Strategic Air Services Ltd v Airports Fiji Ltd [2010] FJHC 344; HBC212.2007 (10 August 2010)

IN THE HIGH COURT OF FIJI
AT LAUTOKA
CIVIL JURISDICTION

Civil Action No 212 of 2007

BETWEEN:

STRATEGIC AIR SERVICES LIMITED Suite 6,
Colonial Plaza, Queens Road, Waqadra.
Plaintiff

AND:

AIRPORTS FIJI LIMITED a duly incorporated
company having its registered office at Nadi Airport, Nadi.
First Defendant

ATTORNEY GENERAL OF FIJI Suvavou House, Suva
Second Defendant

AIR TRAFFIC MANAGEMENT ASSOCIATION OF FIJI
Nadi Airport, Nadi.
Third Defendant

Counsel appearing:
For the Plaintiff: Mr. Rabo Matabalavu
Of ESESIMARAM & CO.

For the Defendants:	1st:	Mr. Young of Young & Associates
	2nd:	Mr. Green for the Attorney General.
	3rd.:	No appearance

Date of Hearing: 18th May 2010
Date of Order: 10th August 2010

INTERLOCUTORY ORDER
(HEARING IN RESPECT OF AN APPLICATION FOR SECURITY FOR COSTS)

The 1st Defendant made an application for Security for Costs from the Plaintiff Company by Summons dated 4th March 2010. The said application was supported by the affidavit of Davina Chan its Legal Advisor sworn on the 2nd March 2010 and by the attached annexure marked “DC1”.

DC1 was the resignation letters of the former employees of the Plaintiff Company.

The Plaintiff replied the affidavit of Davina Chan with the affidavit of its Director Luke Mataika sworn on the 13th of April 2010. The Plaintiff countered by claiming Security for costs from the 1st Defendant, by the said affidavit, and sought $50,000/= to be deposited in court by the 1st Defendant.

The 2nd Defendant filed an affidavit sworn on 8th April 2010,of Preetika Prasad, its Senior Legal Officer, in support of the 1st Defendants application, and sought security for costs on behalf of the 2nd Defendant in a sum of $ 28,000/= to be paid in to court.

The Plaintiff filed an affidavit sworn on 27th April 2010, of Luke Mataika (its Director) with attached annexure “LM1”, in reply to the affidavit of Preetika Prasad of the 2nd Defendant.

LM1 is the Order of Justice Phillips in dismissing the Winding up Cause in respect of the Plaintiff Company in case (Lautoka High Court) No.9 of 2007.

In denying paragraph 4 of the affidavit of Davina Chan of the 1st Defendant , the Plaintiffs Director Luke Mataika admits at paragraph 5(b) of his 1st affidavit , the transfer of its previous employees to the 1st Defendant. At paragraph 5(a) of his affidavit Mr. Mataika concedes that the Plaintiffs principal business was the provision of air traffic service and management for the 1st Defendant. With the loss of its employees the Plaintiff has obviously lost the ability to be in business. The number of such employees who have resigned in November 2006 according to “DC1” amounts to over 60!

The Plaintiff in its statement of claim states;

1. that an Air Traffic Control and Management Services Agreement (ATCMS Agreement) was entered between Plaintiff and 1st Defendant on the 12th April 1999.
   
2. that the said agreement was for the Nadi Flight Information Region (Nadi FIR) and Fiji’s Local Air Space in accordance with ICAO International Standards and Recommended Practices.,
   
3. that there was a force majeure clause in the said Agreement,
   
4. that the said Agreement was for a period of 3years renewable for further 2 years,
   
5. that the Plaintiff entered in to a Memorandum of “agreement” sic(Memorandum of understanding- MOU) with the 1st Defendant on the 6th of March 2003, whereby the ATCM Agreement was extended to 31 March 2003 and provided for finalization of negotiations for joint venture partnership,
   
6. that Plaintiff and 1st Defendant entered in to a Management Agreement on the 12th July 2003,
   
7. that on the 7th October 2003 Cabinet noted with approval the 10 year Management Agreement ,
   
8. that the Plaintiff and 3rd Defendant entered in to a Collective Agreement containing collective terms and conditions for employment by the Plaintiff of the members of the 3rd Defendant,
   
9. that between the 10th and 16th of November 2006 members of the 3rd Defendant trade union staged a strike and refused to report to work,
   
10. on the 14th November the Minister of Labour and Industrial Relations issued an order declaring such strike illegal and referred the dispute to arbitration and adjudication,
    
11. that the 1st Defendant “stood idly by and allowed striking ATMAF ( 3RD Defendant) members to break terms and conditions of employment under the Collective Agreement,
    
12. by letter of 13TH December 2006 the 1st Defendant gave ultimatum to the Plaintiff to resolve its dispute with the 3rd Defendant so as to allow full resumption of subject air traffic services,
    
13. that the 3rd Defendant notified/reminded the Ministry of Civil Aviation ,the 1st Defendant as well as the Ministry of Public enterprise that it is unable to work with the Plaintiff and further requested facilitation of its interest in carrying out same air traffic services “under the banner of Airports Fiji Limited”,
    
14. that by letter of 15th November 2006 the plaintiff gave the 1st Defendant notice of force majeure situation encountered with regard to events beyond its control regarding inter alia withdrawal by the 3rd Defendant of the employment of 39 of its members from the Plaintiff coupled with demand by the 3rd Defendant that the 1st Defendant offer employment to such members immediately,
    
15. that by letter dated 15th November 2006 the 1st Defendant notified the Plaintiff of its rejection of Plaintiffs force majeure notice and furthermore gave the Plaintiff ultimatum to resolve its differences with the 3rd Defendant and restore subject air traffic services in the “next 20 hours’,
    
16. that by the letter of 16th November 2006 the 1st Defendant terminated the contract alleging repudiation of same contract by the Plaintiff,,
    
17. that the “Plaintiff as it is entitled to do , opted to affirm the contract leaving the same open for performance by the parties”.,
    

The aforesaid, as it is the statement of facts as alleged by the Plaintiff in its statement of claim, they may be taken as the background to be held against the Plaintiff.

The Plaintiff set out several Causes of action against the aforesaid background alleging conspiracy by the Defendants against the Plaintiff.

Applicable Law;

Section 402 of the Companies Act ( Cap 242- Fiji Laws), by virtue of which the 1st Defendants application is made, states;

402. Where a limited company is plaintiff in any suit or other legal proceeding, any judge having jurisdiction in the matter may, if it appears by credible testimony that there is reason to believe that the company will be unable to pay the costs of the defendant if successful in his defense, require sufficient security to be given for those costs, and may stay all proceedings until the security is given.

(The corresponding section referred to in the British Companies Act is section 729.)

The 1st Defendants Counsel submitted the following authorities;

1. RE UNISOFT GROUP LTD (NO.2) 1993 BCLC (Butterworths) 532, Chancery Division (Companies Court), 13th & 14th October 1992. (Sir Donald Nicholls)

Held; that

(1) Section 726 of the Companies Act 1985 required the applicant to show that the company would be unable to, and not may be unable, to meet its debts when an order for costs was made against it. This question must be answered when the application was made to the court for an order , although the court could take in to account evidence as to what was expected happen in the interval before the costs order had to be satisfied. The phrase “if it appears by credible testimony that there is reason to believe” did not water down the requirement that the court had to be satisfied on the evidence before it that the company would be unable to pay the costs of the Defendant.

(2) The exercise of the courts discretion under s 726 did not involve a situation of all or nothing. The court had discretion to make an order for less than the anticipated costs.........

(3) On the facts , there was evidence that the petitioner would not be in a position to satisfy a costs order that might be made against it and the court would order that the petitioner should provide security for costs but for a lesser sum than was sought by the respondents.

At page 537 Sir Donald illuminatingly states thus; “This would be yet another example of an ill which all too frequently bedevils the interlocutory stages of too many actions; one or the other or both parties spend time and money sniping at each other which would be much better spent on pressing ahead speedily and directly to the trial at which alone their substantive dispute can be effectually decided”.

2. HUTCHISON TELEPHONE UK LTD V ULTIMATE RESPONSE LTD, 1993 BCLC (Butterworth’s) 307 , Court of Appeal, Civil Division, 10th August 1992. (Dillon and Bingham LJJ) It was Held;........ “Section 726 was enacted expressly to enable security to be ordered for claims by companies in financial difficulties where there was reason to believe that the Company would be unable to pay the defendants costs if successful in his defence and it would not be an automatic answer to any such claim for security that there was a risk that the Company would be unable to pursue its claim and equally it did not automatically follow that there was any general principle that security should only be awarded if it was awarded to both sides”..... “in the present case the defendants had , in addition to pleading a very full defence , pleaded an extensive counter claim in which the damages claimed appeared to exceed by a very substantial margin those claimed by the plaintiff...”

Bingham LJ , at page 318 observes; “ Section 726 expressly authorises orders against corporate parties who are by definition impecunious, and the necessary consequence of such an order may be that such a party is unable to pursue its claim. In a proper case that plainly is a consequence to be accepted”.

3. In THE MATTER OF CANDLENUT INVESTMENTS LIMITED Vs. IAN MCLEOD, BRIAN WILLIS, JOHN GRAY AND YVONNE GRAY. NO. HBF 014 0F 2006 RULING DATED 20TH OCTOBER 2006; this application for security for costs was made under Order 23 Rule(1)(a), and Finnigan J, ordered that the Petitioner shall pay into court the sum of $150,000/- as security for costs of the Respondents within 14 days after filing their summons for directions.

The Plaintiffs Counsel submitted the following authorities;

1. Fords Principles of Corporations Law (sixth Edition) at paragraph 308; “It is one thing for a person voluntarily to run the risk of loss by contracting with a limited Company but it is another for defendants to have the burden of litigation costs thrust upon them when sued by a company without assurance that , if the company ultimately loses, it will be able to pay the successful defendants costs”.

2. FURUUCHI SUISAN COMPANY LTD vs HIROSHI TOKUHISA AND TWO OTHERS, Civil Action No.95 of 2009 HC SUVA; this was an application under Order 23 Rule (1)(a) where BYRNE J ruled; taking the devaluation of the Fijian Dollar that the Plaintiff pay in to court the sum of FD$20,000/- by way of cash deposit within 14 days of the delivery of his ruling.( as security for costs.)

While appreciating the aforesaid case law submitted by the respective counsel, I ventured to examine further the available authorities as follows:

In Sir Lindsay Parkinson & Co Ltd -v- Triplan Ltd [1973] QB 609, His Lordship Lord Denning at page 626 said:-“Turning now to the words of the statutes (the equivalent of our section 402 of the Companies Act) the important word is “may”. That gives the judge discretion to order security or not. There is no burden one way or the other. It is discretion to be exercised in all the circumstances of that case.”

Lawton LJ at 629, on the parameters of the discretion said:-“...once it is established by credible evidence that there is reason to believe that the Plaintiff company will be unable to pay the costs of the defendants if they are successful in their defence, the Court has a discretion, and that discretion ought not to be hampered by any special rules or regulations, nor ought it to be put into a straitjacket by considerations of burden of proof. It will exercise having regard to all the circumstances of this case.....”(emphasis added)

In Cowell –v- Taylor [1885] 31 Ch. D 32 at 38 Bow en LJ, brings our attention to the old rule that poverty is no bar to litigation. ( also Ross v Jacques(1841) [1841] EngR 530; 8 M&W 135)

In Kadavu Shipping Company Ltd v Dominion Insurance Ltd [2009] FJHC 71; HBC508.2006 (23 February 2009) Master Udit cited K P Cable Investments Pty Ltd –v- Meltglow Pty Ltd and others [1995] FCA 76; [1995] 56 FCR 189 (After referring to the leading cases in Australia such as Fincott & Associates Pty Ltd –v- Eretta Pty Ltd [1987] FCA 102; [1982] 16 FCR 497 and Interwest Ltd –v- Tricontinental Corporation Ltd [1991] 5 ACSR 621)and quoting Beagly J summarized the factors without hampering the unfettered discretion of the Court in such matters, as follows:

1. That such applications should be brought promptly,
   
2. That regard is to be had to the strength and bona fides of the applicants case,
   
3. Whether the applicant's impecuniosities was caused by the respondent's conduct, the subject of the claim,
   
4. Whether the respondent's application for security is oppressive, in the sense that it is being used merely to deny an impecunious applicant a right to litigate,
   
5. Whether there are any persons standing behind the company who are likely to benefit from the litigation and who are willing to provide the necessary security,
   
6. Whether persons standing behind the company have offered any personal undertaking to be liable for the costs and if so, the form of any such undertaking,
   
7. Security will only ordinarily be ordered against a party who is in substance a plaintiff, and an order ought not to be made against parties who are defending themselves and thus forced to litigate.
   

The following cases were referred to in the aforesaid case;

M A Productions Pty Ltd v Austarama Television Pty Ltd and Anor (1982) 7 ACLR 97 Smail v Burton (1975) VR 776 per Gillard J at 777, Caruso Australia Pty Ltd v Portec (Aust) Pty Ltd (1984) 8 ACLR 818, see Grant v The Banque Franco-Egyptienne Egyptienne [1876] UKLawRpCP 10; (1876) 1 CPD 143, Interwest Ltd –v- Tricontinental Corporation Ltd [1991] 5 ACSR 621, Fincott & Associates Pty Ltd –v- Eretta Pty Ltd [1987] FCA 102; [1982] 16 FCR 497, Ross v Jacques(1841) [1841] EngR 530; 8 M&W 135, Cowell –v- Taylor [1885] 31 Ch. D 32, Concorder Enterprise Ltd -v- Anthony Motors (Hutt) Ltd (No.2) [1977] 1 NZLR 516, Trident International Freight Services Ltd. –v- Mandesher Ship Canal Co. [1990] BCLL 26, Keary Developments Ltd –v- Tarmac Construction Ltd and Anor [1995] 3 ALLER 534, Drumdurno Pty Ltd v Braham [1982] FCA 161; [1982] 64 FLR 227, Northampton Coal & Iron Wagon Co –v- Midland Wagon Co [1878] UKLawRpCh 18; [1878] 7 Ch D 500, Porzelack KG -v- Porzelack (vic) Ltd. [1987] 1 ALLER 1074 at 1077, Bryan F Fincott S Associates Pty Ltd –v- Eretta Pty Ltd and others [1987] FCA 102; [1987] 16 FCR 497,; Heller Factors Pty Ltd v John Arnold's Surf Shop Pty Ltd (in liq) (1979) ACLC 32,446; Sydmar Pty Ltd v Statewise Developments Pty Ltd (1987) 5 ACLC 480; Weily's Quarries v Devine Shipping Pty Ltd [1994] TASSC 76; (1994) 14 ACSR 186, Clyde Industries Ltd v Ryad Engineering Pty Ltd (1993) 11 ACLC 325., Mantaray Pty Ltd v Brookfield Breeding Co Pty Ltd (1990) 8 ACLC 304, Cameron's Unit Services Pty Ltd v Kevin R Whelpton and Associates (Aust) Pty Ltd (1986) 13 FCR 46, Hession v Century 21 South Pacific Ltd (1992) 28 NSWLR 120, Bell Wholesale Co Pty Ltd v Gates Export Corporation [1984] FCA 34; (1984) 2 FCR 1, Sent v Jet Corporation [1984] FCA 178; (1984) 2 FCR 201, Memetu v Lissenden (1983) 8 ACLR 364, ; Yandil Holdings Pty Ltd v Insurance Co of North America (1985) 3 ACLC 542.

A PRIVY COUNCIL APPEAL CASE (FROM THE CAYMAN ISLANDS);

In (1) GFN SA, (2) Artag Meridian Ltd, (3) Caribbrean Energy Company Vs. The Liquidators of Bancredit Cayman Limited (in Official Liquidation) Privy Council Appeal No 0014 of 2009, (before Lord Scott, Lord Rodger, Lady Hale, Lord Neuberger and Sir Jonathan Parker), (heard on 6th May and Judgment delivered by Lord Scott on 4th November 2009)

LORD SCOTT, stated at paragraph 9;

"It seems to their Lordships clear from the case law dealing with security for costs issues that the court has an inherent jurisdiction to make security for costs orders but that the exercise of that jurisdiction is subject to what has become the settled practice of the court. For example, the rule that an order for security for costs will not be made against a defendant was part of that settled practice. The rule that such an order will not be made against an impecunious plaintiff was also part of that settled practice but was varied by statute in the case of impecunious corporate plaintiffs by section 24 of the 1857 Act, the statutory predecessor of section 74 of the Companies Act. Order 23 Rule 1, like its predecessors, specifies particular circumstances in which the court may entertain an application for security for costs. The Rules of Court did not create or confer the power to do so but, rather, harnessed the power so as to control its exercise".

(emphasis by bold underlining and italics are mine)

LORD NEUBERGER (with whom Lord Rodger, Lady Hale and Sir Jonathan Parker concur) stated at paragraph 30 and 34 thus;

At paragraph 30;

"As Lord Scott so clearly demonstrates, the court has an inherent jurisdiction to order security for costs, and, while that jurisdiction is essentially discretionary, the discretion must be exercised not merely in a generally judicial manner, but in a manner which accords with the settled practice of the court, as circumscribed or extended by primary or secondary legislation."

At paragraph 34;

"For my part, I would prefer to leave entirely open questions such as whether and if so when it is possible or appropriate to order security for costs against a defendant who brings a counterclaim or defends by way of set-off, whether and if so when security can be ordered in the context of a committal application, or in connection with an application to set aside a compromise of an action, and whether the decision of the Court of Appeal in C T Bowring & Co (Insurance) Ltd v Corsi Partners Ltd [1994] 2 Lloyd's Rep 567 was correct. We did not hear much, if any, argument on any of those issues and it is unnecessary to resolve them for the purpose of determining this appeal. That is not meant to imply that I positively disagree with anything Lord Scott says on those issues in his admirable opinion: it is merely that I prefer to leave them for determination when they have been subject to fuller argument".

Except for the primary legislation in section 402 of the Companies Act enabling court to order security for costs subject to there being at least "credible testimony" therein, this court has not been submitted any primary or secondary legislation curtailing the discretion of court.

In addition to the aforesaid guidelines this court considers the following to be relevant as well;

As the application is for security for costs, and whether to award costs or not itself is very much within the discretion of court, the court has to first consider whether it would award costs against the Plaintiff in the event the defendant succeeds in its defence.

In this action the plaintiff does not disclose direct physical or tangible damage but damage arising from alleged breach of copyrights. As much as an allegation of conspiracy is taken seriously by court if it is not established by evidence it would in its wake invite an order for costs. However what is required by section 402 is not whether the Plaintiff will succeed in establishing its case but whether the defendant shall succeed in its defence. If the defendants defence succeeds then this is an action as such in which the court is likely to award costs. In other words this is an action in which the court sees no special reason not to award costs against the Plaintiff in the event the defendant succeeds in its defence. It is the view of this court that such an assessment ought to be done with the least amount of inquiry in to the merits of either the Plaintiffs case or the defendants defence so as not to prejudge the case.

As such, now this court shall consider whether it should require the plaintiff to give security for costs.

As the application is under section 402, first court has to verify whether the Plaintiff is a "limited company". The Plaintiff is as such described, and sues in such capacity and it is not a disputed fact.

Therefore now the court has to determine whether there is credible testimony of reasons to believe that the (Plaintiff) company will be unable to pay the costs of the defendant.

Credible testimony imputes that it should be evidence that emanates through an accountable source or person and the court should find that source or person credible.

The 1st defendants application for security for costs was supported by the affidavit of Davina Chan its Legal Advisor. Parties at the hearing on the 18/5/2010, made oral submissions and have allowed court to deliver its order based on the affidavits. The said Davina Chand has caused a search to be made at the Registrar of Titles before stating that the Plaintiff company does not hold any property, according to that affidavit. Attached to the said affidavit is a letter marked DC1 along with the resignation of over 60 employees of the Plaintiff.

The plaintiff in fact in denying paragraph 4 of the said affidavit admits in the affidavit of its Director Luke Mataika that the former employees of the Plaintiff did transfer to the 1st Defendant. Even in the Plaintiffs statement of claim the withdrawal of 39 of its staff by the 3rd defendant is admitted.

Even in the 1st affidavit of Luke Mataika at paragraph 8 he admits as a Director of the Plaintiff that the Plaintiff is a subsidiary and the holding company Lawedua Trust Company Limited will indemnify any costs order against the Plaintiff.

Though the aforesaid is credible testimony of reasons for this court to believe that the Plaintiff will be unable to pay the costs of the defendant, still the fact that the Winding up cause against the Plaintiff bearing no.9 0f 2009 had been dismissed as evidenced by LM1, as far back as 27th of March 2009, and the fact that the 1st and 2nd defendants were not aware of that dismissal, weighs to some extent in favour of he Plaintiff, to suggest that the Plaintiff may be in a position to pay part of the costs thereby reducing the quantum of security to be deposited if so ordered by court.

As such the requirements of section 402 of the Companies Act are met for the court to exercise its discretion to award (and to what extent)or not to award security for costs.

The Plaintiffs Director Luke Mataika in his affidavit has stated that the Plaintiff is a subsidiary of another holding Company and as much as such company may pay the costs against the Plaintiff it can equally provide the security for costs for the Plaintiff to pursue its action.

The principle that poverty should not be a bar to litigation, is no doubt good and venerable law, especially in respect of natural persons. However in respect of limited liability companies which are essentially devices of commerce born and terminated by the availability of funds, it is not surprising that their right to litigate is equally determined by the availability of funds.

Now I shall consider the 7 "guidelines" enumerated above in the Kadavu Shipping Company Ltd v Dominion Insurance Ltd [2009] FJHC 71; HBC508.2006 (23 February 2009) case;

1. That such applications should be brought promptly,- this aspect works against the Plaintiff in that the application for security for cost was made by the defendants after an application for winding up had been made (and dismissed) and as such appear to be an application out of bona fide concern of the Plaintiffs inability to pay costs. In any event though it is the first it is not the best guideline.
   
2. That regard is to be had to the strength and bona fides of the applicants case,- this is a guideline that this court is cautious to use as it tends to prejudge the case, however on a surface examination it does not prevent the defendants application.
   
3. Whether the applicant's impecuniosity was caused by the respondent's conduct, the subject of the claim, - this guideline answers to some extent in favour of the Plaintiff going by its statement of claim, however as the Plaintiff has given notice of Force Majeure, prior to 1st defendants "termination", the cause of impecuniosity is an open fact.
   
4. Whether the respondent's application for security is oppressive, in the sense that it is being used merely to deny an impecunious applicant a right to litigate,-the Plaintiff is a limited company, and it cannot expect the defendant to ignore the possibility of not recovering its costs. The amounts sought as security for costs, as against the claim of the Plaintiff (as indicated by the Plaintiffs counsel in oral submissions being not less than $6 million) is not oppressive.
   
5. Whether there are any persons standing behind the company who are likely to benefit from the litigation and who are willing to provide the necessary security,-according to the Plaintiffs Director Luke Mataika the holding company is in such a position, however no details of its assets were made available to court.
   
6. Whether persons standing behind the company have offered any personal undertaking to be liable for the costs and if so, the form of any such undertaking,- no such personal undertaking.
   
7. Security will only ordinarily be ordered against a party who is in substance a plaintiff, and an order ought not to be made against parties who are defending themselves and thus forced to litigate.- this guideline works against the Plaintiffs counter application for security for costs against the 1st defendant.
   

The 1st defendant seeks security in a sum of $35,000/-, while the 2nd defendant seeks a sum of $28,000/-. Given the possibility that the Plaintiff may be able to meet part of the costs, I reduce the security to be deposited by one third (1/3).

As such the security for costs to be deposited;

1. in respect of the 1st defendant shall be $23,333/=,
   
2. in respect of the 2nd defendant shall be $18,666/=.
   

As the defendants have a counter claim as well and there is no purpose in staying indefinitely an action if the Plaintiff is unable to deposit the security for costs, and as the practice of this court is to strike out claims when directions of court are not complied with, this court is of the view that unless the security for costs is deposited within a given period of time the Plaintiff companies statement of claim against the respective defendant ought to be dismissed.

Therefore it is hereby ordered that the Plaintiffs statement of claim in respect of the 1st defendant and the 2nd defendant shall be struck out unless respectively the sum of $23,333/= and a sum of $18,666/= is deposited as security for costs within 28 days of this order.

Parties to bear their costs of this application for security for costs.

Y I FERNANDO
JUDGE

At Lautoka
10th August 2010.