Legal Update – 18 July 2019

Court of Appeal Provides Guidance on Security for Stay Applications

• Mortgaged property can be used as security under rule 11 of the Tanzania Court of Appeal Rules, 2009
• However parties obliged to comply with other conditions in the Rules for stay applications to succeed
• Justice Mwambegele issues a dissenting Ruling

Background

In 2016, CRDB Bank Plc. (the Respondent), won a suit against Africhick Hatchers Limited (the Applicant), in Civil Case No. 97 of 2014 in the High Court of Tanzania (Commercial Division) at Dar es Salaam. Dissatisfied with the decision, the Applicant lodged a Notice of Appeal at the Court of Appeal (Court) endeavoring to challenge that decision. Meanwhile, and to ensure that no execution takes place whilst the appeal is pending, the Applicant instituted an application under Rules 11(2)(b),(c) and (d), and 48(1) and (2) seeking for orders of stay of execution of the judgment and decree pending the hearing and determination of the intended appeal.

To meet the mandatory conditions of depositing a security before a stay of execution can be issued, the Applicants offered the same plot worth TZS 20,000,000,000 which is mortgaged to the Respondent to meet the requirement to furnish security for performance of the decree of about TZS 1,785,000,000.

The decision

In a welcome decision, on 14 March 2019, the Court through Hon. Justice Mmilla and Justice Mwangesi with Justice Mwambegele (Dissenting) ruled in favour of the Applicants and ordered a stay of execution of the decree. The Court held that in an application for stay of execution, an encumbered property which secured a loan the subject of the dispute, whose value is superior to the decretal amount can be good security for the due performance of the decree or order as may ultimately be binding upon an Applicant in case she/he loses in an appeal on which the application for stay is pegged. In short, the Court allowed the borrower to use the same mortgaged property as a security to get a stay of execution at the appellate stage.

The Court took a practical and pro business approach and noted that in dealing with issues of security for performance, the Court is obliged to balance the interests of the Applicant in granting the stay vis a vis that of the Respondent who is required to receive his money upon the decree becoming binding.

In its Ruling, the Court observed that:

“One other condition is that the applicant for a stay order must give security for the due performance of the decree against him. To meet this condition, the law does not strictly demand that the said security must be given prior to the grant of the stay order. To us, a firm undertaking by the Applicant to provide security might prove sufficient to move the Court, all things being equal, to grant a stay order, provided the Court sets a reasonable time limit within which the Applicant should give the same.” 

In allowing the same mortgaged property as security to meet one of the conditions for the granting of stay of execution, especially considering that the security was not subject of litigation, the Court had this to say:

“In the present case however, the property which secured the loan and currently in the hands of the respondent bank, was not subject of litigation. It was, and still is, a collateral from which the respondent may at any requisite time recover, upon sale, his secured loan and the decreed amount. It is pertinent to point out that because the undisputed value of that property is TZS 20B; and since the decreed amount stands at TZS 1.785B (of course without interest), which means TZS 18B is in excess; we are firm that the respondent will not be at risk. As such, justice demands that we accept that property as sufficient security, as we accordingly do, for the due performance of the decree as prayed on behalf of the applicant.”

On the other hand, Justice Mwambegele in his Dissenting Ruling took a more conservative approach and noted that however much the encumbered security might be higher in value than the decretal sum on which it is to stand as security, the same cannot be used as good security because a mortgaged property is no longer the property of the Applicant, unless the loan is paid in full.

Reading this ruling, the Court has shown more flexibility in the granting of stay applications using different securities. However, the more controversial issue of a person or entity not having any security to qualify for a stay but having a good chance of succeeding in an appeal has yet to be challenged.

To read the Ruling of the Court (Majority) click here
To read the Dissenting Ruling click here