Transglobal Supplies LLC v Omega Corps (Fiji) Ltd [2011] FJHC 345; HBC203.2010 (10 June 2011)

IN THE HIGH COURT OF FIJI
AT SUVA
CIVIL JURISDICTION

Civil Action No. HBC 203 of 2010

BETWEEN:

TRANSGLOBAL SUPPLIES LLC,
of 234-235 Quartier Industrial Dakhla - Morocco
PLAINTIFF

AND:

OMEGA CORPS (FIJI) LIMITED
of suit 5, Level 2 Kwong Tiy Plaza, 34 Marks Street, Suva.
1ST DEFENDANT

AND:

HANSONS FIJI LIMITED
f 8 Miles, Makoi, Nasinu
2ND DEFENDANT

AND:

RAM NAGEN,
Businessman, C/- Suit 5, Level 2, Kwong Tiy Plaza,
34 Marks Street, Suva.
3RD DEFENDANT

BEFORE : Master Deepthi Amaratunga

COUNSELS : FA & COMPANY for the Plaintiff
M C LAWYERS for the 1st Defendant
PARSHOTAM & COMPANY for the 2nd Defendant

Date of Hearing : 25th March, 2011
Date of Ruling : 10th June, 2011

RULING

1. INTRODUCTION
   

1. This is an application for security for cost in terms of Order 23 of the High Court Rules of 1988. Admittedly, the Plaintiff is a company incorporated in Morocco and does not have any assets in Fiji. Plaintiff’s claim is for damages suffered due to breach of contracts between Plaintiff and the Defendants for the alleged shipment of 25 containers of fish bait.
   

2. FACTS AND ANALYSIS
   

2. The Plaintiff, a body corporate with limited liability duly incorporated under the laws of Morocco, instituted proceedings against three defendants and according to the Plainttiff , the 1st Defendant, is a limited liability company duly incorporated under the laws of Fiji, the 2nd Defendant a limited liability company duly incorporated under the laws of Fiji; and 3rd Defendant, is a businessman, employed by the 1st Defendant who at all material times acted as representative and/or agent of the 1st and 2nd Defendants. The Plaintiff alleged that the Defendants colluded with each other and ordered from the Plaintiff 25 refrigerated containers of fish bait for the sum of US$560,000.00 and payment was to be by Letters of Credit (LC) to be provided by them. But at the last moment the LC was not materialized and the excuse given was that Reserve Bank of Fiji has not approved the said LC, since a substantial foreign currency payment was involved, and the shipment proceeded in the absence of a valid LC in place upon the assurance that payment would be settled in time but, the Plaintiff alleged that upon arrival of the 25 containers at the Port of Suva, the Defendants changed the terms of payment and thereafter have refused and or neglected to pay the Plaintiff .Since there was no payment of customs dues and clearance of the consignment the Customs Authorities had to make a sale as the goods were perishable in nature.
   
3. In their Defence, the 1st Defendant and 2nd Defendant denied all allegations made against it by the Plaintiff and, the 2nd Defendant further submitted that it had not contracted with the Plaintiff. The 2nd Defendant did not admit having deals with the Plaintiff in respect to the shipment of the 25 containers of fish bait, but stated that some emails were forged by an unauthorized person on behalf of the Company and deny any personal liability to the Plaintiff.
   
4. Subsequent to the 1st, 2nd and 3rd Defendants filing their respective defenses, the 1st and 2nd Defendants have made applications to the court for an order that the Plaintiff pay Security for Costs.
   
5. The 1st Defendant filed an application for Security for Costs pursuant to Order 23 Rule 1 seeking a costs of which were estimated at $10,000.00 and the 2nd Defendant also filed an application for Security for legal costs to defend this action in the event that the Plaintiff losses this action and estimated the costs of which were estimated at $16,000.00.
   
6. The Plaintiff responded to the 1st and 2nd Defendant’s application opposing on order for Security for Costs through an affidavit in opposition which contained numerous electronic communications including emails and skype conversations and bills of lading and memorandum of understanding dated 6th May, 2010 between Plaintiff and the 1st and 2nd Defendants.
   

7. In the Plaintiff’s Affidavit in Reply that was deposed by Semi Naikau on 31st January 2011, the Plaintiff alleged through documentary evidence how the 1st-3rd Defendants had entered into 3 different arrangements with the Plaintiff for an order of 25 refrigerated containers of fish bait that were then shipped to Fiji, and then the 1st -3rd Defendants subsequently breached all three arrangements.

8. The Plaintiff allege its Affidavit in Reply that it had not been paid for the 25 containers of fish bit in the sum of USD $560,000.00.

9. The Plaintiff allege that the 1st and 2nd Defendants’ legal costs are not relevant as it was the 1st-3rd Defendant’s decisions that have caused losses to the Plaintiff amounting to USD $560,000.00.

10. The Plaintiff also state that it would be unjust for the court to order Security for Costs against it, as it was the 1st-3rd Defendants who had failed to honor their side of the arrangements and who have unfairly benefitted by creating a scheme to deceive the Plaintiff of its just rewards.

11. The Plaintiff further submitted that it has a prima facie strong case found on the documentation and that the 1st-3rd Defendants have profited from the breach leaving the Plaintiff without a remedy.

100. THE LAW
     

12. Order 23 rule 1 (1) (a)

Order 23 Rule 1 of the High Court Rules provides as follows:

ORDER 23

SECURITY FOR COSTS

Security for costs of action

1. Order 23 Rule 1 of the High Courts 1988 provides:

“1(1) Where, on the application of a defendant to an action or other proceeding in the High Court, it appears to the Court –

1. That the plaintiff is ordinarily resident out of the jurisdiction; or
   
2. That the plaintiff (not being a plaintiff who is suing in a representative capacity) is a nominal plaintiff who is suing for the benefit of some other person and that there is reason to believe that he will be unable to pay the costs of the defendant if ordered to do so; or
   

100. Subject to paragraph (2), that the plaintiff’s address is not stated in the writ or other originating process or is incorrectly stated therein, or
     

4. That the plaintiff has changed his address during the course of the proceedings with a view to evading the consequences of the litigation;
   

then if, having regard to all the circumstances of the case, the Court thinks it just to do so, it may order the plaintiff to give such security for the defendant’s costs of the action or other proceeding as it thinks just.” (emphasis is added)

13. The 1st and 2nd Defendant’s applications for Security for Costs were made pursuant to Order 23 Rule 1 (1) (a) “that the plaintiff is ordinarily resident out of the jurisdiction” and also state that the claim of the plaintiff is without merit.

14. The Court’s Discretion

In the High Court of Fiji in Furuuchi Suisan Company Limited v Hiroshi Tokuhisa and Others Civil Action No. 95 of 2009, Justice Byrne ordered Security for Costs against a Plaintiff company incorporated and operating in Japan as the Plaintiff was ordinarily resident out of the jurisdiction. In reaching this decision, Justice Byrne relied on what Sir Nicolas Brown Wilkinson V.C said in Porzelack KG v Porzelack (UK) Limited 1987 1 ALL ER 1074 at p. 1076:

“That the purpose of ordering security for costs against a plaintiff ordinarily resident outside the jurisdiction is to ensure that a successful defendant will have a fund available within the jurisdiction of the court against which it can enforce a judgment for costs. It is not, in the ordinary case, in any sense designed to provide a defendant with security for costs against a plaintiff who lacks funds. The risk of defending a case brought by a penurious plaintiff is as applicable to plaintiffs coming from outside the jurisdiction as it is to plaintiffs resident within the jurisdiction”.

His Lordship further stated

Under Order 23, r1(1) (a) it seems to me that I have an entirely general discretion either to award or refuse security having regard to all the circumstances of the case. However, it is clear on the authorities that, if other matters are equal, it is normally just to exercise that discretion by ordering security against a non-resident plaintiff. The question is what, in all the circumstances of the case, is the just answer”.

(emphases are added)

15. The above authorities seem to suggest that fairness on the part of the Defendant requires an award for security for costs against a Plaintiff who is resident outside the jurisdiction.

16. However, the latter part of what Sir Nicolas Brown Wilkinson V.C mentioned above suggests the existence of a discretion, which requires the Court to have regard to all the circumstances of the case and also the rationale in security for cost being equally applicable to ‘ a case bought by a penurious plaintiff is as applicable to plaintiff coming from outside jurisdiction’. In other words , merely because of the Plaintiff is a resident outside the jurisdiction , a court should not order security for cost, as there is a risk of defending in a case where the Plaintiff is penurious , though the Plaintiff is not a resident outside the jurisdiction. So when granting an order for security for cost court ought to consider the claim of the Plaintiff in a holistic manner rather than to limit the circumstances to Order 23 rule 1(1) (a) to (d) and specially the place of residence.

17. Whilst, the statutory discretion is unqualified, over a period of time the courts have developed and adopted guidelines for the exercise of the discretion, depending on the circumstances and the White Book of 1999 discusses the law as it stood at that time.

White Book 1999 page 428 states as follows:

“Rule 1(1) states that if , having regard to all the circumstances of the case , the Court think it jus to do, it may order security for costs in any one of foru situations.The first mentioned (and , from a practical point of view the most important) is that the plaintiff is ordinariy resident out of the jurisdiction(r.1(1)(a). In modern times the Court’s exercise of discretion under this head has been affected by E.C. Treaty Considerations”. (emphasis is added)

18. It is to be noted as far back in 1999 in England and other countries in European Community, the Brussels Convention affected the discriminatory behavior of the law which hinders international trade in awarding security for cost solely on the ground of the Plaintiff being a foreigner. So, it is not desirable to award security for cost solely on the ground of Plaintiff being a resident in another jurisdiction. The award of security for cost solely on the ground that the Plaintiff is a foreigner would be a hindrance to international trade and courts in exercising its discretion should not consider the residence of the Plaintiff as the only ground to award the security for cost. This can be deduced from the following quote from the White Book which clearly state that “It is no longer, for example, and inflexible or rigid rule that plaintiff resident abroad should provide security for costs.” See (23/3/3) White Book 1999. So, in an appropriate case the Court can refuse security for cost though the Plaintiff is a foreigner and does not have assets in the jurisdiction.

At page 429-430(23/3/3) of the White Book 1999 state as follows:

“Discretionarily power to order security for costs (rr1-3). The main and most important change effected by this Order concerns the nature of the discretion of the Court on whether to oreder security for costs to be given. Rule 1(1) provides that the Court may order security for costs ‘if, havin regard to all the circumstances of the case, the Court thinks it just to do so’. These words have the effect of conferring upon the Court a real discretion, and indeed the Court is bound , by virtuer thereof to consider the circumstances of each csse, and in the light therof to determine whether and to what extent or for what amont a plaintiff(or the defendat as the case may be )may be ordered to provide secrity for costs. It is no longer, for example, and inflexible or rigid rule that plaintiff resident abroad should provide security for costs. In particular, the former )65 r 6B which had provided that the power to require a plaintiff resident abroad, suing on a judgment or order or on a bill of exchange or othe negotiable instrument, to give security for cost was to be in the discretion of the Court, has been preserved and extended to all cases by r.1(1).

In exercising its discretion under r1(1) the Court will have regard to all the circumstances of the case, Secutiy cannot now be ordered as of course from a foreign plaintiff, but only if the Court thinks it just to order such security in the circumstances of the case. For the circumstances which the Court might take into account whether to order security for costs, see per Lord Denning M.R. in Sir Lidsay Parkinson & ColLtd Ftriplan Ltd (1973) Q.B 609 at 626 -627; (1973) 2All E.R. 273 at 285-86 and .......

....... If there is a strong prima facie presumption that the defendant will fail his defence to the action, the Court may refuse him any security for costs (see per Collins J. in Crozat v Brogden (1894)2 Q.B. 30 at 33((the judgment of the CA in that case was in subtanc erersed by the former O65 r. 6B, made in 1920, which in substance is repeated in r.1(1). See also Tident International Freight Services Ltd v Manchester Ship Canal Co (1990) BCLC 263, CA. It may be a denial of justice to order a plaintiff to give security fot the costs of a defendant who has not defence to the claim.....

In considering an application for security for costs the Court must take account of the plainiff’s prosepects of success, admissions by the defendant, open offers and payments into Court; but a defendant should not be adversely affected in seeking security merely because be has attempte to reach asettlement. Evidence for negotiations conducted “without prejudice” should not be admitted without his consent (Simaan contracting Co v Pilkington Class Ltd (1987) 1 W/L.R. 516” (emphases are added)

19. From the above quotations of the White Book (1999) it is clear that there is no inflexible rule as to the award of Security for cost, and even when the Plaintiff is a foreigner who does not have any assets in the jurisdiction there is no mandatory requirement to provide security for cost. The rationale for security for cost was to provide some assets to recover costs in an instance where the cost is ordered against the plaintiff. This principle is equally applicable to locals who do not have any property or the only property owned by them is mortgaged to a bank as the mortgagee will have the priority.
    
20. It is also noted that there is no special reason for the award of security for cost merely because the Plaintiff is a resident outside the jurisdiction since the recovery is cumbersome. The Plaintiff who has assets abroad will be in a better position than a local who does not have any assets to recover costs. The costs awarded in standard basis, is normally not substantive and a security for cost calculated on the indemnity basis will only be justified in a rare instance as indemnity cost award is an exception to the normal award of cost , that is estimated in the standard basis. A plaintiff who has a prima facie case against defendant should not be discriminated merely because that Plaintiff is a resident outside the jurisdiction. This principle of non discriminatory treatment is specifically applicable to the commercial world in terms of the international covenants including WTO for which the Fiji had ratified in Fiji has obtained the membership of the WTO on 14th January 1996.
    

21. The WTO principles are based on Most Favoured Nation principle and National Treatment.

Trade without discrimination:

“1. Most-favoured-nation (MFN): treating other people equally.

Under the WTO agreements, countries cannot normally discriminate between their trading partners. Grant someone a special favour (such as a lower customs duty rate for one of their products) and you have to do the same for all other WTO members.”

This principle is known as most-favoured-nation (MFN) treatment. It is so important that it is the first article of the General Agreement on Tariffs and Trade (GATT), which governs trade in goods. MFN is also a priority in the General Agreement on Trade in Services (GATS) (Article 2) and the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) (Article 4), although in each agreement the principle is handled slightly differently. Together, those three agreements cover all three main areas of trade handled by the WTO.

Some exceptions are allowed. For example, countries can set up a free trade agreement that applies only to goods traded within the group — discriminating against goods from outside. Or they can give developing countries special access to their markets. Or a country can raise barriers against products that are considered to be traded unfairly from specific countries. And in services, countries are allowed, in limited circumstances, to discriminate. But the agreements only permit these exceptions under strict conditions. In general, MFN means that every time a country lowers a trade barrier or opens up a market, it has to do so for the same goods or services from all its trading partners — whether rich or poor, weak or strong.

2. National treatment: Treating foreigners and locals equally. Imported and locally-produced goods should be treated equally — at least after the foreign goods have entered the market. The same should apply to foreign and domestic services, and to foreign and local trademarks, copyrights and patents. This principle of “national treatment” (giving others the same treatment as one’s own nationals) is also found in all the three main WTO agreements (Article 3 of GATT, Article 17 of GATS and Article 3 of TRIPS), although once again the principle is handled slightly differently in each of these.

National treatment only applies once a product, service or item of intellectual property has entered the market. Therefore, charging customs duty on an import is not a violation of national treatment even if locally-produced products are not charged an equivalent tax” (wto web site 10th June, 2011 UNDERSTANDING THE WTO: BASICS Principles of trading system http://www.wto.org/english/thewto_e/whatis_e/tif_e/fact2_e.htm )

22. White Book (1999) at page 431 it was stated:

"the Court of Appeal held in O 23 r 1(1)(a), whilst not overtly discriminatory, was covertly discriminatory on grounds of nationality as most plaintiffs ordinarily resident outside the jurisdiction would not be British. Consequently, the English Court should never exercise its discretion to order security of costs against an individual plaintiff who was national of and resident in another Member State. The court affirmed that this decision had no application to the case of a foreign insolvent company whether resident in the E.C. or not or to a plaintiff resident in a country not a member of the Community." (emphasis is added)

23. It is clear that the present trend in the area of business and trade when it deals with the member countries in EC is against the Order 23 rule 1. It is also clear that WTO members are also required to adhear to rules of trade that are non discriminatory and to treat the foreigners and locals equally in trade and business. It is also pertinent to note that there are certain international covenants that expressly prohibit the security for costs, and the principle behind such prohibition is important to note, though these covenants do not apply to this case. The principle behind such prohibition would be helpful to use the discretion properly, rather than to consider the residency of the Plaintiff as the sole ground for award of security for cost. The rationale is the smooth functioning of international trade and business without any discrimination and also to prevent undue hindrance to free trade and to avoid or minimize the difficulty in bringing to justice the errant and unscrupulous practices when it involves a foreign plaintiff who had suffered loss, and not to discriminate the foreign Plaintiff who alleges loss in international trade.

24. What is apparent from what was stated above is the reluctance and in some instance the prohibition of security for cost in the international trade and commerce. Though the above provisions in the international covenants are not directly applicable to the present case in the exercise of the discretion in the award of security for cost such principles should be considered in the interpretation.

25. In Kadavu Shipping Company Ltd v Dominion Insurance Ltd [2009] HBC 508 of 2006, Master J Udit held that in determining what circumstances the court needs to consider when exercising such discretion, regard must be given to the "strength or bona fides of the claim". In referring to Porzelack, Master J Udit said:

"Under this criterion, the respondent is to show that it has a prima facie regular claim, which discloses a reasonable cause of action. It is not the court's duty to divulge into a detailed analysis of the merits of the case unless it can be clearly demonstrated that there is a relatively high degree of success or failure. Once it is established, the Court is to proceed on the basis that the claim is bona-fide".

26. In Brzoska v Hideaway Resort Ltd [2009] HBC 347 of 2005, Justice Sosefo Inoke held that in determining what circumstances the court needs to consider when exercising such discretion, regard must be given to "the Plaintiff's chances of success". Justice Sosefo referred to a decision in Allan v Hillview Limited [2003] HBC 366 of 2006 where Connors J said:

".....another matter of importance for the court in exercising its discretion is the plaintiff's prospect of success in the action and of course as in any such situation that does not require the court at this point in time to make any detailed determination of the likelihood of success but merely to do so based on the pleadings as they appear before the court."

27. In Kadavu Shipping Company, Master J Udit stated that in the exercise of the discretion consideration of whether an application for security for costs is "used oppressively to stifle a bona fide cause of action" has to be looked in to before an award of security for cost is ordered. This is another reason why a court should not award a security for cost merely because a plaintiff is a foreigner. A foreign Company can be further put in to financial burden that would make litigation prohibitive exercise when it deals with a foreign party. Not only the financial loss but also loss due to delay in litigation in a security for cost application is another factor that has to be considered. The plaintiff who alleges deceit, fraud and substantial financial loss can be further frustrated by the delay in litigation. Though, it is not the court's duty to divulge into a detailed analysis of the merits of the case it is nothing but just and fair to evaluate the Plaintiff's case in the exercise of discretion, before an award of security for cost as held in the cases referred earlier in this decision.

28. The prima-facie documentary evidence, mainly electronic evidence supports more than a prima facie claim against the Defendants. The 1st Defendant had not even replied to the substantial affidavit in opposition filed in reply to this application that was filed by the Plaintiff. Though the 2nd Defendant had filed a reply to the affidavit in opposition the mere denial of electronic communications falls short of any satisfactory explanation of the alleged loss to the plaintiff and non payment for 25 containers of fish bait that was worth more than US$560,000.00. I would not venture on a voyage of discovery as to find out the existence or non existence of agreement between the parties, but the evidence before me is more than enough to evaluate the strength of Plaintiff's case and can be safely deduce that it is more than a prima facie case. The 2nd Defendant allege forgery and fraudulent use of its email address to communicate with the plaintiff but fails to mention any criminal complaint that it had made or any investigation into such activity if it does not condone them. These allegations of forgery and unauthorized use of emails do not explain the behaviour of a prudent business activity of the Defendants. In the circumstances, although the Plaintiff Company is ordinarily resident out of the jurisdiction, the court's discretion in such an instance is to refuse an order for security considering all the circumstances of the case.

29. The Plaintiff has a prima facie strong case found on the documentation and that the Defendants have profited leaving the Plaintiff no option but to litigate to recover the US$560,000.00. The Plaintiff's claim is more than a prima facie one based on electronic evidence as well as some conventional documents for which the 1st Defendant has opted not to file an answering affidavit and the 2nd Defendant's affidavit in reply also falls short of explaining the circumstances of the Plaintiff's claim, but it had only denied the contents of the Plaintiff's affidavit in opposition and has allege forgery and unauthorized use of its email, which falls short in the analysis of evidence for this application to find out the strengths of the plaintiff's case. In the affidavit in opposition filed by the Plaintiff the annexed 'A' an invoice for USD 560,000 and Appication to transfer currency to person resident outside Fiji to pay for imports marked as one of the documents in 'D3' clearly indicates 2nd Defendant's name and the explanation that those are forgery, cannot be accepted at this stage on the materials available to me. The D3 annexed documents clearly indicate the 1st and 2nd Defendants names and addresses and since this is a document that originated in Fiji and since it was made in relation to 'application to transfer currency to person resident outside Fiji to pay for imports' and it was dated 5th October, 2009 that substantiate the assurances of payments via SWIFT makes the Plaintiff's case more than prima facie against the 1st and 2nd Defendants. The emails annexed in 'D3' substantiate the "Application to transfer currency" annexed in the same 'D3'.

4. CONCLUSION
   

30. The Plaintiff's claim is substantial and it is for the alleged breaches of the Defendants and accordingly there is evidence to show that Plaintiff had shipped 25 containers of fish bait, without a valid LC in place. It is contended that it was done on the assurance that the money will be paid via a telegraphic transfer upon the arrival of goods and that the local charges in Fiji are borne by 1st Defendant. It is clear that on the available evidence that the Plaintiff has established a more than a prima facie claim against the 1st and 2nd Defendants. While the 1st Defendant has opted not to reply to the affidavit in opposition filed by the Plaintiff to this security for cost application the affidavit in reply filed by the 2nd Defendant does not adequately explain the circumstances that it alleges, namely forgery and unauthorized use of its email, which are serious and should be dealt immediately if one were genuine in its business activities. The Plaintiff's claim is based on deceit and or fraud and loss of revenue amounting to US$ 650,000 to them. The Plaintiff also allege similar predicament to another businessman by the 1st Defendant and though it is not relevant to this application that is also admissible evidence in terms of the rules of "systems evidence" and cannot be totally disregarded.

31. For the reasons given above the Defendants' applications for security for cost is refused and they are struck out. The costs of this application will be cost in the cause.

Dated at Suva this 10th day of June, 2011

.............................................
Mr Deepthi Amaratunga
Acting Master of the High Court
Suva