Public Service Association Incorporated v Kingdom of Tonga [2015] TOCA 19; AC9 of 2015 (16 September 2015)

IN THE COURT OF APPEAL OF TONGA

CIVIL JURISDICTION AC 9 of 2015

NUKU'ALOFA REGISTRY [CV 48 of 2014]

BETWEEN:

1. PUBLIC SERVICE ASSOCIATION INCORPORATED
2. SAMIUELA 'AKILISI POHIVA
Appellants

AND:

1. KINGDOM OF TONGA
2. FRIENDLY ISLANDS SATELLITE COMMUNICATIONS LIMITED (TRADING AS TONGASAT)
Respondents

Coram : Moore J
Blanchard J
Hansen J
Tupou J

Counsel : Dr. R. Harrison QC SC for the Appellants
Mr. S. Sisifa SG for the First Respondent
Mr.S. Stanton SC & Mr. W. Edwards for the Second Respondent

Date of Hearing : 14 September 2015
Date of Judgment : 16 September 2015

JUDGMENT OF THE COURT

Introduction
[1] This is an application for leave to appeal against an order made by Scott J on 19 March 2015 in the Supreme Court requiring the plaintiffs/appellants Public Service Association Inc (Tonga PSA) and Mr. 'Akilisi Pohiva (whom we will jointly call "the appellants") to pay to the Registrar sums of $20,000 each by way of security for costs. The effect of the order is to stay the appellants' proceeding against the Kingdom of Tonga and Friendly Islands Satellite Communications Ltd (trading as Tongasat) (whom we will jointly call "the respondents") until the security is provided.

[2] In view of the importance of the matter we allowed counsel to proceed to argue the merits of the appeal reserving the question of leave to appeal.

[3] The proceeding by the appellants against the respondents was commenced on 8 July 2014. In their statement of claim the appellants have impugned a payment of US$25,450,000 said to have been made by the Government of Tonga to or for the benefit of Tongasat in or about June 2011 after the Government had received an aid grant in that amount from the Government of the People's Republic of China (PRC).It is pleaded that the payment of the PRC aid grant funds to or for the benefit of Tongasat was contrary to law and/or without legal authority and accordingly beyond the powers of those making or authorising it and/or was invalid. The appellants seek a declaration that accordingly the funds remain the property of the Government (or Kingdom) of Tonga. An order for repayment, or alternatively damages, payable to the Government (or Kingdom) of Tonga is also sought.

[4] Mr.Pohiva brings his claim on behalf of an unincorporated body, the Friendly Islands Democratic Party, but accepts a personal liability for costs if he is unsuccessful. Indeed, contrary to the way in which the claim is put in the statement of claim, he maintains in an affidavit that he is also suing in his personal capacity.

[5] The respondents have not yet filed statements of defence but it is plain that they reject the pleaded allegations. Scott J recorded in his judgment (at [17]) that all parties were in agreement that the central issue, the lawfulness of the disbursement in question, is a matter of national concern which will involve careful consideration of important and sometimes difficult questions of fact and law.

[6] This is not the first court proceedings directed to the validity of the payment to Tongasat. Indeed there has already been skirmishing between the parties and persons allied to each side in the controversy in the form of an unsuccessful private prosecution and actions for defamation and malicious prosecution. Other aspects of the matter are the subject of judgments that this Court is also delivering at this time. It is fair to say, however, that the present proceeding appears to be the most convenient means of having the Supreme Court rule on the legality of the payment to Tongasat.

The application
[7] The applications for security for costs were made in reliance on Order 17 rule 1(b) of the Supreme Court Rules 2007:

"Where on the application of a defendant to any proceeding it appears to the Court that:

....

(b) The plaintiff may be unable to pay the costs of the defendant if ordered to do so;

....

the Court may, if after having regard to all the circumstances of the case it thinks just to do so, order that all the action be stayed until the plaintiff gives security for the defendant's costs of the proceeding in such sum and in such manner as the Court may determine".

[8] In relation to the Tonga PSA, which is registered as an incorporated society, s.17 of the Incorporated Societies Act (Cap 28) is also relevant. It says:

"17 Security for costs where society is plaintiff.

Where a society is the plaintiff in any action or other legal proceeding, and there appears by any credible testimony to be reason to believe that if the defendant is successful in his defence the assets of the society will be insufficient to pay his costs, any Court or Judge having jurisdiction in the matter may require sufficient security to be given for those costs and may stay all proceedings until that security is given."

[9] In support of their applications for security for costs, which they brought at the same time as applications to strike out the appellants' statement of claim and which failed, the second respondent pointed to the complexity of the litigation and the involvement of overseas senior counsel on their behalf, and thus the substantial cost of defending the proceedings. Tongasat asserted the impecuniosity of both the Tonga PSA and Mr.Pohiva, alleging that the Tonga PSA was insolvent and that both appellants had been fundraising because they could not sustain the cost of paying their own lawyer. Tongasat also said that moneys so raised would not be able to be used, under the Tonga PSA's rules, for the purpose of meeting costs awarded against it. The respondents sought security of TOP$100,000 from each appellant.

[10] The Secretary-General of the Tonga PSA said in an affidavit that it held a term deposit of TOP$47,445 at its bank. There was also evidence that both appellants had been engaged in raising funds for the purposes of the litigation.

The Supreme Court's judgment
[11] Scott J dealt with the applications extremely briefly in four paragraphs of his judgment. He set out Order 17 rule 1(b).He stated that s.17 of the Incorporated Societies Act required a society to satisfy the Court that it has sufficient assets to meet the costs of an unsuccessful action. He observed that the central issue in the case was of national concern, and said that leading counsel would be involved on both sides and that the trial would probably take at least one week.

[12] The Judge then referred to the financial position of the appellants as follows:

The position of the [Tonga PSA] is that TOP$47,445 is held on term deposit. There is nothing however to show that the constitution of the Society permits member's funds to be spent on or secured to an action of the present kind in which the interests of the Society are at best tangentially involved.

It is a matter of record that [Mr.Pohiva] has incurred substantial unpaid costs from previous associated proceedings and that he has previously made public appeal for donations to allow him to proceed further. In all the circumstances I am satisfied that each of the Plaintiffs should pay to the Registrar of the High [sic]Court TOP$20,000 by way of security. Pending payment the proceedings are stayed.

Appeal from exercise of discretion
[13] The appeal is one from an exercise of discretion by Scott J. The approach which must be taken by an appeal court is well-established and was put in this way in the joint judgment of Dixon, Evatt and McTiernan JJ in House v The Queen (1936) 55 CLR 499 at 504-505:

"The manner in which an appeal against an exercise of discretion should be determined is governed by established principles. It is not enough that the judges composing the appellate court consider that, if they had been in the position of the primary judge, they would have taken a different course. It must appear that some error has been made in exercising the discretion. If the judge acts upon a wrong principle, if he allows extraneous or irrelevant matters to guide or affect him, if he mistakes the facts, if he does not take into account some material consideration, then his determination should be reviewed and the appellate court may exercise its own discretion in substitution for his if it has the materials for doing so. It may not appear how the primary judge has reached the result embodied in his order, but, if upon the facts it is unreasonable or plainly unjust, the appellate court may infer that in some way there has been a failure properly to exercise the discretion which the law reposes in the court of first instance. In such a case, although the nature of the error may not be discoverable, the exercise of the discretion is reviewed on the ground that a substantial wrong has in fact occurred."

Submissions for appellants
[14] Mr. Harrison QC summarised the argument for his clients in this way. He said that Scott J had:

- failed to exercise an overall discretion;
- not had regard to all the circumstances of the case;
- failed to consider whether it was just to order the giving of security;
- failed to weigh the competing interests of the parties and conduct a balancing exercise of their respective interests in terms of the impact of his decision;
- failed to take into account that the claim was one with reasonable prospects of success, having already withstood strike out applications from both respondents;
- failed to take into account the important public interest in having the claim determined; and
- failed to consider the overall effect of requiring the appellants to raise or provide security for a total of TOP$40,000, which imposed an unacceptably high burden on litigants acting in the public interest.

[15] The appellants say that Scott J's reasoning was conclusory and that he simply did not address considerations which a judge is required to balance in coming to a decision on security for costs. In particular, Scott J had failed to follow the approach of Ward CJ in Fainga'a v Lelea [2005] Tonga LR 8 who had said that where a plaintiff was alleging improper conduct by public officer the court should take a much more liberal view of the plaintiff's chances of success because it was in the public interest to have such complaints heard. The court should be cautious, Ward CJ had said, about making an order which might have the effect of stifling a genuine case involving a public interest:

Whilst the court must always be conscious of the possibility that the claim is a sham or brought solely for reasons of malice, if it appears otherwise and is founded on a good cause of action, the court should only order security where it is clear there is no chance of success.

[16] As to the individual appellants, Mr. Harrison submitted that contrary to the Judge's view, s.17 of the Incorporated Societies Act did not reverse the normal onus on the applicant to make the case for an order for security of costs. He also criticised the Judge's view of the lack of powers for the Tonga PSA under its Constitution to use its term deposit to meet an award of costs. Counsel drew attention to Rule 3(1), (2), (3), (5) and (8) of the Constitution, which he said gave the necessary empowerment. Furthermore, the Tonga PSA was being sued in a related proceeding for defamation for what it had said about the payment to Tongasat. It was entitled to defend itself. The present proceeding was the best means of doing so by establishing whether the payment was lawful.

[17] As for Mr. Pohiva's position, counsel said that in the Supreme Court the respondents had not actually challenged his ability to pay. That was a matter raised by Scott J himself by reference to unpaid costs awards, which we were told by counsel had either been set aside or were awaiting taxation

Submissions for respondents
[18] For the second respondent, Mr. Stanton SC emphasised the burden carried by someone attempting to overturn an exercise of discretion. He referred to the Tonga PSA's need to fund-raise as an indication of its impecuniosity and pointed to a statement in an affidavit of its Secretary-General, Ms 'Amanaki, that funds raised to date were earmarked for payment of the appellants' legal costs and would be insufficient and not available as security for costs.

[19] Mr. Stanton submitted that Scott J was aware from other cases that Mr. Pohiva had had substantial costs awards made against him. The Judge was entitled to draw from that fact the inference that Mr. Pohiva would be unable to meet a costs award in this case if the appellants' claim was not successful.

[20] Counsel said that Scott J had not erred in the exercise of his discretion so as to justify this Court in interfering with his decision.

[21] For the first respondent, Mr. Sisifa supported the position taken by Tongasat and submitted that this Court should not interfere unless the Judge was shown to have erred in the exercise of his discretion by failing to consider the real determining question in accordance with all the circumstances of the case: Culver v Beard [1937] 1 All ER 301 at 304.

How application for security should be determined
[22] The jurisdiction of a court to make an order for security for costs has been said to exist in order to protect the efficacy of the exercise of its jurisdiction to award costs; it is undesirable for the court to permit a situation to arise where a party's success is pyrrhic because an order for costs cannot be met: Idoport Pty Ltd v National Australia Bank [2001] NSWSC 744 at [33] per Einstein J.

[23] Order 17 Rule 1 confers on the Court a broad and unfettered discretion but one that must be exercised in a principled manner. It requires the Court to take four steps. It must assess:

1. The approximate level of costs likely to be awarded to the defendant, if successful;
2. Whether the plaintiff will be "good" for such an award;
3. Whether, in the light of all the circumstances of the case, justice requires that the plaintiff should be required to give some security for those costs and, if so;
4. In those circumstances, the amount of the security that should be ordered and the means by which it should be satisfied.
   

[24] In making its assessment at each step of its consideration of the application the court should not lose sight of the fact that the onus of persuading it to make an order for security is borne by the applicant/defendant.

[25] The first two of the steps are usually relatively straight-forward. The main difficulty lies in the latter two which require weighing up of a number of factors, bearing in mind the fundamental right of all persons, including corporations, to have access to the courts. And, as McHugh J pointed out in PS Chellaram v China Ocean Shipping [1991] HCA 36; (1991) 102 ALR 321 at 323:

"The weight to be given to any circumstance depends not only upon its own intrinsic persuasiveness but upon the impact of the other circumstances which have to be weighed."

[26] These factors or circumstances can include:

1. The strength or weakness and bona fides of the plaintiff's case.

This evaluation will often have to be made on what is quite limited information at an early stage of the case, and will consequently be "broad brush". It should not be turned into a mini-trial.

2. The degree of risk that a costs order will not be met.

There is a basic principle that a natural person who appears to have an arguable case should not be ordered to give security for costs, no matter how poor he or she is:

"The power to require security for costs ought not to be used so as to bar even the poorest litigant from the court". (Pearson v Naydler [1977] 1 WLR 899 at 904 per Megarry V-C).

However:

"An order for security for costs made against an impecunious litigant when justified by a factor other than mere impecuniosity does not offend the general rule that poverty is no bar to the litigant": The AirtourerCo-operative Ltd v Millicer Aircraft Industries Pty Ltd. [2004] FCA at [38] per Branson J."

A body corporate will usually not be treated as accommodatingly as a natural person, but, even then, a defendant will not be entitled to an order for costs as of right where the impecuniosity of the body corporate has been established: Bryan E Fencott Pty Ltd v Eretta Pty Ltd [1987] FCA 102; (1987) 16 FCR 497 at 506 per French J.

100. Whether the order would be oppressive because it will stifle a reasonably arguable claim.

If the court concludes that the plaintiff has shown a reasonable prospect of success it will not make a security for costs order if and to the extent that it will have the practical effect of shutting the plaintiff out of the court.

4. Whether any impecuniosity of the plaintiff has been caused or contributed to by the conduct of the defendant to which the plaintiff's claim is directed.

It is a matter of common-sense that if the alleged wrong-doing of the defendant appears to have caused loss to the plaintiff whereby he or she has no or insufficient means to provide security, it would be particularly unjust to order it.

5. Whether there are aspects of public interest in the plaintiff's pursuit of the case.

If a plaintiff is bona fide using the proceeding to ventilate an issue, or obtain some relief, for the public, such as the prevention of corruptor unlawful practices or the enforcement of the law, the court will be less likely to require security to be given if that may create hardship for the plaintiff, in the same way that it may award reduced costs (or sometimes no costs at all) if such a case ultimately fails. We consider, however, that it goes too far to say as Ward CJ did in Fainga'a v Lelea that in a case of this kind challenging public conduct the court should only order security if the "public interest" plaintiff has no chance of success. The better view is that while the public interest character of the proceeding certainly weighs in the scales in favour of the plaintiff, something more than the mere categorisation of proceedings as public interest litigation is needed. That is because, if the claim fails, such categorisation will not per se justify a departure from the normal rule that costs follow the event: Bat Advocacy NSW Inc v Minister for the Environment, Protection, Heritage and the Arts (No. 2) [2011] FCAFC 84; (2011) 280 ALR 91 at [6].

6. Whether the defendant has delayed in making the application

If there has been a substantial unexplained elapsing of time between the service of the proceeding and the making of the application, and during that period the plaintiff has devoted time and resources to progressing the proceedings, it may be unfair to belatedly put an obstacle in the way in the form of an order the plaintiff may now have difficulty meeting.

7. Whether the plaintiff resides or has its assets outside the jurisdiction

A plaintiff who is not present in the jurisdiction (or whose assets are abroad) presents a greater risk of failing to pay a costs order and so an order for security may be justified.

8. Whether there are third parties standing behind the plaintiff and likely to benefit from the litigation

If a plaintiff may not meet a costs order but has the backing of a more substantial third party who will benefit from success in the litigation (such as a parent company of a small local subsidiary), that may incline the court to order security.

1. Whether there are any other matters relevant to the exercise of the court's discretion peculiar to the circumstances of the particular case
   

[27] In relation to step four, the quantum and the means by which security should be given will depend upon all the circumstances. Accordingly, in fixing the amount of security the estimate of costs from step one will be only one of the factors to be weighed. The court may sometimes order payment by instalments at certain stages of the proceedings.

This case
[28] It is unfortunate that in his judgment the Judge chose to deal with this matter so tersely and apparently without carrying out an analysis of the kind we have just described. The absence of proper reasons for decision is unhelpful to an appellate court and, as in this case, can lead the court to conclude that the Judge has failed to make a proper assessment and has thus arrived at an erroneous conclusion.

[29] It would seem from his reference to the subject matter of the case – the lawfulness of the payment to Tongasat – as being "a matter of national concern" which would involve "careful consideration of important and sometimes difficult questions of law," with leading counsel on both side and a trial of at least one week, that Scott J must have been of the view that quite substantial awards of costs against the plaintiffs could be made if their claim failed. If that was his view, which he did not actually state, we would agree with him. The public interest character of the litigation would not necessarily immunise the appellants from a costs award if it transpired that their claim proved to be unsubstantiated by the evidence at trial. We are of course expressing no view on the appellants' prospects of success. Indeed, one of the potential difficulties in carrying out a proper analysis at the third step in the exercise is that the respondents have chosen not to put before the Supreme Court any indication of how they propose to counter the appellants' allegation of unlawful conduct.

[30] But as it happens, we do not get to the third step. We are satisfied that the Judge's analysis went awry at the second step, because on the evidence before him, Scott J was simply not entitled to take the view, as without directly saying so he seems to have done, that the appellants were not "good" for the costs which might be awarded against them if their claim failed.

[31] Scott J said, in relation to the Tonga PSA, that s.17(1) required a society to satisfy the court that it has sufficient funds to meet the costs of an unsuccessful plaintiff. We do not accept, however, that s.17(1) reverses the normal onus of proof borne by an applicant for security for costs or requires any different approach than that to be taken under Order 17 rule 1(b). The "credible testimony" mentioned in the section must be the evidence relied on by the applicant to prove that the society does not have the necessary funds available to it. The insufficiency of assets to pay costs of which the section speaks equates with the inability to pay costs in para 1(b) of the Order. We reach this view on the language and purpose of the two provisions but it was also the view of Collins J of the High Court of New Zealand in Friends of Houghton Valley Inc v Wellington City Council [2015] NZHC 1515 on an identical provision in the New Zealand's Incorporated Societies Act 1908. Collins J said (at [20]) that he found it difficult to see any significant differences between s.17 and the High Court Rule equivalent to Order 17 rule 1. He regarded s.17 as "simply conferring concurrent jurisdiction to order security for costs". In our view Scott J erred in law in reversing the onus of proof in relation to the application against the Tonga PSA.

[32] He also erred, we consider, in saying with reference to the TOP$47,445 held by the society on term deposit (and perhaps with reference to whatever amounts the society was able to obtain by fundraising for the case, though he does not appear to have adverted to them), that it had not been shown that the society's constitution permitted members' funds to be spent on or secured to an action "in which the interests of the society are at best tangentially involved." This overlooks the fact that the Tonga PSA was fully entitled to defend any claim brought against it. It is facing several defamation proceedings in which the lawfulness or unlawfulness of the payment to Tongasat will evidently be a crucial issue. The current proceedings are said to be aimed at securing a speedy determination of that issue. The Secretary-General of the Tonga PSA has deposed that the PSA's stance is that the proceedings raise issues of critical importance to it as defendant in the defamation proceedings.

[33] As we have said, it was for the respondents to show that the Tonga PSA might be unable to pay costs if ordered to do so. The respondents put forward no credible evidence to support their allegation that the society was insolvent. The evidence that the society had a substantial term deposit and was fund-raising for the case was uncontradicted. The respondents therefore did not discharge the onus of proof resting upon them. Their application for security against the Tonga PSA fails at the second step and should have been dismissed by the Judge.

[34] In relation to Mr.Pohiva, the second respondent concentrated its fire in the Supreme Court entirely on the unincorporated political party on behalf of whom he said he was suing. Tongasat set out to show that the party had no funds. But they overlooked the fact that Mr. Pohiva had made himself personally responsible for any costs award. His personal assets, such as they may be, are available. The Supreme Court was given by the respondent no information about Mr. Pohiva's personal position. The respondents did not suggest to the Court that he personally was not "good" for costs.

[35] Scott J took it upon himself to rely on his knowledge of other associated proceedings in which costs awards had been made against Mr. Pohiva which the Judge believed had not been paid. He should not have done this. For all he knew, there may have been a payment, or a reason other than impecuniosity for any non-payment. It was unfair for the Judge to raise this matter when the second respondent had not chosen to do so. On this appeal, Mr. Stanton made reference to awards of costs against Mr. Pohiva. We were told by Mr. Harrison, without objection, that one of these had been paid into court and then refunded after Mr. Pohiva successfully appealed. The other amount is awaiting taxation. Even if it is appropriate to have regard to these matters, which in our view it is not, they do not establish that Mr. Pohiva will not be able to meet the costs of the respondents in this proceeding if ordered to do so.

[36] Mr. Stanton tried to make something of the fact that Mr.Pohiva had made a public appeal for funds to defray the expense of the proceedings. But the fact that a litigant seeks to share the financial burden does not prove that he is unable to meet the costs himself. It is understandable that someone conducting what he regards as public interest litigation without prospect of personal financial benefit may consider that others should be given an opportunity to contribute funding.

[37] The Judge was not entitled on the evidence to find that the respondents had shown that Mr.Pohiva would not be "good" for costs.

[38] The Judge's exercise of discretion in relation to both appellants was in error. We grant leave to appeal. The appeal is allowed and the order for security for costs is set aside.

[39] The second respondent must pay the appellants' costs in this court and in the Supreme Court, to be taxed if not agreed. We make no order for costs in this Court against the first respondent in view of its limited role. If there is any question of costs against it in relation to the application in the Supreme Court, that should be determined in that Court.

Moore J

Blanchard J

Hansen J

Tupou J