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Court of AppealPartially AllowedCivil Appeal (pending) - two summonses consolidated with applications in Civil Appeal No. 39 of 1998· [1998] KECA 167 (KLR)

Trade Bank Limited (In Liquidation) v L.Z. Engineering Construction Limited & 2 Others [1998] KECA 167 (KLR)

Court of Appeal of Kenya
12 June 1998
ALA.A. Lakha
3,128 words in judgment
View original judgmentRead on Kenya Law Watch case
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The bottom line

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Kenya's Court of Appeal ruled that an insolvent company appealing a case must deposit money as security for the winners' legal costs or lose its appeal automatically.

What this practically means

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Executive summary

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This is a ruling of the Court of Appeal (Lakha, JA) on two consolidated summonses, further consolidated with similar applications in pending Civil Appeal No. 39 of 1998, by which the successful plaintiff, L.Z. Engineering Construction Limited, and the second defendant, Yaya Towers Ltd, sought security for the costs of an appeal, and for costs already awarded in the superior court, against the appellant, Trade Bank Limited (in liquidation). The underlying action concerned a property development venture, Yaya Towers, and an agreement for the sale of the entire share capital of Yaya for Shs 600 million, with a counterclaim for specific performance. The appellant opposed security on the basis that, as a company in compulsory liquidation that had obtained leave under section 241 of the Companies Act to appeal, it deserved special treatment, relying on three English authorities concerning unlimited companies and misfeasance summonses. The court held that the power under rule 104(3) of the Court of Appeal Rules is discretionary; that the appellant's insolvency opened the jurisdiction and was a substantial factor in favour of an order; that leave to institute the appeal was no impediment; and that the English authorities were of no value on these facts. The court balanced the risk of oppression against the danger of allowing impecuniosity to be used as a weapon, and ordered security of K.Shs 30 million for the first respondent and Shs 3 million for the second respondent, to be deposited in cash within 30 days, staying both appeals and directing that they stand dismissed with costs in default of compliance. Each applicant was awarded the costs of the application.

Key legal issues

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01

Whether security for costs should be ordered against an appellant company in compulsory liquidation

Holding

Yes. The appellant was admittedly in liquidation and hopelessly insolvent; prima facie a company in liquidation is unable to pay costs unless the contrary is proved, and none of the English authorities relied on availed the appellant.

Reasoning

The court held that rule 104(3) confers a discretion exercisable on all the circumstances. The English cases on unlimited companies and misfeasance summonses were of no value to the objection. Leave under section 241 of the Companies Act did not oust the power to order security. Insolvency opened the jurisdiction and was a substantial factor favouring an order, subject to guarding against oppression of a genuine small claimant.

p. 4
02

The principle for determining the quantum of security

Holding

Security should be in the sum the court considers just, being an estimate of the taxed costs likely to be recovered on a party-and-party basis, discounted for the uncertainties of litigation.

Reasoning

The court held that the applicant should place material before the court enabling an estimate of costs; the court will normally discount the figure asked for, since taxed costs rarely emerge unscathed from taxation. Where most costs have already been incurred and are supported by a bill and affidavit, justice may demand an estimate based on what the applicants are already out of pocket. The precise figure rests on the judge's discretion and 'feel' of the case.

p. 4
03

Consequences of non-compliance with an order for security for costs

Holding

The appeal is stayed pending compliance and, in default within the stipulated period, stands dismissed with costs without further orders.

Reasoning

Following Mawagola v Kayanja and Kaura v Morgan, the court coupled the security order with a stay and an automatic dismissal sanction, ensuring the order is effective rather than merely declaratory. The same mechanism was applied to the consolidated Civil Appeal No. 39 of 1998.

p. 5

Legal principles established

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  • The power under rule 104(3) to order security for costs is discretionary, not mandatory, and is exercised after considering all the circumstances of the case.
  • Leave granted to a liquidator under section 241 of the Companies Act to institute an appeal is no impediment to an order for security for costs.
  • Where a respondent shows that an appellant, if unsuccessful, will be unable through poverty or insolvency to pay the costs of the appeal, the practice is generally to order security for costs.
  • The court must not allow the security-for-costs rule to be used as an instrument of oppression, nor be so reluctant to order security that impecuniosity becomes a weapon of unfair pressure.
  • Inability to pay costs opens the jurisdiction under rule 104(3) and is also a substantial factor in deciding whether to exercise the discretion.

Court orders

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  1. 1.The appellant company to give security for the first respondent's costs in the sum of K.Shs 30 million
  2. 2.The appellant company to give security for the second respondent's costs in the sum of Shs 3 million
  3. 3.Security to be deposited into court in cash within 30 days
  4. 4.This appeal and Civil Appeal No. 39 of 1998 stayed pending compliance with the order for security
  5. 5.In default of compliance within the stipulated period, both appeals to stand dismissed with costs without further orders
  6. 6.Each of the applicants to have the costs of this application
  7. 7.Civil Appeal No. 39 of 1998 to stand dismissed with costs without further orders in default of compliance with the order for security

Authorities

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Legislation

  • Rules of this Court (Court of Appeal Rules)Rule 104(3)
  • Companies Act, Cap. 486Section 241
  • Banking Act, Cap. 488Section 36
  • The Limitation Act

Cases cited (7)

  • United Ports and General Insurance Company vs Hill and Another
    (1870) L.R. 5 Q.B. 395
  • Re W. Powell & Sons
    (1896) 1 Ch. 681
  • Re Strand Wood Company Ltd
    (1904) 2 Ch. 1
  • Cowell v Taylor
    (1885) 35 Ch. D. 34
  • Abdulla v Patel & Another
    [1962] E.A. 447
  • Mawagola v Kayanja
    (1971) E.A. 108
  • Kaura v Morgan
    (1961) E.A. 462
On appeal from
High Court of Kenya
Jurisdiction invoked
Rule 104(3) of the Court of Appeal Rules (security for costs in a pending appeal)

Key timeline

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Practical implications

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Frequently asked questions

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Cite this brief

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Cite this brief

Caselaw, "Trade Bank Limited (In Liquidation) v L.Z. Engineering Construction Limited & 2 Others [1998] KECA 167 (KLR)", Case Analysis (1998). Civil Appeal (pending) - two summonses consolidated with applications in Civil Appeal No. 39 of 1998. Source: https://new.kenyalaw.org/akn/ke/judgment/keca/1998/167/eng@1998-06-12

Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.