M.V. SEALION (EX ANTIBES) & OWNERS/MANAGERS OF SEALION V. ASSURANCE FORENINGEN SKULD (GJENSIDIGE) (2019)

Background

This appeal concerned an admiralty action commenced before the Federal High Court, Benin Division, by Assurance Foreningen Skuld (Gjensidige) against the appellants. The respondent claimed USD 134,935.25, representing outstanding insurance calls and/or premiums allegedly due under a fleet insurance cover, together with interest and costs. It also sought declarations that purported transfers or sales of a number of vessels, including the M.V. Sealion, were sham transactions and that beneficial ownership of the vessels had remained unchanged.

At the same time as filing the action, the respondent applied ex parte for an order arresting and detaining the M.V. Sealion, which was within the jurisdiction of the Federal High Court, pending provision of a satisfactory bank guarantee for the amount claimed. The trial court granted the arrest order and directed the respondent to deposit N100,000 with the Admiralty Marshal for servicing the arrest.

The appellants subsequently applied for the unconditional discharge of the arrest and for an order requiring the respondent to provide security for costs in the sum of USD 1,000,000. In its ruling of 8 November 2002, the trial court refused to discharge the arrest but ordered the respondent to furnish security for costs in the reduced sum of USD 50,000. The trial judge stated that the security was intended, among other things, to discourage frivolous proceedings and ensure diligent prosecution.

The respondent appealed to the Court of Appeal. That court set aside the trial court’s ruling and orders and remitted the case to the Federal High Court for trial de novo before another judge. The appellants then appealed to the Supreme Court, arguing that the Court of Appeal was wrong to interfere with the security-for-costs order.

Issues

1. Whether the Court of Appeal was right to set aside the Federal High Court’s ruling ordering the respondent to provide USD 50,000 as security for costs.
2. Whether the appellants’ grounds of appeal were competent, particularly whether the particulars of error supporting ground one were vague or unrelated to the complaint.
3. Whether the requirements for an order of security for costs under Order 10 rule 1 of the Admiralty Jurisdiction Procedure Rules had been established.

Ratio Decidendi

The Supreme Court held that an applicant seeking security for costs in an action in rem bears the responsibility of placing sufficient and relevant material before the court. Under Order 10 rule 1(2) of the Admiralty Jurisdiction Procedure Rules 1993, security for costs is to be ordered where the plaintiff’s claim exceeds one million naira or its foreign-currency equivalent, or where the plaintiff has no assets in Nigeria, and the court is satisfied of the relevant fact. Although the provision makes the order mandatory once the statutory basis is established, the amount of security remains within the court’s discretion.

That discretion must be exercised judicially and judiciously. It cannot be based on conjecture, an unsupported assertion, or a desire to punish a litigant or suppress a genuine claim. The purpose of security for costs is to indemnify a defendant against the costs of defending the action, not to deter litigation or label a claim frivolous without evidential support.

The Court further held that the exchange rate between the naira and a foreign currency is not ordinarily a matter for judicial notice, particularly because Nigeria has historically operated different exchange-rate regimes, including official, bureau de change and parallel-market rates. Evidence was therefore required to establish the applicable naira equivalent of the dollar claim at the material time. The appellants had not supplied such evidence.

Court Findings

The Supreme Court dismissed the respondent’s preliminary objection in relation to ground one. It accepted that the particulars were inelegantly drafted, but held that they nevertheless communicated the complaint sufficiently and were not so vague or irrelevant as to make the ground incompetent. A good ground of appeal should be concise, clear, direct and non-argumentative, while its particulars should relate to and flow from the ground. However, the court should not search for defects where the substance of the complaint can reasonably be understood.

Ground two was treated as abandoned because no issue had been formulated from it and was struck out. On the merits, the Court found that the appellants’ affidavit evidence was directed principally to the discharge of the arrest order and did not provide the necessary material to justify security for costs. There was no adequate evidence proving that the respondent’s claim exceeded one million naira or its proper foreign-currency equivalent. There was also no evidence that the respondent had no assets in Nigeria.

Further, the record contained no evidence of the interest rate payable by the appellants to a bank or other institution providing security, despite the requirement that such matters be considered when assessing the quantum of security. The trial court’s order for USD 50,000 was therefore not shown to have resulted from a proper evaluation of the statutory criteria. Its stated purpose of preventing frivolous proceedings and encouraging diligent prosecution had not been supported by evidence or properly canvassed before the court.

Conclusion

The Supreme Court, in a unanimous decision delivered by Peter-Odili JSC, held that the Court of Appeal correctly set aside the trial court’s order. The appeal was dismissed for want of merit. The Court affirmed the remittal of the case to the Chief Judge of the Federal High Court for reassignment to a different judge, other than Auta J., for trial de novo. Costs of N1,000,000 were awarded in favour of the respondent.

Significance

The decision reinforces the evidential foundation required before a court may order security for costs in admiralty proceedings. A party cannot obtain such relief merely by asserting that a foreign-currency claim exceeds the statutory threshold. The applicable exchange rate and the plaintiff’s alleged absence of assets in Nigeria must be established with credible material. The case also confirms that discretionary procedural orders must be reasoned, evidence-based and directed toward their legitimate purpose. Security for costs should protect a defendant from unrecoverable litigation expenses, while preserving access to justice and avoiding the stifling of bona fide claims.