C. B. 315, Kampala Bottlers Limited v. Uganda Bottlers Limited, Civ, App. 16 of 1996 (unreported) to show the reasons why a court should consider the chances of success in an application.

Counsel for the applicants further submitted that the Respondent already owed costs claimed by the applicants in the sum of 150,000,000 shs. each. He pointed out that although the original suit was against A. K. Detergents Limited alone, it was by order of Court dated 29th June, 1994 that the other applicants had been joined to the Respondents/appiicants. They were therefore all entitled to costs as each of them have had to appear, instruct own counsel and defend in the suit. He concluded by stating that the fact that the Respondent is in receivership implies that it is impecunious. The applicants prayed that the Respondent be ordered to deposit shs. 150,000,000 as security for each applicant.

For the Respondent, its counsel, Mr. Kavuma Kabenge, opposed the application.

He contended that in an application like the present it was not Rule 100 (3) of the Rules of this court which applied but 8. 404 of the Companies Act (cap. 85). He was of the view that when one is proceeding under the Companies Act, the question of security for costs does not arise. He cited Uganda Commercial Bank v. Multi Constructors Ltd. S. C. CA 29/94 as authority for this proposition. It was Mr. Kavuma:s contention that the principles established by this court in G. M. Combined (U) Ltd v. A. K. Detergents (U) Ltd. , do not apply to the present application.

Counsel further submitted that the Chronology of the appeal shows clearly that the application for further security for costs was filed after the parties had agreed to and filed their written submissions in the appeal. In the result, this application came too late to affect the fixed date for hearing the appeal because

test should be failure to effect execution or for the applicants to show evidence that Respondent will not pay or an admission on its part that it is unable to pay. There has been no judicial consideration of the receivership. Counsel for the Respondent further argued that it would be unjust for this court to condemn the Respondent basing its decision on the receivership which has not been judicially investigated. He revealed that in fact there was a case pending in the High Court whose purpose was to challenge the legality of the receivership. He further contended that there have been no attempt on the part of the applicants to execute the judgment in the Court of Appeal nor have the costs been taxed. The 'skeleton? costs indicated in the application are highly exaggerated. For instance,, there is an item called costs for instructions to counsel which normally would be for shs. 6000, but counsel is now asking for rhe staggering figure of 96 million. Counsel submitted that the security for costs already paid in court, by the respondent namely, shs.400,000/= is adequate.

Counsel for the Respondent further submitted that the Respondent's case is very strong and that it may be because of this strength that the applicants are asking for further security for costs to frustrate the efforts of the Respondent in prosecuting the appeal before the Supreme Court. He cited Lalji Gangil v Nathoo Vasanjee (1960) (E. A.) 315, in support of this proposition. Counsel concluded by stating that Respondent has been through the whole process for the last five years of this case, fighting injustice, and has encountered various hurdles of orders for

security for costs, it was now his prayer that this court does not create yet another hurdle for this case. For as much as the applicants should not be penalised by actions of courts, the Respondent should not be penalised either. The respondent is interested in having this matter disposed of once and for all without further diversion. After counsel for the respondent had consulted with his clients, he revealed to court that his client would if so ordered, be able to find the money for security for

costs from outside Uganda, but he was still of the strong view that no order should be made for further security for costs as this would stifle the appeal.

It is always difficult in an application of this kind to come up with a decision that can please both sides, but a decision must be made. I want to thank counsel for both the applicants and the respondent for bringing out the relevant issues so clearly and for giving cogent reasons for their respective submissions.

Having listened to all the submissions and reviewed the leading authorities on further security for costs and bearing in mind, the costs already incurred and those likely to be incurred as the appeal in this case proceeds , I am satisfied that the applicants have made out, a convincing case for further security for costs. I took into account the very pertinent submission by counsel for the Respondent that in the interests of justice, this court or indeed, any court, should never, by its decision or order, fetter the ability of litigants to prosecute their cases to the limits permitted by law.

I have reviewed the authorities cited by counsel including Sangi v. Nathos (i960)E. A. 315, Posley!s Trustees v. whetham, (1886) 33 CH 76, Acor v. K. Ltd, (1997) 3 ALL. ER.377, Atulkumar Sumantbhai Patel v American Express International Banking Corporation, Civil Appeal No. 9 of 1989, (unreported), the Official Receiver and \_Liguidator of Sepal Ltd, v. Narandas nanji Chandrani (1961) E. A 107. I am satisfied that this application was properly brought under Rule 100 (3). I do not accept the submission by counsel for the Respondent that only S. 404 of the Companies Act applies here. In any event, even the invocation of the provisions of the Companies Act do attract security for costs. For instance, in Mawogola Farmers and Growers Ltd v. Kayanja and Others, (1971) E. A. 108, the respondents applied under Rules 60 of the East African Court of Appeal Rules and Section 404 of the Companies Act. (Cap. 85) for an order that the appellant should give security for costs of the application

for stay of execution. The application was granted. section 404 of the Companies Act provides

"When a limited company is plaintiff in any suit or other legal proceedings, any judge having jurisdiction in the matter may, if it appears by credible testimony that there is a reason to believe that the company will be unable to pay the costs., require sufficient security to be given for those costs, and may stay all proceedings until the security is given".

The argument by Mr. Kavuma that if the receivers had not sold the Respondent's property, it would have had sufficient funds to pay costs and that therefore they should not be allowed to benefit from their wrongdoing is untenable. In any insolvent proceedings, once the receivers are appointed, the ownership and control of the property of the insolvent passes onto the receivers. The fact that they are under a duty to exercise their powers diligently and lawfully does not, in any way, affect their ownership or control of the property concerned. Fraud was not proved. There is evidence in the record of proceedings alluded to by Counsel for the Respondent that the position of the receivers which arose out of the terms of the debentures was initially challenged in one case referred to on page 216 of the record of proceedings in the appeal which failed on appeal, and in another High Court Civil case, No: 705 of 1994 which was not prosecuted. Therefore, the receivers remained validitly appointed. Thus, in the G. M. Combined (U) Ltd's case (infra) at p. 208 the judgment, Oder J. S. C., observed:

'Thus, the claim that the sale was void and therefore the appellant still had right of title to the property was not tenable."

The leading authority on the matter of security for costs is G. M. Combined (U) Limited v A. K. Detergents (U). Limited, Civil Appeal No. 34 of 1995 (unreported), in which a full bench of this court (Manyindo, D. C. J., Odoki J. S. C., and Oder J. S. C.), unanimously established the principles under which security for costs may be granted' or denied to an applicant. These principles which are clearly set out in the leading judgment of Oder , J. S. C., were carefully narrated and elaborated upon by Prof. Ssempebwa,

Counsel for tne applicants and I them. Further on, at p. 22 of his agree with his exposition of judgment, the learned

Oder J. S. C. observes :

"The appellants1 precarious financial condition cannot be blamed on the respondents. what happened was that the respondents as debtors failed to pay under the debentures securing payment of such debts and the debenture holders called for payment which the appellants failed to do. The creditors then appointed Receivers under the debentures and the Respondent bought the appellants' assets from the Receivers. until the validity of the appointment of the Receivers or of the sale they made to respondents is nullified by the Court in the pending suit, the purchase remains valid

In the instant case, there is ample evidence, and the appellant admits, chat the appellant is under receivership because it could not pay its debenture holders; is under Liquidation proceedings because it was unable to pay a judgement creditor, is indebted to many creditors and is involved in a multiplicity of suits. None of these was brought about by the respondents conduct"

It is perhaps worth noting that the parties and circumstances referred to in the above passage of the judgment of this court have not changed except the vague promise of the respondent who was then the appellant, through his counsel, that he is in a position to get moneys from outside Uganda. If he has such, prospects then he should be in a position to find further security for costs.

Taking into account the foregoing, it was and is my opinion that the applicants are entitled to some reasonable further security for costs. This application is granted. That is why I granted the application and ordered the Respondent to pay further security for costs in the sum of Ug. shs. 50,000,000 (fifty million) for each applicant and the said sum of money shall be deposited in court before appeal No. 7 of 1998 can be heard by this court.

dated At MeNgO 3 0th NOVeMhek, 1998

Hon. justice ' f gTw. Kanyeiframba JUSTICE OF THE SUPREME COURT