High Court of Justice and Business courts of England and Walesking’s bench division commercial court (KBD)
Court in London has dismissed a petition in which DFCU Bank Limited and 14 others [defendants]were calling for provision of security of their costs and case management conference by Crane Bank Limited [CBL] as CBL and six others [claimants]lodged a case against them following the Bank of Uganda [BoU] transfer of assets and liabilities of CBL in 2017 through fraudulently, to DFCU Bank Limited.
CBL and other claimants, including Sudhir Ruparelia, the Chairman and a major shareholder of CBL, allege that senior Ugandan government officials and officials of the BoU on October 20, 20216, engaged in a corrupt scheme to take control of CBL, making improper use of statutory and regulatory powers to do so, and then to sell its assets for the benefit of the parties to the scheme. The claimants allege that DFCU Bank Limited, the first defendant joined the corrupt scheme as purchaser of its assets from the BoU, acting as the first claimant’s receiver, the purchase being, it is alleged, at a gross undervalue [as only Shs200 billion was agreed between BoU and DFCU Bank Limited]. The other defendants [including DFCU Limited and Jimmy Mugerwa who was the chairman of DFCU Bank Limited among others]are also alleged to have joined the scheme.
Therefore, CBL and other claimants would later drag the DFCU Bank and other defendants to court in London seeking for compensation, although DFCU Limited is adamant to concede.
However, DFCU Bank and other defendants in their application to the London court reasoned that CBL will be unable to pay its costs if ordered to do so, if it lost the case, although court said Sudhir was very rich to pay the said costs in instance the case went against the claimants, thus dismissing their application for security of the case costs. “For the reasons I have given, the applications for security are dismissed. I would be grateful if counsel could draw up an appropriate order which will need to include the undertakings by the Second Claimant (Ruparelia) to the Court to discharge any costs orders made against the Claimants and to give a written personal guarantee covering such liabilities.”
“There are now before me six applications made by various groups of defendants pursuant to CPR 25.13(1)(a) and CPR 25.13(2)(c) for orders that the first claimant provide security for their costs up to and including the case management conference. The applications are made on the grounds that the first claimant is a company, that there is reason to believe that it will be unable to pay its costs if ordered to do so, and that it is just in all the circumstances of the case for security to be ordered,” explained Stephen Hofmeyr sitting as Judge of High Court in London in London, UK.
“The power of the court to order security for costs derives from CPR 25.13: In the exercise of its discretion, the court may make an order – (a) if it is satisfied, having regard to all the circumstances of the case, that it is just to make such an order; and (b) the claimant is a company and there is reason to believe that it will be unable to pay the defendant’s costs if ordered to do so, said the judge.
“The court may also make an order for security for costs where the claimant is resident abroad, but not resident in a state bound by the 2005 Hague Convention as defined in section 1(3) of the Civil Jurisdiction and Judgments Act 1982. As Uganda is not a party to the 2005 Hague Convention, the defendants could have sought orders against the second to seventh claimants but they have chosen not to do so.”
CBL, the first claimant concedes that it is unable to show that it will be able to pay the defendants’ costs if ordered to do so, given the relatively low bar for making out that proposition, but contends that, having regard to all the circumstances of the case, it would not be just to make such an order. “The first claimant also accepts, as it must, that because the threshold is met, it would normally be appropriate for the court to order security. Nevertheless, it contends that there are unusually powerful factors which militate against the court making an order for security in this case.”
The claimants relied on three factors in particular to argue their case. First, and most significantly, the second claimant Dr. Ruparelia, who is said to be one of the richest men in East Africa, is a co-claimant with the first claimant, and the claimants accept that costs orders should be made against all the claimants as they have been to date in these proceedings, not solely against the first claimant.
Second, in addition, Dr. Ruparelia offered an undertaking to the court to discharge any costs orders made against the first claimant and, should the applicants consider it adds anything, a personal guarantee to cover such liabilities as well. There is extensive and essentially unchallenged evidence that he is most certainly – adopting a phrase which appears to have been coined by Murphy J in the Irish High Court in Bula Ltd (in receivership) v Tara Mines Ltd [1987] 1 IR 494 – a “good mark” for such costs. That, as I say, is the claimants’ submission. In these circumstances, it is said that there is simply no justification for an order for security for costs.
“Thirdly, there is said to be another unusual discretionary consideration which applies to certain of the defendants seeking security. They are indemnified (directly or indirectly) by the Bank of Uganda for their costs. Whilst the claimants do not ask the court to delve into the merits of the current claim against the defendants, there is cast-iron evidence that the Bank of Uganda targeted the first claimant as part of a corrupt scheme and that it has been going to extraordinary lengths to prevent the first claimant’s rightful owners, that is the other claimants, regaining control of it and pursuing this claim. On Friday November 13, 2020, the letter before claim for this claim was sent to all the defendants.
“On Monday November 16, 2020, the Bank of Uganda issued a public notice that it had placed the first claimant into liquidation, and subsequently argued that the liquidation meant that this claim could not be brought. That was despite the Ugandan High Court and the Court of Appeal having previously decided that control of the first claimant had been returned to its directors and shareholders in January 2018. The ensuing litigation in the Ugandan courts resulted in the Ugandan Supreme Court finding the Bank of Uganda’s conduct to have been in “manifestly bad faith”, “contempt of court” and aimed at “impeding or preventing the course of justice”.
Despite this, the Bank of Uganda is still impeding practical control of the first claimant being returned to its shareholders. As a consequence, the claimants are disabled from being able properly to contest the applicability of CPR 25.13(2)(c) by reason of the Bank of Uganda’s continuing campaign of wrongdoing; and the effect of granting security to those that are indemnified by the Bank of Uganda will be to protect not those indemnified parties (who do not need protection) but an undoubted wrong-doer who has been harmed and who is continuing to interfere with the first claimant.
Second, the second claimant [Sudhir] is a person of very considerable wealth. In 2019, the second claimant’s wealth was estimated by Forbes to be some $1.2 billion. His substantial wealth includes Ugandan assets in the region of $279 million, including unencumbered land and buildings of about $47 million and bank deposits of over $7 million, and property in the United Kingdom owned with his family valued at between £4.5 million and £5.5 million.
Third, the defendants do not seek to challenge the up-to-date valuations of the second claimant’s assets, which show that his assets have increased substantially since 2019, and indeed since the commencement of these proceedings. The second claimant’s assets include (a) unencumbered property in London owned by the second claimant and his family, with an estimated value of between £4.5 million and £5.5 million, (b) Ugandan assets recently valued at more than $27 million, an increase of about $50 million since these applications were made. These assets comprise unencumbered land and buildings with a market value of approaching $50 million, shares in listed companies with a market price of about $6.8 million, shares in private companies on a net book value basis at $113 million, related party loan receivables from companies which are part of the Ruparelia Group of over $100 million, fixed deposits and bank balances of more than $7 million.
The judge said defendants’ failure to challenge the extent of the second claimant’s assets is not insignificant. “Rather than challenge the valuations of the second claimant’s assets, the defendants challenge the legal relevance of the second claimant’s assets; they contend that these assets do not provide satisfactory evidence of an ability to pay a costs order within the timeframe that will be ordered by the court; and they contend that there is no certainly that the identified assets will remain available to meet a costs order at the end of the trial. These are all points which I will come to address in a moment.”
“Subject to these points, there can be no doubt that the claimant has sufficient assets from which to pay a costs order made against him and/or the first claimant. It was also pointed out by the defendants that the court is not in a position to know under what personal liabilities the second claimant may be, particularly outside of Uganda. This is true and is a factor to which I must have regard. However, based on the evidence before me as to the second claimant’s personal wealth, I consider it unlikely that any personal liability he may be under is not dwarfed by the size of his personal wealth,” the Judge said. “He would not be reported to be a person of such wealth if there was a major question mark regarding his personal liabilities.”
The Judge said the defendants have not brought an application for security against the second claimant, notwithstanding that the court would have jurisdiction to make such an order if it were sought. “If the defendants had been of the view that an application against the second claimant would succeed, the likelihood is that such an application would have been pursued.”
The judge in his ruling said all costs orders which have been made in these proceedings against the claimants have been made against the claimants without distinction between them and each order has been paid promptly. “To date the claimants have made payments of £1,355,956 to the defendants to satisfy adverse costs orders, although some of those have had to be repaid. As regards any costs orders in the future, the judge’s discretion in costs at the conclusion of the trial is very wide.”
I would regard it as extremely unlikely, indeed inconceivable, that any judge would think it fair to the defendants to make an order only against the first claimant at the end of trial or indeed at any intermediate stage of the proceedings, and I am reassured by the words of Bingham LJ (as he then) was to similar effect in The Sea speed Dora [1998] WLR 221, at [227], he said.
He continued: “Enforcement of a costs order in Uganda, were it to become necessary, is a relatively straightforward and simple procedure. This is not seriously in dispute. The real dispute between the parties concerns the time it would take to enforce a judgment. The claimants’ evidence is to the effect that the process should take approximately 40 days, or possibly 54 days. The defendants’ evidence is that it would take between six and 12 months. This is a timing issue. There is no suggestion that there is a real risk that enforcement in Uganda will not be possible. Further, it is instructive to note that the time it would take to enforce a costs order in Uganda is not relied upon by the defendants as against the second defendant as a reason why he should be required to post security.”
The risk which appears to be of most concern to the defendants is the risk of delay in the enforcement in Uganda of any costs order made at the end of a trial in these proceedings, and the risk of associated expenses, he said.
“The defendants are not contending that the enforcement of a costs order in Uganda will be impossible or impractical, just that the process of enforcement may take between six and 12 months from start to finish. Nor are the defendants saying that they will not recover the costs and expenses of any enforcement process in Uganda. Nor are they saying that they will not ultimately be able to recover interest on costs in Uganda. It is to protect them against the risk of a delay in the payment of any costs order, a delay which they say will be caused by the length of time it will take to enforce any costs order in Uganda, that the defendants are seeking an order for security.”
In principle, the Judge said that might justify security reflecting the “extra burden of enforcement”; and I note that at an early stage the claimants made clear that they would consider offering security in relation to such costs if details were provided.
However, the defendants did not take up or even pursue that offer. “In my view, whilst it is likely that, if the defendants in due course have to enforce a costs order in Uganda, there will be some irrecoverable cost, expense or interest, the irrecoverable amount is likely to be relatively small, and it will certainly be dwarfed in comparison to the amount which the defendants are seeking in security by the applications before the court.”
“The totality of the evidence therefore, leaves me in no doubt that if a costs order were to be made in these proceedings against the claimants, the second claimant would be able to pay it promptly. And even if I were not so satisfied and formed the view that there would likely be some delay in enforcing a cost order in Uganda, I would have been of the view that the defendants would likely not be significantly prejudiced by such delay.”
There remains a handful of additional points raised by the defendants which I need to address. First, the offer made by the second claimant, and other claimants, of an undertaking to the court, or a personal guarantee to the defendants, was not a tacit acceptance that an order for security should be made. The purpose of the offer made by the claimants was to counter and respond to the contention that the second claimant might not be liable for a costs order against the first claimant.
The offer of an undertaking or a guarantee was made for this purpose. Second, in the absence of evidence of a real risk of dissipation, the contention that a party with significant assets should nevertheless put up security because there is no certainty that it will retain them at the end of trial has no force.
Similarly, the Judge said there is no real-world force in the contention that there is no certainty that the second claimant’s assets will still have the same or a similar value at the end of trial. “Whilst it is theoretically true that there is no certainty as to the future value of his assets, the same could be said of any party and any asset.”
“Further, given the extent of the second claimant’s wealth, it would only be in extraordinary circumstances that his assets would be so depleted by the end of these proceedings that he would not be in position promptly to pay any costs order made against him at the end of a trial.”
“The defendants’ contention that the existence of significant assets raises the question as to why conventional security in the form of a bank guarantee is not being offered against these assets is flawed because it elides the owner of the assets, the second claimant, and the separate party being asked to provide security, the first claimant.”
