Non -Performing Assets Recovery Trust v General Parts Uganda Limited (Civil Appeal 45 of 1998) [1999] UGCA 45 (4 March 1999)

# THE REPUBLIC OF UGANDA

# IN THE COURT OF APPEAL OF UGANDA HOLDEN AT KAMPALA

### CORAM:

### HON. MR. JUSTICE G. M. OKELLO, J. A.; HON. MR. JUSTICE S. G. ENGWAU, J. A.; AND HON. MR. JUSTICE A. TWINOMUJUNI. J. A.

#### CIVIL APPEAL NO. 45 OF 1998

(Arising out of Civil Application No. 30 of 1998)

#### **BETWEEN**

#### NON. PERFORMING ASSETS RECOVERY TRUST:::::::::::::::::::::::::::::::::::

#### AND

## GENERAL PARTS (U) LTD::::::::::::::::::::::::::::::::::::

(Reference from A Ruling of a Single Judge Mpagi-Bahigeine, J. A.)

# **RULING OF THE COURT**

This is a reference to this Court from the decision of a single Judge (Mpagi-Bahigeine, J. A.) of this Court given on 16/12/98 ordering the applicant/appellant to deposit in Court additional sum for security for costs before Civil Appeal No. 20 of 1998 can be heard. The reference seeks an order of the court to vary and or reverse the decision of the single Judge. It (reference) was made under Section 13 (2) of the Judicature Statute No. 13 of 1996 and rule 54 (b) of the Court of Appeal Rules Directions 1996. (Legal Notice No. 11 of 1996).

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The background to the reference is briefly that, the appellant had obtained loan from UCB upon security of certain properties. When the appellant failed to repay the Ioan, UCB appointed Receivers and Managers in accordance with the loan, agreement to manage the mortgaged properties of the appellant. The appellant filed a suit in the High Court seeking to stop the activities of the Receivers. The activities of the Receiver were duly stopped. Not being happy with the stoppage. UCB filed a suit in the High Court for a declaration that the Receivers were properly appointed and that they should carry out their duties. The High Court made the declarations sought. The appellant appealed against that judgment. The appeal was fixed for hearing by this court.

In the meantime, the appellant applied to the High Court for stay of execution pending the disposal of the appeal. The High Court refused to grant the stay. In the course of the hearing, UCB which had already ceased to exist was struck out of the record leaving Non-Performing Assets Recovery Trust (NPART) as the respondent. The appellant filed a similar application for stay of execution in the Court of Appeal which granted a stay of execution in Civil application No. 27 of 1998 on 16/12/98 without any condition.

Unknown to this court however, a single judge of this court had on that same day upon application by the respondent granted an order that the appellant deposits a sum of 40 million shillings as additional security for costs before the pending appeal can be heard. The security for costs of Shs. $200,000/$ = required by law had been deposited by the appellant.

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The basis for the application for additional security for costs was that because of the uncertainties of the appellant's ability to pay costs of the appeal, it should deposit additional security for costs before the appeal can be heard. The single judge bought that view and ordered the appellant to deposit additional sum as stated above.

The appellant being dissatisfied with that order, applied for a reference of the case to this court. Hence this reference.

Two issues are raised in this reference:

- $[i]$ that the single judge misdirected herself on the burden of proof by shifting the burden to prove the inability of the appellant to pay costs of the appeal on the appellant when the burden should be on the person seeking the order for additional security for costs. - $[ii]$ that there was no evidence from which the single judge could have justifiably ordered for additional security for costs.

The two issues were argued together. Dr. Byamugisha, learned counsel for the applicant/appellant submitted that for an order for additional security for costs of appeal to be granted, the person seeking the order must prove that the appellant is unable to pay the costs of the appeal. For authority he cited Non-Performing Assets Recovery Trust Vs General Industries (U) Ltd,

Civil Application No. 25 of 1996 [CA] unreported which laid down the principle governing grant of additional security for costs of appeal to be that the burden to prove by affidavit evidence that the appellant is unable to pay the cost of the appeal is on the applicant. Mere averment that the security already deposited for costs was inadequate or that because the costs in the court below ordered in his favour had not yet been paid would not impose on the court or the judge any obligation to grant the application for additional security for costs.

Dr. Byamugisha contended that the single judge in the instant case was wrong by shifting the burden of proving the appellant's inability to pay costs of the appeal when she stated that:-

- $[i]$ failure of the appellant to prove the value of its mortgaged properties which it claimed was more than sufficient security for the loan and the costs of the appeal, raised inference of of the appellant's impecuniousness. - $-[ii]$ placement of the appellant company under Receivership was prima facie evidence of its inability to pay costs of the appeal.

In response, Mr. Nkuruziza, learned counsel for the respondent (NPART) conceded that proof of inability of the appellant to pay costs of the appeal is a necessity for the success of application for grant of additional security for costs. He also conceded that the burden of that proof normally lies on the

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person seeking the order for additional security for costs. He contended however, that there are certain circumstances when that burden may shift to the appellant. In Counsel's view, placement of the appellant company under receivership is one such circumstance. Once the applicant has shown by evidence that the appellant company has been placed under receivership, it is prima facie evidence of the appellant's inability to pay costs of the appeal and the burden shifts to the appellant to show that it is able to pay. For authority he cited G. M. Combined (U) Ltd Vs A. K. Detergent (U) Ltd, Civil Appeal No. 34 of 1995 [SC] unreported.

Counsel argued that in the instant case, the single judge was justified to infer impecuniousness on the part of the appellant first from the appellant's failure to give the valuation of its mortgaged properties and secondly from the appellant's placement under receivership. According to counsel, in those circumstances the burden of proof had shifted to the appellant to show that it was able to pay the costs of the appeal. It could only discharge that burden by showing the means by which it could pay the costs. Mr. Nkuruziza submitted that it was not enough for the appellant to simply state that it was able to pay.

We agree with the principle governing grant of additional security for costs of appeal laid down in *Non-Performing Assets Trust Case [supra]*. In that case the Court of Appeal cited with approval the following passage from the judgment of Grenn LJ in Stevens V Economic House Builders, Ltd [1938] 1 ALL ER 653:-

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"It has for a long time been the practice in this court that, where a respondent desires to obtain security for costs of an appeal, he must state in his affidavit facts which show the appellant's inability to pay such costs. It is not sufficient in a case of this sort merely to state that an application has been made to the appellant to pay costs of the action in the court below, and that such costs have not been paid. It is quite possible that an appellant may be unwilling to pay such costs although he be well able to pay them. I think it ought generally to be known that the mere failure by an appellant to pay the costs of an action is not, in the absence of facts showing his inability to pay them, sufficient grounds for making an order for security."

Counsel for both parties therefore rightly conceded to the principle. That is the established practice in the courts in this country.

Mr. Nkuruziza submitted that certain circumstances justify shifting the burden of proof to the appellant to show that he/she is able to pay the costs He relied on G. M. Combined (U) Ltd's case [Supra].

In that case, Oder JSC was considering on appeal the principles applicable to granting security for costs of a suit in the High Court under 023 r1 of the Civil Procedure Rules and Section 404 of the Companies Act. In his leading judgment the learned Judge stated as follows:-

$\epsilon$ "One thread that seems to run through all the authorities which I have considered above, is that a plaintiff's impecunious position and being under liquidation inter alia, are justifiable reasons to order for s.f.c, unless special circumstances exist for instance that the defendant admits liability; has made open offer to settle the suit, has paid money into court, the plaintiff's suit is frivolous or vexatious or has no reasonably good prospect of success or is not bona fide; or that such inability to pay has been due to the defendant's action etc.

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

On those grounds the order for security for costs made by the High Court was upheld.

It seems to us clear from the above quotation that evidence of being placed under receivership for inability to pay one's debenture holders or being under liquidation proceedings for inability to pay a judgment creditor was prima facie evidence of the plaintiff's inability to pay costs of the suit. And such evidence shifts the burden of proof to the plaintiff to show that he is able to pay costs of the suit.

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In the instant case, the single judge in her ruling said as follows:

"Regarding the respondent's assets which he claims are sufficient security, I hold that view that the fact that he has not attempted to provide the valuation thereof is evidence against him. In my view, this would raise an inference of impecuniosity which he is resisting to answer. If he has the means to pay, nothing is easier for him than to show that fact. The rejection of the High Court order tends to show want of means. I am further of the view that the fact that a Company could be placed under receivership is prima facie evidence that the assets of the Company will be in sufficient to pay the applicant's costs unless evidence to the contrary is given."

On the above grounds, the single judge ordered for additional security for costs. Dr. Byamugisha submitted that there is no evidence of the appellant being impecunious or in liquidation. He conceded however, that the receivers and managers were appointed under the loan agreement.

The evidence on this point is contained in paragraph 8 of Herbert Kwikiriza's affidavit evidence in reply dated 2<sup>nd</sup> December 1998. It reads:-

> "8. In reply to paragraph 8 of Haji Haruna Ssemakula's affidavit, I depose that the same has no basis since the Company just failed to furnish security as required by law. The same company is heavily indebted with all its assets

> > 8

mortgaged, under receivership and as such has no capacity to pay as deposed by Haji Haruna Ssemakula."

Clearly, there is evidence of receiver being appointed in respect of the appellant's mortgaged properties. However, this appointment of receiver is per se not evidence of the appellant's impecuniousness. We also do not agree that the appellant has failed to furnish security for costs as required by law. There is evidence that the 200,000/security for costs required by the Court of Appeal Rules had already been deposited.

We think that <u>G. M. Company (U) Ltd (supra)</u> is distinguishable from the case before us. That case was dealing with security for costs of original suit in the High Court while the present case is concerned with additional security for costs of appeal where the security for costs required by law has already been deposited. The conditions for grant of security for costs in these two situations cannot be the same. For additional security for costs of appeal the conditions are more stringent as the security for cost required by law is considered adequate. The appellant has to show that it is necessary to order for the additional security for costs. As was stated in *Non-Performing* Assets Trust Case (supra) assertion that the deposited security for costs required by law is inadequate is no ground for ordering for additional security.

The single judge in this case relied on the appellant's placement under receivership to infer the appellant's inability to pay the costs of the

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appeal. We think that being placed under receivership for not paying the debenture holders is not per se evidence that the Company is unable to pay for the costs of the appeal, nor is it a prima facie evidence that the assets of the Company will be insufficient to pay the applicant's costs. On the contrary, placement of the Company under receivership for not paying the debenture holders could only mean that it has failed to pay the debenture holders. That meant the receivers are appointed to manage the company's mortgaged properties to realise the monies due to the debenture holder from the Company. As was held in *Non-Performing* Asset Trust Case (supra) mere failure to pay does not mean inability to pay. It could be unwillingness to pay.

The single judge also inferred impecuniousness on the part of the appellant from the appellant's failure to give values of its mortgaged properties to show that it is able to pay the loan and the costs of the appeal. We think that the shift of the burden of proof to the appellant was not justified. First of all, the Titles and Valuation Reports on all those mortgaged properties of the appellant are with the applicant. It was up to him to show that from the Valuation Reports of the appellant's mortgaged properties, the appellant was not able to pay not only the loan but also the costs of the appeal. It is he who seeks the order for additional security for cost, so he must prove the inability. Even Section 101 of the Evidence Act would place the burden on him.

We think with respect, that there is no evidence of the appellant's inability to pay costs of the appeal to justify the order for additional security for costs. The order was therefore not justifiably made.

In the result, we allow the application. We set aside the order of the single judge and substitute it with an order dismissing the application for additional security for cost. The respondent shall pay the appellant's costs of this reference.

Dated at Kampala this. $\int_{1}^{15}$ day of $\frac{11}{15}$ . G. M. OKELLO **JUSTICE OF APPEAL**

S. G. ENGWAU

## **JUSTICE OF APPEAL.**

A. TWINOMUM $\acute{\text{E}}\ \text{OF}\ \text{APPEAL}$