Quasar Limited v Metro Petroleum Limited

plaintiff/respondent has engaged him in protracted litigation since May 2006, resulting in substantial legal expenses. He stated that the respondent’s counterclaim seeks Kshs.171,971,029.00 against both defendants as liquidated damages for an alleged unpaid debt owed by the 1st defendant, and that he filed a defence under protest on 30th August 2006 against the respondent’s claim. 3. Mr. Rajwani claimed that the respondent is insolvent and no longer conducts any viable business, and it would be unable to satisfy an award of costs should its claim be dismissed. He deposed that the respondent has multiple pending and concluded cases, outstanding debts, and unsatisfied judgments, all pointing to financial instability. He further cited several matters in which the respondent and its affiliated companies are judgment debtors. As a result, he expressed apprehension that if the respondent’s claim is unsuccessful, recovery of costs would be impossible, as the respondent has no known office or attachable assets. 4. In opposition to the application, the respondent filed a replying affidavit sworn on 6th December 2024 by Mr. Pankaj Somaia, the respondent’s Managing Director. Mr. Somaia averred that the application for security for costs is both premature and unjustified, as the respondent possesses sufficient financial capacity and legitimate grounds for instituting its counterclaim. He stated that the applicant failed to provide any credible evidence to support his apprehension, characterizing the application as a calculated attempt to hinder the respondent’s pursuit of justice. He maintained that an order of security for costs is discretionary and must be sought without delay, noting that the present application filed unreasonably late, nearly twenty (20) years after the counterclaim was filed. 5. Mr. Somaia disputed the computation of the sum of Kshs.3,779,565.44, asserting that the applicant had not shown how the figure was arrived at. He contended that mere assertions of insolvency are insufficient without supporting evidence and that the applicant had failed to prove the respondent’s alleged inability to meet potential costs. In response to the applicant’s reference to other cases and judgments involving the respondent, he explained that it is normal for a business entity to be involved in litigation, which does not in itself indicate financial distress or insolvency. He maintained that the respondent remains financially stable and capable of meeting its obligations, adding that even if it were of modest means, this should not hinder its right to pursue justice. 6. In a rejoinder, the applicant filed a further affidavit sworn on 20th January 2025 by Mr. Azim Jiwa Rajwani, the applicant herein. Mr. Rajwani averred that the respondent’s replying affidavit comprised mere denials and did not demonstrate any financial ability to meet potential costs arising from the counterclaim. He explained that the estimated sum of Kshs.3,779,565.44 was computed in line with Schedule 6 of the Advocates Remuneration Order, 2014, and was based on the respondent’s claim of Kshs.171,971,029.00. He clarified that the calculation took into account the prescribed percentages and included an additional interest component of Kshs.1,000,000/=, resulting in the total amount sought as security for costs. 7. Mr. Rajwani averred that he filed the instant application promptly after learning of the respondent’s financial difficulties in September 2024. He emphasized that the cases attached to his supporting affidavit were not random but served to demonstrate the respondent’s history of failing to settle legal fees and tax obligations, including suits with the Kenya Revenue Authority which were determined against it. He contended that these were clear indicators of the respondent’s precarious financial position. He averred that in light of the said situation, recovering costs would be highly unlikely if the counterclaim was to be dismissed. 8. The application herein was canvassed by way of written submissions. The applicant’s submissions were filed on 20th January 2025 & 25th March 2025 by the law firm of Odongo Okal & Company Advocates, https://new.kenyalaw.org/akn/ke/judgment/kehc/2025/18252/eng@2025-11-28 2

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whereas the respondent’s submissions were filed by the law firm of Muma & Kanjama Advocates on 5th March 2025. 9. Mr. Mukhwana, learned Counsel for the applicant submitted that there is a genuine risk that the applicant will be unable to recover costs that may be awarded against the respondent in the counterclaim. He relied on the case of Jayesh Hasmukh Shah v Narin Haira & another [2015] eKLR, and contended that the grant of an order of security for costs is discretionary and depends on factors such as the respondent’s financial position, availability of assets within the Court’s jurisdiction, ability to pay costs, and the general conduct of the parties. Counsel argued that the respondent’s weak financial position, evidenced by its involvement in multiple Court disputes and tax-related cases, warrants the granting of an order of security for costs. To support this contention, he cited the cases of Pankaj Somaia & Metro Petroleum Ltd v Kenya Revenue Authority & 2 others [2013] eKLR and Singh Gitau Advocates v Metro Petroleum Ltd [2019] eKLR, which demonstrate the respondent’s pattern of defaulting on financial and legal obligations. 10. Counsel contended that the respondent failed to refute the allegations of financial incapacity or to provide any evidence demonstrating its ability to meet any potential costs. He maintained that the instant application was filed promptly upon the applicant’s discovery of the respondent’s financial challenges in September 2024. Mr. Mukhwana argued that the respondent improperly joined the applicant to the counterclaim in his personal capacity, despite there being no evidence of personal dealings or any Court order lifting the corporate veil between him and the 1st defendant. He contended that this procedural impropriety undermines the respondent’s claim and heightens the likelihood of the counterclaim being dismissed. 11. Mr. Kanjama (SC), learned Counsel for the respondent submitted that the instant application fails to satisfy the legal threshold for an order of security for costs. He argued that the applicant’s claims of the respondent’s insolvency and lack of attachable assets were unproved, as no credible evidence had been presented to demonstrate the respondent’s alleged inability to meet potential costs if the counterclaim was unsuccessful. Senior Counsel maintained that the mere existence of pending or concluded suits involving the respondent does not amount to proof of insolvency, as litigation is a normal aspect of business operations. He relied on the decisions in the Supreme Court case of Gatirau Peter Munya v Dickson Mwenda Githinji & 2 others [2014] eKLR and the case of Stephen Kara Karianjahi v Josephine Mary Ryan & another [2022] KEHC 1391 (KLR), and asserted that the burden rests on the applicant to establish financial incapacity before a Court can issue an order of security for costs. 12. Mr. Kanjama (SC) submitted that the claimed sum of Kshs.3,779,565.44 was arbitrary and lacked evidentiary support, as the applicant failed to provide any documentary proof or bill of costs detailing how the figure was derived. He cited the decision in the case of Harswell Trading Limited v Kenya Revenue Authority [2012] KEHC 5883 (KLR), which underscores the requirement for a party to establish a factual basis for the amount sought. Counsel further submitted that the instant application was brought nearly twenty (20) years after the counterclaim was filed, with no reasonable explanation for the delay, hence it amounts to an afterthought and an abuse of the Court process. He urged this Court to dismiss the instant application with costs to the respondent. 13. In a rejoinder, Mr. Mukhwana submitted that the applicant demonstrated through uncontroverted evidence and annexed documents, that the respondent is no longer operational, has no known office, business, or attachable assets, making it incapable of meeting any costs should its counterclaim fail. He argued that the respondent’s omission to produce financial statements or any proof of ongoing business operations further underscores its precarious financial position. Counsel relied on the case of Patrick Ngeta Kimanzi v Marcus Mutua Muluvi & 2 others [2013] KEHC 3481 (KLR), and further submitted that the purpose of an order for security for costs is to safeguard a successful party from https://new.kenyalaw.org/akn/ke/judgment/kehc/2025/18252/eng@2025-11-28 3

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being left without recompense. He contended that in light of the respondent’s circumstances, failure to grant the order being sought herein would deprive the applicant of an effective remedy for recovery of costs if successful in the counterclaim. 14. Mr. Mukhwana contended that the delay in filing the instant application was due to the respondent’s failure to serve the applicant with the pleadings and the application through which he was joined to this suit. He stated that the applicant only obtained these documents in April 2024 after making a formal request. For the said reason, he maintained that the instant application was filed timeously upon receiving the necessary pleadings. He argued that granting the orders being sought would not occasion any prejudice to the respondent as the security amount would be deposited in a joint interest-earning account, thereby safeguarding the funds. ANALYSIS AND DETERMINATION. 15. I have considered the application filed herein, the grounds on the face of it and the affidavits filed in support thereof. I have also considered the replying affidavit filed by the respondent and the written submissions by Counsel for the parties. The issue that arises for determination is whether an order for the deposit of security for costs should be granted. 16. Security for costs is provided for under the provisions of Order 26 Rule 1 of the Civil Procedure Rules, 2010, which states as follows In any suit the court may order that security for the whole or any part of the costs of any defendant or third or subsequent party be given by any other party. 17. In determining an application for security for costs, Courts must exercise their discretion judiciously to ensure a fair balance between the parties. The purpose of such an order is to safeguard a party who has a legitimate concern that if successful, it might be unable to recover its legal costs or enjoy the fruits of its judgment from the losing party. This discretion must however be exercised judiciously and not arbitrarily, while taking into account the circumstances of each case. 18. In the case of Anitha Karuturi & another v CFC Stanbic Bank Limited & 4 others [2020] KEHC 10204 (KLR), the Court in allowing an application for security for costs held that Whether or not the provisions for security for costs are justified under the Constitution was considered by the Court of Appeal in Gatirau Peter Munya v Dickson Mwenda Githinji & 2 Others (Supra) where it was argued that an order for security for costs would impede the right of access to justice. The court stated as follows: “The rationale for security for costs is to ensure firstly, that a party is not left without recompense for costs that might be awarded to him in the event that the unsuccessful party is unable to pay the same due to poverty; secondly, it ensures that a litigant who by reason of his financial ability is unable to pay costs of the litigation if he loses, is disabled from carrying on litigation indefinitely except on conditions that offer protection to the other party. In Noor Mohamed Abdulla v Ranchhodbhal J. Patel & Another [1962] E.A. 448, it was held: The order for security for costs in such a case is not directed towards enforcing payment of the costs as such, but is designed to ensure that a litigant who by reason of near insolvency is unable to pay the costs of the litigation when he loses, is disabled from carrying on the https://new.kenyalaw.org/akn/ke/judgment/kehc/2025/18252/eng@2025-11-28 4

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litigation indefinitely except upon terms and conditions which afford some measure of protection to the other parties. It is therefore imperative in consideration of an application for security of costs, for the court to balance the competing rights of the parties, that is the right to access to justice and the right to security for costs. Article 24 (1) (d) of the Constitution, provides: 24 (1) A right or fundamental freedom in the Bill of Rights shall not be limited except by law, and then only to the extent that the limitation is reasonable and justifiable in an open and democratic society based on human dignity, equality and freedom, taking into account all relevant factors including…………………….. (d) the need to ensure that the enjoyment of rights and fundamental freedoms by any individual does not prejudice the rights and fundamental freedoms of others; ………………………………” (Emphasis added) 19. In this case, the applicant asserts that the respondent is financially distressed and no longer operates any active or sustainable business. It is the applicant’s position that the respondent has several pending and concluded suits, and unresolved debts. The applicant maintained that if the respondent’s counterclaim was to fail, recovering costs would be impracticable since the respondent lacks a known office, active business operations, or attachable assets. 20. The respondent however argued that the applicant had not produced any credible evidence to substantiate his claims. It maintained that mere allegations of insolvency without proof, cannot justify an order for security for costs and that the applicant had not demonstrated any real inability on the respondent’s part to meet potential cost obligations. While acknowledging that it was involved in several Court matters as cited by the applicant, the respondent explained that such litigation is a normal aspect of doing business and does not by itself, signify financial distress or insolvency. The respondent asserted that it remains financially sound and capable of fulfilling its obligations, emphasizing that even limited financial resources should not deprive it of its right to access justice. 21. In determining whether to grant the orders being sought by the applicant, this Court must weigh whether the apprehension expressed by the applicant is reasonable and based on cogent evidence, and whether ordering a deposit of security for costs would be just and equitable in the circumstances of this case. 22. The Court in the case of Barrack Ofulo Otieno v Instarect Limited [2015] KEHC 3855 (KLR), in dismissing an application similar to the instant one held as follows– The discretion to order for security for costs is to be exercised reasonably and judicially by taking into consideration to the circumstances of each case. Such matters as; absence of known assets within the jurisdiction of court; absence of an office within the jurisdiction of court; inability to pay costs; the general financial standing or wellness of a party; the bona fides of the party's claim; or any other relevant circumstance or conduct of the party. Such conduct will include activities which may hinder recovery of costs, for instance recent closer (sic) or transfer of bank accounts, and disposal of assets. The conduct of the adverse party or rather the applicant includes, filing of application for security for costs as a way of oppressing or obstructing the other parties claim. https://new.kenyalaw.org/akn/ke/judgment/kehc/2025/18252/eng@2025-11-28 5

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23. Once a party’s financial soundness is called into question, the burden shifts to that party to prove that it is legally sound. In this case, the applicant’s obligation was merely to allege that the respondent is financially unstable, as he has done. Thereafter, it became incumbent upon the respondent to demonstrate among other things, that it is financially solvent, maintains a known place of business, is actively engaged in operations, and possesses attachable assets sufficient to satisfy any costs that may be awarded to the applicant should the counterclaim be dismissed. 24. Apart from making bare denials, the respondent failed to produce any bank statements, audited financial reports, or other documentation to prove its solvency or ongoing business operations. Similarly, no evidence was presented to show that it maintains a known office or that it is actively conducting business. In the circumstances, this Court finds that these omissions strengthen the applicant’s apprehension that should he succeed in the counterclaim, recovering costs from the respondent may prove difficult, if not impossible. 25. It is not in contest that an application for security for costs is brought when a party suspects or becomes aware that the opposing party may be unable to meet an adverse costs order if unsuccessful. The applicant submitted that the instant application was filed upon discovering the respondent’s financial difficulties in September 2024. In my view, this explanation adequately accounts for the timing of the application filed in 2024, rather than in 2006 when the order joining the applicant to the suit was made. 26. Having considered the totality of the circumstances of this case, I am satisfied that the applicant has established a reasonable apprehension that he may not be able to recover costs if the counterclaim fails. In order to balance the rights of both parties and ensure fairness, it would be just and appropriate to order that the respondent provides security for costs. 27. When determining the amount to be provided as security for costs, the Court may order any sum up to the total amount claimed as security, provided it is more than a mere nominal figure, though the Court is not obliged to order a substantial amount. The applicant claims Kshs.3,779,565.44 as estimated party-and-party costs, computed in reference to the respondent’s counterclaim of Kshs.171,971,029.00 and guided by Schedule 6 of the Advocates Remuneration Order, with a detailed explanation of how he arrived at the sum of Kshs.3,779,565.44. The respondent on the other hand has not proposed any amount contrary to the applicant’s suggestion. 28. In the premise, I am satisfied that the sum of Kshs.3,779,565.44 being security for costs will not only be reasonable but also appropriate as costs in defending the respondent’s counterclaim. 29. The upshot is that the application dated 20th September 2024 is merited. It is hereby allowed in the following terms i. The respondent is hereby ordered to deposit Kshs.3,779,565.44 into an interest earning bank account in the joint names of the Advocates for the parties herein, within thirty (30) days from today as security for costs in favour of the 2nd defendant/applicant in the counterclaim; ii. In default of compliance with order No. (i) above, the respondent’s counterclaim shall stand dismissed with costs to the applicant; and iii. Costs of this application are awarded to the applicant. It is so ordered. DATED, SIGNED AND DELIVERED AT NAIROBI ON THIS 28TH DAY OF NOVEMBER 2025. RULING DELIVERED THROUGH MICROSOFT TEAMS ONLINE PLATFORM. NJOKI MWANGI https://new.kenyalaw.org/akn/ke/judgment/kehc/2025/18252/eng@2025-11-28 6

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JUDGE In the presence of:Ms Kathurima holding brief for Mr. Kanjama SC for the 1st defendant in the main suit & for the plaintiff in the counterclaim Ms Okal for the 2nd defendant/applicant Ms Onyango holding brief for Mr. Otieno for the plaintiff in the main suit and 1st defendant in the counterclaim Ms B. Wokabi - Court Assistant. https://new.kenyalaw.org/akn/ke/judgment/kehc/2025/18252/eng@2025-11-28 7

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