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Wainani Farm Corporation v Geoffrey Gee & Partners [2000] VUSC 18; Civil Case 034 of 1999 (19 April 2000)

IN THE SUPREME COURT OF
THE REPUBLIC OF VANUATU

CIVIL JURISDICTION

CIVIL CASE No. 34 OF 1999

BETW>BETWEEN:

WAINANI FARM CORPORATION
Plaintiff

AND:

GEOFFREY GEE & PARTNERS
First DefenDefendant

AND:

JAN MARK POZDENA
Second Defendant

AND:

ISLAND PRODUCTION LIMITED
Third Defendant

Mr. Malcolm for the First Defendant
Jan Pozdena, the Second Defendant representing himself and the Thirendant

JUDGMENT ON SECU SECURITY FOR COSTS

I have before me two (2) applications for security for costs. The Plaintiff is a company incorporated in Hawaii and, thus, has its residence outside the jurisdiction. The first defendant is a law firm in Port-Vila, the Republic of Vanuatu. The second defendant is and at all material times, was Director of the third defendant, which is a local company incorporated in Vanuatu.

The first defendant files its application on 17 November 1999 seeking 1,300,000 Vatu for their costs against the plaintiff company. The second and third defendant file their application on 25 January 2000 claiming for 2,500,000 Vatu for their costs against the Plaintiff Company.

A conference direction was conducted on 24 March 2000, during which, it was directed that the two applications of security for costs be heard together on 27 March 2000 at 4.30 p.m. At the time of the hearing none of the defendants file an affidavit to support their applications, Mr. Sugden put an unsworn affidavit before me in support of the plaintiff’s contentions and undertook to file it the next morning on 28 March 2000.

It transpires from the pleadings that the action is about an agreement made in October 1998, partly orally and partly in writing between the plaintiff and the third defendant, pursuant to which the third defendant would sell kava to the plaintiff. Under the Agreement, the Plaintiff Company would purchase kava for the sum of USD15,750.00, plus USD3,000.00 for freight to the third defendant, totalling an amount of USD18,750.00 which sum were to be deposited on trust with the first defendant.

The first defendant was to be instructed to release the monies as specified in the Agreement. The statement of claim alleges that the third defendant had a reasonable time of 1 month to ship kava to the Plaintiff Company in Hawaii. But by January 1999, the plaintiff did not receive any kava. So on 14 January 1999, the plaintiff rescinded the kava Agreement and the third defendant elected to treat the contract as an end following receipt of notice of the plaintiff’s rescission. The statement of claim alleges further that, although the plaintiff has advised the First Defendant of the rescission of the contract, the first defendant has failed to return any of the plaintiff’s money despite numerous requests. It is further alleged that the first defendant made payments out of USD18,750.00 on 2 different occasions and it is alleged that the first defendant acted so negligently as to be in breach of the trust. It is also alleged that the second defendant procured the pay out of monies by the first defendant by fraud and inducement. The plaintiff claims the sum of USD18,750.00 and damages for loss of use of this sum since 17^th January, 1999.

The first defendant denies the allegation of breach of trust in its defence. The second and third defendants file no defence as yet to the action.

The plaintiff has offered USD10,000.00 (Vatu 1,300,000) plus USD 4,687.50 which is the balance of the trust monies held by the first defendant, to cover the costs of all the defendants as security.

Mr. Malcolm submitted that the amount of USD4,687.50 is in dispute and that money cannot be construed as security against the defendants’ costs. He referred the case of Stenger v. Mathias (English) which was applied in Civil Case No. 7 of 1998 (Van.) in support.

Mr. Pozdena says on his and third defendant’s behalf that the plaintiff has no assets within the jurisdiction. The balance of USD4,685.50 held in trust fund is the assets of the third defendant. He said when the cargo was collected in Sydney, the money should be paid to him.

The substance of the plaintiff’s agreement and submission is that the defendants admitted that an amount of USD15,750.00 was paid. The defendants admitted the third defendant elected to call for the contract to an end. He then submitted all money be returned to the plaintiff on the principle of Restitutio Integrum. Therefore, the balance of 4,785.50 USD in the first Defendant Trust Fund is for the plaintiff and can be considered together with a letter of credit for USD10,000.00 as security for costs which are now in the jurisdiction. Therefore, the plaintiff says there is no need to order an award of costs.

It is also submitted for the plaintiff that, there is no need to make an order for costs in this case because there are special circumstances which justify the Court not to make an order for security for costs. Those are that:

(1) the third defendant elected to put an end to the contract as a result of which an amount of USD18,750.00 is still in the hands of the defendants and may be available for security for costs.

(2) the special circumstance include the offer to pay security by way of letter of credit for USD10,000.00.

In support of his contentions, the plaintiff referred the Court to the cases of:

• Sir Lindsay Parkinson & Co. Ltd v. Triplan Ltd, 1 QB (1973) 609. In Parkinson case, it was held that where there was credible evidence that a limited company would be unable to pay the costs of a successful defendant, the Court has a statutory discretion whether or not to order security for costs against the company, having regard to all the circumstances of the particular case.

• The principle was applied in the case of Sir Lindsay Parkinson & Co. v. Triplan Ltd (1977) 892. In this case, it was further held that, the Court must not use its statutory discretion under s.447 of the Companies Act 1948 (English) as an instrument of oppression, as by preventing a small company from making a genuine claim against a large company, but equally, must not allow a reluctance to order security for costs to become a weapon whereby an impecunious company could put unfair pressure on a prosperous company.

Order 65 rr. 4 & 5 of the High Court (Civil Procedure) Rules, 1964 provides that:

"4. In any cause or matter in which security for costs is required, the security shall be of such amount, and be given at such times, and in such manner and form, as the Court shall direct.

5. A plaintiff ordinarily resident out of the jurisdiction may be ordered to give security for costs, though he may be temporarily resident within the jurisdiction."

By perusing the words of Order 65 rr. 4 & 5, it is clear that the Court has discretionary power to order security for costs against Foreign Plaintiffs. The question then is how to exercise the discretion. It is to be observed that in relation to security for costs, there is an essential distinction between natural persons and limited companies as plaintiffs.

The basic rule for a natural person, is that he/she will not be ordered to give security for costs, however poor he/she is. There are certain exceptions to that rule. If a natural person is the plaintiff, he/she will not be ordered to give security for costs unless he/she is brought within one of the exceptions. The exception for plaintiff who is ordinarily resident out of the jurisdiction, will apply where the sole plaintiff is a foreigner, or all the plaintiffs are foreigners. But the exception does not apply where the foreigner is co-plaintiff with a person who resides within the jurisdiction. The exception is merely an exception where the plaintiff is ordinarily resident out of the jurisdiction, or where all the plaintiffs are; and if that is the case, the basic rule is applied so as to protect all the plaintiffs.

In the case of a limited company, there is no basic rule conferring immunity from any liability to give security for costs. The basic rule in respect to limited companies is that they all are subject to the liability to give security for costs. The reason being that the discretion to award security for costs be exercised in a view to protect the community against litigious abuses by artificial persons created by natural persons. However at the end of the day, the Court will exercise its discretion, on case to case basis.

In the case before me, the plaintiff is a foreign company having its registered office in Hawai'i, U.S.A. Applying the basic rule, the plaintiff is liable to pay security for costs.

The plaintiff’s submission that the amount of USD18,750.00 paid by the plaintiff to the third defendant and held in the first defendant’s trust account or the balance outstanding of 4,687.50 USD constitute the plaintiff’s money and, thus, can be taken as security for costs, cannot be accepted. The total amount of 18,750.00 USD is the total amount claimed by the plaintiff in the substantive action. It is the subject matter in the dispute between the parties in this case. I cannot consider it the plaintiff’s property at this stage of the proceedings, for I should then be deciding the merits of the case. [see the case of Stenger v. Mathias ST. R. QD (1908) p. 181].

Further, I am also of the view that the plaintiff’s submission that there are special circumstances justifying the Court not to order the plaintiff to pay security for costs must also fail. The fact that the defendants admit that an amount of 15,750.00 USD was paid out and USD 4,685.50 is the balance in the trust account, does not constitute a special circumstance.

Further the offer of a letter of credit in the amount of USD 10,000.00 rejected by the defendants, does not constitute a good security for the defendants costs since it transpires that it is issued for a period of only 12 months. [It was issued on 20 September, 1999 and will expire on 20 September, 2000.]

That offer in my view does not constitute a special circumstance.

I am mindful of the possibility that an order for security can become a weapon of oppression available to the strong to prevent the weak from getting access to the Courts to adjudicate their claims according to law.

Having regard to all the circumstances of the particular case, I have come to the conclusion that, on balance, I ought to make an order for security for costs in respect to the two applications before me. The question which is now arisen is that of the quantum. I am aware about a practice of fixing a sum of about two-third of the estimated party-party costs up to the stage for which security is ordered. There is no skeleton bill of costs before me, although, it is put on behalf of the first defendant, an amount of Vatu 1,300,000 and Vatu 2,500,000 for the second and third defendants for security. These are general/broad figures. I also have a doubt about this type of exercise so I feel that some discount must be made on these figures to reflect the absence of supporting detail and the uncertainties of all litigation, including costs not yet incurred and the possibility of compromise being reached. I find it impossible to give a reasoned explanation of the precise figure at which I arrive at in the end. Doing the best I can, I order the Plaintiff Company to give security for the first defendant’s costs in the sum of 700,000 Vatu and the second and the third defendants’ costs in the sum of 1.000.000 Vatu, the security being in respect to the costs up to and including the first day of the trial.

Court Order:

Order for security for first defendant’s costs in the sum of Vatu 700.000 and order security for second and third defendant’s costs in the sum of Vatu 1,000,000. Security for first and second & third defendants be up to and including the first day of trial, to be paid by the Plaintiff Company on or before May 8, 2000, into the Chief Registrar of the Supreme Court Trust Account, and interest thereon to be accumulated.

In default of such payment first, second and third defendants to be at liberty to strike out plaintiff, or to stay proceedings by them.

Cost of the first defendant’s application and second & third defendants’ application to be first defendant’s costs in any event and second and third defendants in any event respectively.

DATED AT PORT-VILA, this 19^th DAY of APRIL, 2000

Vincent LUNABEK J
Chief Justice (Acting)