G.M Combined Limited v A.K Detergents Uganda Limited (Civil Appeal 34 of 1995)

Supreme Court · [1996] UGSC 11 · 1996 Appeal Partly Allowed ✦ AI-generated summary ↓ Download

Jurisdiction

Uganda

Case Type

Civil appeal from a High Court order requiring the appellant (plaintiff below) to furnish security for costs

Decision

Order for security for costs upheld but reduced from Shs. 50 million to Shs. 30 million; proceedings in the suit stayed until security is paid

The full judgment

Read the complete, verbatim text of this judgment.

Cited — treatment unverified cited in 1 (treatment unverified) Derived from citing cases in the Wakilii corpus — not an assertion that this case is good law.

AI-generated summary. This summary was generated by AI from the full text of the judgment. It may contain errors or omissions — always read the source judgment before relying on it.

Holding

The Supreme Court held that the discretion to order security for costs under Order 23 r.1 of the Civil Procedure Rules and s.404 of the Companies Act requires the court to weigh the prima facie merits of both parties' cases on the pleadings and affidavits. A limited company plaintiff's impecuniosity and being in receivership/liquidation justify ordering security unless special circumstances exist (admission of liability, open offer, payment into court, a frivolous or non-bona fide suit, or want of means caused by the defendant). Finding the appellant's suit lacked a good prospect of success and that its financial position was not caused by the respondent, the order was justified. The appeal was allowed only on quantum, the security being reduced from Shs. 50 million to Shs. 30 million.

Facts

The appellant company filed a High Court suit against the respondent to recover immovable property in Kampala, alleging the respondent had acquired it by fraud and seeking an injunction. The respondent's defence was that it had lawfully purchased the appellant's movable and immovable assets, including the suit property, for value and in good faith from duly appointed receivers, and that titles were duly transferred. After pleadings closed, the respondent applied under Order 23 r.1 of the Civil Procedure Rules and s.404 of the Companies Act for an order that the appellant give security for costs, on the ground that the appellant's continued existence was uncertain and it was unlikely to meet costs. The appellant was in receivership for failing to pay its debenture holders, was the subject of a winding-up petition, was indebted to many creditors and involved in multiple suits. The trial judge ordered the appellant to furnish Shs. 50 million as security and stayed the suit until payment. The appellant appealed.

Issues

Whether the trial court erred in failing to consider the merit and prospects of success of the appellant's (plaintiff's) case before ordering security for costs.
Whether the trial court applied wrong principles, in particular whether the appellant's inability to pay security for costs had been caused by the respondent's conduct.
Whether the trial court's decision was vitiated by bias or prejudice against the appellant.
Whether the trial court erred as to the mode and quantum of the security for costs it ordered.

Orders

Appeal partly allowed.
The High Court order requiring security for costs of Shs. 50,000,000/= is set aside and a sum of Shs. 30,000,000/= substituted.
The appellant shall not proceed with the suit in the High Court until the security for costs is paid into court.
The security for costs is to be paid into court within thirty (30) days from the date of the judgment.
The respondent shall have four-fifths of the costs of the appeal and in the court below.

Key headnotes

Civil Procedure — Security for Costs — Court's Discretion under Order 23 r.1 and s.404 of the Companies Act

The power to order a plaintiff to give security for costs under Order 23 r.1 of the Civil Procedure Rules and s.404 of the Companies Act is discretionary; the discretion under Order 23 r.1 is wider and applies to any plaintiff if the court deems fit, while s.404 applies only to limited-company plaintiffs and is exercisable once credible testimony shows the company will be unable to pay the defendant's costs if successful.

Company Law — Limited Company Plaintiff — Impecuniosity, Receivership and Liquidation as Grounds for Security for Costs

A limited company's inability to pay costs, including where it is in receivership or liquidation, is prima facie a justifiable reason to order security for costs, unless special circumstances exist such as an admission of liability, an open offer or payment into court, a frivolous or non-bona fide suit with no reasonable prospect of success, or want of means caused by the defendant's own conduct.

Civil Procedure — Security for Costs — Relevance of the Merits and Prospects of the Parties' Cases

In deciding whether to order security for costs the court must assess the prima facie merits of both the plaintiff's and the defendant's cases on the basis of the pleadings, affidavits and other available material; a strong prima facie presumption that the defendant has no defence may justify refusing security, as it may be a denial of justice to require security against a plaintiff facing a defendant with no defence.

Civil Procedure — Security for Costs — Plaintiff's Want of Means Caused by the Defendant

Where a plaintiff company's want of means has been brought about by the defendant's conduct the court may decline to order security for costs; however, this does not extend to a case where the plaintiff's impecuniosity results from its own default to debenture holders and the consequent sale of its assets by receivers to the defendant.

Civil Procedure — Security for Costs — Assessment of Quantum

The amount of security for costs is in the court's discretion, fixed at such sum as is just having regard to all the circumstances; security is not ordered on a full indemnity basis but is not confined to costs already incurred, and the Advocates (Remuneration and Taxation of Costs) Rules are among the factors to be taken into account in estimating quantum.

Civil Procedure — Security for Costs — Section 404 Not to Be an Instrument of Oppression

While the court must not allow s.404 to be used as an instrument of oppression to stifle a genuine claim by a small company against a larger one, it must equally not permit an impecunious company to use its inability to pay costs to put unfair pressure on a more prosperous opponent.

Legislation cited (9)

Civil Procedure Rules Order 23 r.1
Companies Act (Cap. 85) s.404
Companies Act (Cap. 85) s.227
Companies Act (Cap. 85) s.228
Companies Act (Cap. 85) s.229
Civil Procedure Rules Order 39 r.4
Advocates (Remuneration and Taxation of Costs) Rules 1982
Supreme Court Rules rule 104(3)
Supreme Court Rules rule 84(1)

Cases cited (15)

Procon (GB) Ltd V Provincial Building Co. Ltd (1984) 2 All E.R. 368
Sir Lindsay Parkinson & Co. Ltd V. Triplan (1973), 1 QB. 609
Anthony Namboro and Fabiano Waburolio V. Henry Kaala (1975) HCB. 315
Uganda Commercial Bank v Multi Constructions Ltd (Civil Appeal No. 29 of 1994)
Siri Ram Kaura V. M.J.E. Morgan (1961) E.A 462
Bilcon Ltd. V. Fegmay Investments Ltd (1966) 2 All E.R (Q.B.D) P. 513
Pure Sprit Co. V. Fowler (1980) QB
John Bishop (Caterers) Ltd and Anor V. National Union Bank Ltd & Others (1973) 1, All E.R. 707
Pearson and Another V. Naydler and others (1977) 3 All ER, 531
Lalgi Gangi V. Nathoo Vassanjee (1960) EA 315
Moor Mohamed Abdullah V. Ranchhobhai J. Patel And Another (1962) EA 447
Premchard Raichand Ltd and Another V. Quarry Services of East Africa Ltd and others (1) (1971) EA 172
Mawogola Farmers and Growers Ltd V. Kayanja and Others (1971) EA 108
Highlands Commercial Union Ltd V Abdul Mapek (1957) EA, 641
Saw man & others V. David Daniel Trust Ltd and another (1978) 1, All. ER at page 621

Source: this page presents Wakilii’s issue analysis and metadata for a publicly reported Ugandan judgment. Any AI-generated summary is marked as such. Judgment text is sourced from the Uganda Legal Information Institute (ulii.org). Wakilii is not affiliated with ULII.