Court name
Commercial Court of Uganda
Judgment date
17 November 2010

Bhanu International FZE & Anor. v Balteck Construction Co. Ltd (Misc. Appl. No. 585 Of 2010) (Miscellaneous Application-2010/585) [2010] UGCommC 39 (17 November 2010);

Cite this case
[2010] UGCommC 39


THE REPUBLIC OF UGANDA
IN THE HIGH COURT OF UGANDA AT KAMPALA
(COMMERCIAL DIVISION)
MISCELLANEOUS APPLICATION NO.
585 OF 2010

{Arising from Miscellaneous Application No. 347 of 2010 and Civil Suit No. 199 of 2010}


                  1.       BHANU INTERNATIONAL FZE  }
2.       BNS IMPORT & EXPORT CO. LTD }:::::::::::::APPLICANTS/PLAINTIFFS

 


VERSUS
 

BALTECK CONSTRUCTION CO. LTD.}:::::::::::RESPONDENT/DEFENDANT


BEFORE: HON. LADY JUSTICE IRENE MULYAGONJA KAKOOZA



RULING
The applicants brought this application under the provisions of Order 26 rule 2 of the Civil Procedure Rules (CPR) and s.98 of the Civil Procedure Act, as well as Order 52 rules 1 and 2 of the CPR. They sought for an order to set aside the dismissal of their HCCS No. 199 of 2010 and the costs of the application.

The application was supported by the affidavit of Jayantibhai Patel, the Managing Director of the applicant companies dated 14/10/2010. The respondent filed an affidavit in reply to oppose the application which was deposed on 8/11/2010 by Kumar Rajiv Sabharwal in his capacity as the Managing Director of the respondent company.

The background to the application was that on 31/05/2010, the applicants filed a suit against the respondent company claiming US$ 32,000 being consideration they had paid to the respondent company for the supply of cast iron metal. They also claimed interest and costs of the suit. The applicants are companies operating in India while the respondent is a company registered and carrying on business in Uganda. The respondent company filed a defence in the suit in which she raised a counterclaim against the applicants for US$ 32,028 being the outstanding balance on account of the price for cast scrap metal supplied to the applicants, per contract.

The respondent company thereafter applied for an order for security for costs against the applicants which was granted on 01/09/2010. By that order the applicants were required to deposit shs. 20m in court within 30 days of the order. They failed to do so and on the 5/10/2010 the Deputy Registrar dismissed their suit under the provisions of Order 26 (2) CPR. Immediately thereafter, she entered judgment against the applicants on the counterclaim upon which the respondents took out a decree requiring the applicants to pay US$ 32,028 and the costs of the suit. The advocates for the respondent company then filed their bill of costs on 6/10/2010.

They proceeded to tax their bill of costs by which they claimed shs. 20,287,700/=, which they had requested the Deputy Registrar to tax in their absence by their letter dated 6/10/2010. And on 28/10/2010 they filed an application for execution of the decree by arresting the Managing Director of the applicant. But before that, the applicants had filed this application in court on 15/10/2010.

In the affidavit in support of the application, Jayantibhai Patel, the Managing Director of the applicant companies averred that though an order for security for costs was made against the applicant companies on 1/09/2010, he had not yet obtained the amount of shs. 20m that the applicant companies were ordered to deposit. He averred that he had since then obtained the money and he was willing to deposit it in court. He attached a copy of a bank cheque issued by the Bank of Baroda (U) Ltd. for the said amount, dated 13/10/2010. He further averred that the applicants had a strong case that should be decided on its merits and asserted that they should not be denied justice merely on a technicality which he had since rectified.

In his affidavit in reply, Kumar Rajiv Sabharwal averred that the application brought by the applicants was frivolous and tainted with falsehoods and aimed at wasting the court’s time. He charged that instead of looking for the money required to deposit as security, the Managing Director of the applicant companies invested all his energy in instituting criminal proceedings against the Managing Director of the respondents for the offence of obtaining the sum of US$ 32,000 by false pretences. He further averred that the institution of criminal proceedings against the respondent’s Managing Director was meant to cause his prosecution and deportation back to India. A Photostat copy of a form for release of the said Kumar Rajiv issued by the Police at CID Economic Crimes Department on 20/08/2010 was annexed to the affidavit as “C”.

Mr. Rajiv Kumar further averred that the applicant’s suit was rightly dismissed for failure to deposit the amount required as security for costs because their Managing Director exercised no diligence in mobilising the funds required. That as a result, sufficient cause had not been shown that would justify the setting aside of the dismissal. He also averred that this application was an afterthought after the ploy to have the respondent’s managing director prosecuted and deported failed. Further that the application had been overtaken by events since the respondent already commenced execution proceedings to recover monies decreed against the applicants. He proposed that the applicants pay the monies that they intended to deposit as security for cost towards the respondent’s decree for US$ 32,000 and that the application be dismissed with costs.

When the application was called on for hearing on 9/11/2010, Mr. Enock Kiingi who represented the respondent company raised a preliminary objection in respect of which I promised to give a ruling in the final ruling on the application. I therefore now proceed to consider it.

Mr. Kiingi’s objection was that the application was not properly brought before court, because in his view, the applicants should have first sought for leave to extend the time within which to deposit security for costs under the provisions of Order 51 rule 2 CPR. He further argued that the applicants had not applied for re-instatement of the suit either and that the court could not grant to a party a relief that had not be requested for. He further submitted that the application had been overtaken by events since judgment and a decree had been entered in favour of the respondent on the counterclaim. He relied on the decision in the case of Orochi v. Kassim [1978] HCB 50 for his submissions.

In reply, Mr. Joel Olweny for the applicants prayed that the preliminary objection be overruled because Order 26 rule 2 does not envisage that an applicant thereunder has first to apply to have the judgment set aside. That the judgment entered in the case was meant to be an interlocutory one but following it a decree was issued. He charged that once an illegality is brought to the attention of court it supersedes all other pleadings. Mr. Muhumuza who appeared with Mr. Olweny added that the preliminary objection was premature because the applicants had not been given an opportunity to argue their application. He thus prayed that the advocates be given the opportunity to address court as to why they thought the applicants were entitled to the order sought for.

I reviewed the decision of Butagira, J. (as he then was) in Orochi v. Kassim which was cited by Mr. Kiingi. The case was one in which an application to set aside an ex parte judgment was considered but it was not stated in the report under what provisions the application was brought. It appeared to me that it was either under the provisions of Order 36 rule 3 or Order 9 rule 6 CPR, and I dared not assume that it was under the provisions of Order 26 rule 2 which is the subject of the present application. In any event I did not think that the decision applied to the circumstances of this case because Order 26 rule 2 CPR provides as follows: -


 
“(2) Where a suit is dismissed under this rule, the plaintiff may apply for an order to set the dismissal aside, and, if it is proved to the satisfaction of the court that he or she was prevented by any sufficient cause from furnishing the security within the time allowed, the court shall set aside the dismissal upon such terms as to security, costs or otherwise as it thinks fit, and shall appoint a day for proceeding with the suit.” {My emphasis}

That being the provision under which the application was brought, I could not read into it the prerequisite which Mr. Kiingi proposed, that the applicant should have first applied for extension of time within which to deposit the security. Moreover, he provided no authority for his submission. From careful reading of the provision it became clear to me that on an application under rule 2 of Order 26 CPR, the court may set aside the dismissal if any sufficient cause is shown. If the court is satisfied that there was sufficient cause for the failure to deposit the security as had been ordered, it sets aside the ex parte judgment and then appoints a day for the suit to proceed inter partes. After setting the dismissal aside it appears the discretion is left to the court to determine whether security should be paid or not.
 
I am fortified in my interpretation of the rule in question by the observations of Briggs, JA, in the case of Patrick Njoroge Ngumi v. Livingstone Wanji Muthui (1955) Vol 22. E.A.C.A. 43 at page 45 where he stated that:
 
“It is to be observed that, if the applicant can prove that he was prevented by any sufficient cause from furnishing the necessary security, the court is absolutely duty bound under Order XXV, rule 2 (2) to set aside the dismissal and ‘to appoint a day for proceeding with the suit.’”

Mr. Kiingi also sought to rely on the decision in the case of Kabu Auctioneers & Court Bailiffs & Another v. F. K. Motors Ltd., S/C Civil Application No. 29 of 2009 in which the applicants sought for an extension of time within which to deposit the security that had been ordered by the court on the ground that they had not yet obtained adequate security to comply with the order. In that case the court considered the provisions of rule 5 of the Rules of Supreme Court and allowed the extension to enable the applicants to obtain the security.
 
I think that the case of Kabu Auctioneers is very much different from the instant case in that in the latter, the applicants assert that they have since the expiry of the period in which they were ordered to deposit security obtained it. They attached a Photostat copy of a bank cheque drawn against the Bank of Baroda at Kampala for shs. 20,000,000/=, the whole of the amount that they were ordered to deposit, meaning that they only need a nod from this court to deposit it, upon which the suit would be able to proceed.

That being the interpretation of rule 2 of Order 26 CPR vis-

-vis the facts of the instant case, I am unable to dismiss the application on the basis of Mr. Kiingi’s preliminary objections and they are overruled. I shall now go on to consider the submissions that were made by both counsel on the application to set aside the judgment and the merits thereof.

In support of the application, Mr. Olweny submitted that the only issue to be determined in it was whether the applicants had shown that they was sufficient cause that prevented them from depositing the security as ordered. He repeated the contents of the affidavit that the applicants were still in the process of mobilising the funds when the time expired. Further that they had since obtained the money and were ready to deposit shs. 20m in court. That as a result, the interests of justice required that they should not be denied justice for a step in the case that they were ready and willing to rectify. He relied on the decision in Essaji & Another v. Solanki [1968] 1 EA 218 for the submission that the substance of disputes should be investigated on their merits. Further that the amounts of money involved in the dispute were large and justified a substantive hearing.

In reply, Mr. Kiingi argued that the applicants had not shown sufficient cause for the judgment to be set aside because their representative did not come to court to report that the applicants had not yet got the money required to deposit as security. He further submitted that the applicants did not demonstrate diligence because they ought to have deposited whatever they obtained to show that they were willing to comply with the order. He relied on the decisions in the cases of Marisa v. Uganda Breweries Ltd. [1988-90] HCB 132 and Alcon International v. Kasirye Byaruhanga & Co Advocates (for which he provided no citation) for the definition of the term “sufficient cause”.

Mr. Kiingi went on to submit that the application had been brought in bad faith because instead of looking for the money that the applicants had been ordered to deposit as security, their Managing Director instead proceeded under the criminal law against the respondent’s Managing Director with the intention of having him convicted and deported out of Uganda. He submitted that as a result, the applicants did not come to court with clean hands and therefore should be denied the orders they sought. He went on to assert that equity protects the vigilant and the applicants who had failed to report to court when they failed to find the money did not deserve the orders that they sought.

In rejoinder, Mr. Olweny submitted that the efforts to have the respondent’s Managing Director prosecuted were long before the suit was filed in court and the order for security for costs made. He further asserted that the applicants were within their rights to try and recover their claim through both civil and criminal proceedings. He further stated that the applicants were not indolent as was inferred by Mr. Kiingi, because they had now found the money and were willing to deposit it so that the suit could proceed.


 
I was unable to review the authorities that Mr. Kiingi relied on because he did not provide copies to the court and they were not readily available. But it appears that what needs to be decided in this application is whether the applicants have proved that there was sufficient cause that prevented them from depositing the required security in time. The Court of Appeal had occasion to define the expression “sufficient reason” in the terms of the Rules of the Court of Appeal in the case of Juliet Kalema v. William & Rhoda Kalema, C/A Civil Application No. 24 of 2004. In that case Byamugisha, JA relied on the decision of the Court of Appeal for East Africa in Mugo & Others v Wanjiru & Another [1970] 1 EA 481; where the court observed about the power to extend time within which to lodge an appeal that: -
 
“This is a very wide power limited only by the words “for sufficient reason” and has been the subject of numerous reported decisions of this court. Each application must be decided in the particular circumstances of each case but as a general rule the applicant must satisfactorily explain the reason for the delay and should also satisfy the Court as to whether or not there will be a denial of justice by the refusal or granting of the application.”

Spry, VP went on and ruled that: -

“Normally, I think, the sufficient reason must relate to the inability or failure to take the particular step in time, but I am not prepared to say that no other consideration may be invoked.”

I am very much aware that the applicants here did not directly apply for an extension of time within which to deposit security for costs as had been ordered by the learned Deputy Registrar of this court. However, the manner in which the application was couched left no doubt in my mind that it was their intention to lodge the required security, if only the judgment that had been entered against them were set aside. In addition, rule 2 (1) of Order 26 commends that interpretation of their application to me.
 
What amounts to sufficient cause for extension of time within which to deposit security for costs under Order 23 rule 2 (2) (now O. 26 rule 2 (2)} was partly the subject in Banco Arabe Espanol v. Bank of Uganda; Supreme Court C/A No. 8 of 1998. It is important to note that the application in that case had been challenged on authority of Patrick Njoroge Ngumi v. Livingstone Wanji Muthui (supra) where the Court of Appeal for Eastern Africa ruled that mere luck of funds is “not sufficient” under an equivalent of our Order 23 rule 2 (2) (now O.26 rule 2 (2) CPR. However, the Court of Appeal distinguished the circumstances in the Banco Arabe Espanol case from those in the Njoroge Ngumi case in that in the former, counsel had been under the mistaken belief that a bank guarantee would suffice instead of cash unlike in the Njoroge Ngumi case where the reason for offering the bond instead of depositing cash as security was set out with complete candour in an affidavit of the plaintiff; it was simply that he could not then raise the necessary money.

In the Banco Arabe Espanol case the Justices of the Supreme Court were agreed that the mistake of counsel that the substitute of a guarantee instead of cash, as well as the delay due to bureaucratic procedures of transmitting the money from Spain to Uganda amounted to sufficient cause for setting the dismissal of the suit aside within the terms of Order 23 rule 2 (2) CPR. What commends itself to my mind in the discussion in the Banco Arabe Espanol case is the finding that the decision of the court under then Order 23 rule 2 (2) was purely discretionary. If it was settled in the mind of the judge that by the facts stated in the affidavit the applicant had made out a case that amounted to sufficient cause, the application would be granted. The situation under the current Order 26 rule 2 (2) is therefore no different.

It would have been prudent for the applicants to report to court that they were still mobilising the resources to deposit in court but they omitted to do so. It would have also been prudent for them to apply for extension of time to lodge the security if they were experiencing difficulties in finding the money but they did not do so. However, they have now come to court to say that they have the money and they are willing to deposit it, forthwith, so that the suit can proceed on its merits.

While considering an application to set aside an ex parte judgment, in National Enterprises Corporation v. Mukisa Foods Ltd, C/A Civil Appeal No. 42 of 1997, Berko, JA. who wrote the lead judgment for the court ruled that the principle that should guide the court in such matters was one that was stated by Lord Atkin in the case of Evans v. Bartlam [1937] AC 437 at 480, that unless and until the court has pronounced judgment upon the merits or by consent, it is to have power to revoke the expression of its coercive power where that had only been obtained by failure to follow any of the rules of procedure. In the light of the above decisions, I would exercise my discretion to set aside the judgment on the grounds stated by the applicants in this application since they are now ready and willing to deposit security as was required by the respondents.


 
In addition to what was stated in the affidavit filed by the applicants in this application, I found that the learned Deputy Registrar had entered judgement on the respondent’s counterclaim in the suit, under the provisions of Order 8 rule 14 CPR. A decree had also issued on the basis of that judgment which the respondent was threatening to execute. In their counterclaim, which was filed on 8/06/2010, the respondent company claimed to have supplied goods for which a balance of US$ 32,028 was outstanding. Further that despite repeated demands to the plaintiffs’ Managing Director to pay the said balance and his written undertaking to pay he had refused or neglected to do so. The counterclaimant therefore prayed for an order for specific performance against the defendants to the counterclaim/plaintiffs in the suit, for the sum of US$ 32,028, general damages, interest at the commercial rate of 30% and the costs of the counterclaim.

The defendants to the counterclaim filed a reply to the WSD and counterclaim on 18/06/2010. In it they denied that US$ 32,028 was an outstanding balance from a larger sum and asserted that the whole contract in dispute was for the supply of cast iron scrap at a price of US$ 32,000. They further stated that the counterclaim did not disclose a cause of action against them and was aimed at diverting the court from the merits of their case. They prayed that the same be dismissed. That being the case, judgment could not be entered in favour of the defendant on the counterclaim for “the balance” as though the sum of UD$ 32,028 was not contested.

In addition, although the counterclaimants stated that they annexed a statement of account with the defendants to the counterclaim to show that US$ 32,028 was outstanding on the defendant’s accounts with them, the same was not annexed to the WSD and counterclaim. And although they also stated that the defendants to the counterclaim had agreed to pay the said amount to them they brought no credible evidence in that regard. Now Order 8 rule 4 provides as follows: -

 
“Where in any suit a setoff or counterclaim is established as a defence against the plaintiff’s claim, the court may, if the balance is in favour of the defendant, give judgment for the defendant for that balance, or may otherwise adjudge to the defendant such relief as he or she may be entitled to upon the merits of the case.”
 
In view of the facts that I have detailed above which were disclosed by the pleadings and the affidavits on record, I was not persuaded that the Deputy Registrar was justified in entering judgment for a balance of US$ 32,028 when the plaintiffs/defendants to the counterclaim failed to deposit the required security for costs in court. Rather she should have entered an order that the suit proceeds on the merits of the counterclaim under the second limb of Order 8 rule 14 which gives the court the power to “otherwise adjudge to the defendant such relief as he or she may be entitled to upon the merits of the case.” She also could have followed the provisions of Order 8 rule 13 CPR. This rule provides that in any case in which the defendant sets up a counterclaim, if the plaintiff’s suit is stayed, discontinued or dismissed, the counterclaim may nevertheless be proceeded with.
In the case of National Enterprises Corporation (supra), which was also an application to set aside an ex parte judgment, Berko, JA. had recourse to the decision in Anlaby v. Praetorius (1888) 20 QBD 764 at 769, where it was stated that: -
“There is a strong distinction between setting aside a judgment for irregularity, in which case the court has no discretion to refuse to set it aside and setting it aside where the judgment, though regular, has been obtained through some slip or error on the part of the defendant, in which case the court has discretion to impose terms as a condition for granting the defendant relief.”
The judgment that was entered in this case was definitely irregular. Since the defendants to the counterclaim had filed a defence in which they denied the counterclaim, a claim for the very amount which they claimed to have paid to the counterclaimant/defendant for goods but which they also claimed that the counterclaimant/defendant had failed to supply, it was incumbent upon the court to investigate these contradictory claims by taking the evidence of the counterclaimant to prove its claim. Because this was not done, I am of the opinion that the applicants are entitled to setting aside of the judgment entered against them ex debito justicae.

I also noted that in spite of the fact that the applicants had filed a reply to the written statement of defence and counterclaim on 18/06/2010, when she issued the decree which is dated 5/10/2010 following the irregular judgment, the learned Registrar stated that she had entered judgment in default on the sum claimed in the counterclaim because the applicants failed to file a defence to the counterclaim. This part of the decree was no doubt erroneous because she had entered the judgment under Order 8 rule 14 CPR, not Order Order 9 rule 6 which applies when a party fails to file a defence to a counterclaim. Due to this error the decree also falls; it would have fallen in any event because of the erroneous judgment.

I do therefore set aside the judgment and decree entered in favour of the respondent on the counterclaim and order that the applicants deposit in court the sum of shs. 20m as had been ordered by the Deputy Registrar, within 7 days of the date of this order. The main suit will then, in consultation of the parties with the clerk, be set down for a scheduling conference. The costs of this application shall be in the cause.

Irene Mulyagonja Kakooza
JUDGE
18/11/2010