Wakilii

Rwenzori Cotton Ginners Company Limited v Jinda International Textiles Co. Limited & 2 Others (Miscellaneous Application 3061 of 2023)

High Court · [2024] UGCOMMC 154 · 2024 Application Granted AI-generated summary ↓ Download Pin to watchlist Add to matter
Jurisdiction
Uganda
Case Type
Application for security for costs arising from a counterclaim in HCCS 35 of 2009
Decision
Application for security for costs granted; respondents ordered to provide security in one of four alternative forms within 45 days

Observed later treatment

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Holding

The court granted the application for security for costs. Held that the respondents' counterclaim was not demonstrably time-barred, frivolous or vexatious at this stage, but that multiple factors warranted security: the respondents' failure to pay previous costs awards, lack of assets in Uganda, the parties' debt status, unpaid court fees in the current cause, and the absence of a bilateral enforcement treaty between Uganda and China created a real risk that costs would not be recoverable if awarded. The court balanced this against access to justice and ordered security in a flexible form, allowing cash payment, bank lien, payment guarantee, or real property with equivalent forced sale value.

Outcome

Application for security for costs granted; respondents ordered to provide security in one of four alternative forms within 45 days

Facts

The 1st respondent obtained loans from ABSA Bank (USD 2,450,000) and Uganda Development Bank, secured by mortgages over property in Lira. Following default, the 1st respondent challenged the mortgages in HCCS 156/2008 but lost at trial and on appeal. A receiver was appointed. The applicant paid UGX 4 billion to ABSA and UGX 2 billion to UDB, and acquired the mortgages by transfer in 2014 and 2019 respectively. ABSA had earlier commenced HCCS 35/2009 against the 2nd and 3rd respondents (directors/guarantors). In September 2023, the 1st respondent was joined and filed a counterclaim alleging fraudulent/illegal transfer of the mortgages and seeking relief against the applicant. The applicant applied for security for costs, contending the counterclaim was time-barred, frivolous, and that the respondents lacked assets to satisfy a costs award, having failed to pay costs in prior litigation and being foreign nationals with no property in Uganda except the mortgaged land.

Issues

  1. Whether the respondents should be ordered to give security for the payment of costs incurred by the applicant in defending the counterclaim.
  2. Whether the respondents' counterclaim is time-barred by limitation.
  3. Whether the 1st respondent has capacity to prosecute the counterclaim given alleged receivership status.
  4. Whether the 1st respondent has capacity to prosecute the counterclaim given alleged striking off from the register of companies.
  5. Whether the respondents' counterclaim is frivolous, vexatious, and an abuse of court process.
  6. What form and quantum of security for costs should be provided if security is granted.

Orders

  • The respondents jointly and severally provide security to the quantum of UGX 350,000,000 for all costs as may be decreed to the applicant in defending the counterclaim in HCCS 35 of 2009 within 45 days from the date of this ruling.
  • The security shall be in any of the following forms: (i) payment into court of UGX 350,000,000; (ii) an irrevocable and unconditional lien on a bank account charging UGX 350,000,000; (iii) provision of an unconditional, unlimited on demand payment guarantee of UGX 350,000,000; or (iv) provision of real property with a forced sale value of UGX 350,000,000.
  • The main suit shall be called for mention within the 45 days for purposes of determining the appropriate security if the respondents elect an option under order (b).
  • Costs of this application are awarded to the applicant.

Rules and key headnotes

Security for Costs — Threshold for Grant — Multi-Factor Assessment
The grant of an order for security of costs before judgment is a judicial discretion guided by multiple factors including the prospects of success or merits of the proceedings, genuineness of the proceedings, impecuniosity of the claimant, whether impecuniosity is attributable to the defendant's conduct, whether an order would stifle proceedings, whether the proceedings involve public importance, whether there has been delay, the costs of the proceedings, proportionality, timing, whether a costs order would be enforceable within Uganda, and ease of enforcement in the claimant's country of residence.
Preliminary Objections — Limitation — Requirement for Evidence
A preliminary objection on limitation must be determined solely on the pleadings, assuming all facts pleaded by the opposing party to be correct. Where the determination of whether a claim is time-barred requires ascertainment of facts through evidence (such as when the cause of action arose), the issue is not suitable for determination as a preliminary objection and must be reserved for trial.
Receivership — Legal Capacity of Company — Continuation of Corporate Existence
During receivership, a company's corporate existence is not affected and the company's operations largely continue, except that legal control shifts to the receiver who directs operations and exercises the powers of the directors under section 181(2)(b) of the Insolvency Act. The powers and functions of directors are suspended for the period of receivership. Whether a receivership has ended in a non-court-based receivership requires evidence and cannot be determined summarily.
Striking Off — Distinction Between Striking Off and Dissolution
Until a company is dissolved in accordance with Regulation 43 of the Companies Regulations 2023, it remains in existence, albeit that it may not be entitled to carry on business if struck out under section 265A of the Companies Act. Striking off under sections 134 or 265A provides for restoration of the company, which would be inconsistent with a finding that striking off by itself alone constitutes cessation of the company's existence. Dissolution under Regulation 43(3) is the process that terminates corporate existence and cannot be reversed except perhaps by court order.
Security for Costs — Non-Payment of Previous Costs — Relevance to Grant
A party condemned to costs has a duty to make payment of the sum to the person in whose favour costs are adjudged. Although mechanisms exist for enforced recovery, a party ought to take it upon themselves to pay sums owed unless incapable of doing so at law. Failure to pay previously awarded costs, coupled with lack of assets in the jurisdiction, debt status, unpaid court fees in the current cause, and absence of an enforcement treaty with the party's country of residence, supports the grant of security for costs.
Security for Costs — Form of Security — Flexibility of Court's Discretion
An order for security for costs requires provision for a contingent liability. Where a party is in business, requiring cash security of a very high quantum may be unduly prejudicial. Courts have discretion to determine the most appropriate form of security depending on the circumstances, and may permit alternatives to cash such as bank liens, on-demand payment guarantees, or real property with equivalent forced sale value. This balances the need to secure the defendant's potential costs award against avoiding undue prejudice to the claimant's operations and ability to prosecute the case.

Legislation cited (14)

Cases cited (29)

  • Hellen Aloyo v Roy Ogwok (High Court Originating Summons No. 10 of 2013)
  • Amrit Goyal v Harichand Goyal (Civil Appeal No. 109 of 2004)
  • Kabaka of Buganda v Male Mabirizi (Civil Appeal No. 184 of 2017)
  • Deepak Shah & Ors v Manurama Limited & Ors (High Court Miscellaneous Application No. 361 of 2001)
  • Westmont Holdings SDN BHD v Central Bank of Kenya & 2 others [Petition No. 16 (E023) of 2021] (SCK)
  • Yaya Farajallah v Obur Ronald & Ors (High Court Civil Appeal No. 81 of 2016)
  • Lweza Clays & Another v Tropical Bank & Another (Supreme Court Civil Appeal No. 31 of 2018)
  • Mukisa Biscuit Manufacturing Co. Ltd v West End Distributors Ltd [1969] EA 696
  • Ssekabira Herbert v Ssuna Mulema & Anor (High Court Miscellaneous Application No. 186 of 2022)
  • Charles Sserunjogi v Tony Nkuubi (High Court Originating Summons No. 7 of 2019)
  • N. A. S. Airport Services v Attorney General [1959] EA 53
  • Rev George Lubega & Anor v Luwero Town Council & Anor (High Court Civil Suit No. 193 of 2009)
  • Re Joshua Shaw & Sons Ltd [1989] BCLC 362
  • Jodrell v Peaktone Ltd [2013] 1 WLR 784
  • John Garuga Musinguzi & Anor v Dr Chris Baryomunsi & Anor (High Court Miscellaneous Cause No. 817 of 2016)
  • King's College Budo Staff Savings Scheme Limited v Zaverio Samula & Ors (High Court Civil Suit No. 26 of 2020)
  • Deox Tibeigana v Vijay Reddy (High Court Miscellaneous Application No. 665 of 2019)
  • Uganda Land Commission and Another v James Mark Kamoga and Another (Supreme Court Civil Appeal No. 8 of 2014)
  • G.M Combined V A.K Detergents SC [1996] 1KALR 51
  • Ropani Investments Limited & Anor v DFCU Bank (High Court Miscellaneous Application No. 1919 of 2023)
  • Stanbic Bank Limited v Kesacon Services Limited & Anor (High Court Miscellaneous Application No. 724 of 2023)
  • Luwa Luwa Investments v URA (High Court Miscellaneous Application No. 1336 of 2022)
  • Luwa Luwa Investments v URA (High Court Civil Appeal No. 43 of 2022)
  • Harvey v Perpetual Nominees Ltd [2009] NSWSC 1379
  • Six Bruce Pty Ltd v Jadig Finance Pty Ltd [2018] VSC 552
  • Inglis v Commonwealth Trading Bank Of Australia [1972] HCA 74
  • Mavgalia Investments Pty Limited v BKSL Investments Pty Ltd & Ors [2017] NSWSC 490
  • Limpark Investments Pty Ltd v Macquarie Property Development Finance Ltd [2002] WASC 272
  • Mayanja v Wasswa & Anor (High Court Miscellaneous Application No. 44 of 2016)

Full judgment

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Rwenzori Cotton Ginners Company Limited v Jinda International Textiles Co. Limited & 2 Others (Miscellaneous Application 3061 of 2023) [2024] UGCommC 154 (3 May 2024)
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.