Gill v Rosic [2021] TOSC 72; CV 39 of 2019 (19 May 2021)

IN THE SUPREME COURT OF TONGA
CIVIL JURISDICTION
NUKU'ALOFA REGISTRY

CV 39 of 2019

BETWEEN:

RAE GILL Plaintiff

-and-

[1] NESHA ROSIC
[2] MALA ISLAND RESORT COMPANY LIMITED Defendants

Defendant’s application for security for costs

RULING

BEFORE: LORD CHIEF JUSTICE WHITTEN QC
Appearances: Mrs A. Mailangi (on behalf of Mr Pouvalu) for the Plaintiff
Mr Rosic (by telephone)
Date of hearings: 6 and 19 May 2021
Date of ruling: 19 May 2021

Background

1. At all material times, since 1999, the Plaintiff herein owned and operated an inbound tour business based in Auckland, New Zealand, known as “WhaleSwim Adventures Ltd” which escorted tour groups to swim with whales in Vava'u each season.
2. On 29 July 2019, the Plaintiff commenced this proceeding against the Defendants. The First Defendant is the manager of the Second Defendant. The Plaintiff alleges that in January 2017, the parties entered into an oral agreement for the Defendants to provide the Plaintiff's clients with accommodation and food, and that the Defendants repudiated the agreement. As a result, the Plaintiff claims damages by way of alleged overpayment in the sum of $32,470 together with interest thereon and costs. The Defendants deny the claim.
3. The proceeding has progressed through all interlocutory stages with briefs of evidence being filed in December 2019. Both parties requested that the trial be heard in Vava'u. The matter was first listed to be heard in the first of the Court’s biannual circuits to Vava'u in March 2020. However, due to the numbers of other cases to be heard during those and other circuits since, the matter has not yet been reached. As a result, on 7 May 2021, directions were made including listing the matter for trial commencing 4 October 2021 in Nuku'alofa on an estimate of two days with overseas witnesses, who are unable to travel to Tonga due to the ongoing Covid-19 border restrictions (since March 2020), to give evidence remotely via audiovisual link.

The application

4. On 21 April 2021, the First Defendant filed an application for security for costs in the sum of $5,500. The grounds for the application include that the Plaintiff is a New Zealand resident and that she has “liquidated all her assets in Tonga”. The quantum of security claimed is calculated as being $3,500 in legal costs paid to the Defendants’ previous counsel, plus an allowance of $900 for an airfare to Nuku'alofa for the trial and four nights’ accommodation estimated at $1,100.
5. The affidavit by Mr Rosic in support focused on the merits of the defence to the claim. However, his material did not contain any evidence in support of the amounts for which security was claimed. As a result, the hearing of the application was adjourned part heard to enable Mr Rosic to file that evidence.
6. On 13 May 2021, Mr Rosic filed a document stating that on 30 August 2019, he paid $2,500 to Mrs Pahulu-Kuli (prior to her appointment to the Magistrates Court) and a further $1,000 was paid on 21 November 2019. Receipts for both those payments were annexed to the document filed.
7. The Plaintiff admits that she is a New Zealand resident but otherwise opposes the application principally on the ground that she will be able to pay any adverse costs order. Further, through Reply to the application, filed by Mr Pouvalu, it is submitted on behalf of the Plaintiff that:
   • (a) she has not liquidated all her assets in Tonga;
   • (b) she still has a house on two rented allotments at Toula, Vava'u;
   • (c) the amount of legal costs claimed by the Mr Rosic is on a solicitor/client basis; and
   • (d) there is no evidence in support of the claimed amounts for airfares and accommodation.
8. An affidavit in opposition to the application was filed on behalf of the Plaintiff. However, it was not sworn by the Plaintiff. It was sworn by ‘Emeli Pouvalu, who is described as a secretary employed at the Pouvalu Law Office. Mrs Pouvalu deposed, relevantly, that:
   • (a) "According to the Plaintiff's file, she owns a house at Toula, Vava'u. She has rented two (2) 30 perches of lands at Toula where her own house is located in one of these lands. ...” [6]. Attached were copies of documents described as "Assignment of Agreement" and "Release of Interest" dated 14 June 2004. Unfortunately, both were illegible. During the hearing, Mrs Mailangi was unable to provide any clearer copies.
   • (b) The Plaintiff is still paying rental for the two allotments [7]. Banking records were exhibited.
   • (c) The value of the Plaintiff's properties at Toula are “estimated at about more than US$100,000” [8].
   • (d) Both properties “could be used as security for costs of the proceedings should the Defendants win” [9].
   • (e) “... the Plaintiff is one of our valued clients. She is trustworthy and she has never been late with any payment due to our office." [10]
9. During submissions upon the resumption of the hearing, Mrs Mailangi was unable to explain why the affidavit had been provided by a secretary of the law firm acting for the Plaintiff, rather than the Plaintiff herself. She reiterated the stated grounds for the Plaintiff's opposition and emphasised that Mr Rosic bears the onus of proof in seeking to persuade the court to exercise its discretion in his favour.
10. Mr Rosic confirmed that the application was now confined to the ‘legal fees’ paid in 2019. He sought to discredit the statement made on behalf of the Plaintiff that she owned a house on the rented land in Vava'u, to which I will refer further below. However, no evidence was adduced to contradict it.

Consideration

11. The object of an award of costs to a party is to indemnify the party for the costs of the litigation, although in most cases the indemnity will be far from complete. The value of the order for costs will depend upon whether the party against whom the award is made can meet the liability. The inability to recover costs from the Defendant is a risk which a Plaintiff assumes in commencing proceedings. A Defendant, on the other hand, is a compulsory party and does not assume the risks of litigation out of choice. It may therefore be said that a Defendant has a special claim to have secured the indemnity which an order for costs provides. Therefore, an order requiring the Plaintiff to provide security for the Defendant’s costs may be made, in an appropriate case, to ensure that a Defendant who succeeds in litigation, and is awarded costs against a Plaintiff, ought be protected against the risk of the costs order being unsatisfied.
12. The authority of the Supreme Court to order security exists and derives from the Court's inherent power to regulate its own procedure.^[1] In more recent times, that power has been codified in the form of Order 17 of the Supreme Court Rules. That, however, does not preclude the possibility of a case outside the ambit of Order 17 attracting the court's inherent jurisdiction to order security.
13. Order 17 rule 1 provides:

0.17 Rule 1. When order can be made

Where on the application of a Defendant to any proceeding it appears to the Court that —

(a) the Plaintiff is ordinarily resident out of the jurisdiction;

(b) the Plaintiff may be unable to pay the costs of the Defendant if ordered to do so; or

(c) the Plaintiff has not disclosed his true address to the Court,

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.

14. As there is no issue that the Plaintiff here is ordinarily resident out of the jurisdiction, the statutory threshold for enlivening the Court’s jurisdiction is fulfilled. As such, whether the Plaintiff may be unable to pay any adverse costs order, which is in dispute between the parties, falls for consideration among the other factors relevant to the exercise of the Court's discretion.
15. The approach to be taken and the considerations relevant on an application for security for costs have been comprehensively prescribed by the Court of Appeal in the decision of Public Service Association Incorporated v Kingdom of Tonga [2015] TOCA 19, where the Court observed:

“[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.”

16. By reference to the factors or circumstances set out by the Court of Appeal at paragraph 26 of the decision, which are applicable to the instant case, I make the following findings.
17. An evaluation of the strength or weakness or bona fides of the Plaintiff's case 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. Here, the application has not been made at an early stage of the case. The pleadings are closed, discovery has been completed and briefs of evidence for trial have been filed. Notwithstanding, as with many claims based on alleged oral agreements, success or failure will be determined first and foremost by determination of the actual terms of the parties’ agreement, followed by any findings of breach in respect of the relevant term/s so determined. Having considered the documents filed in the proceeding to date, I am unable to form any view as to the relative strengths or weaknesses of the Plaintiff's case for such assessment will largely depend on the evidence of the witnesses, and the testing of that evidence, at trial. Accordingly, for the purposes of this application, I consider this factor to be neutral.
18. The next consideration, relevant to this case, is the degree of risk that a costs order will not be met. In this regard, the evidence from both parties was unsatisfactory. Mr Rosic simply asserted, without any objective evidence, that the Plaintiff had divested herself of her assets in Tonga. The Plaintiff’s material did not include any affidavit sworn by her. It is difficult to fathom what forensic value was intended by an affidavit sworn by the secretary of the law office representing the Plaintiff. Further, and more particularly, the bald assertion in that affidavit that the values of the Plaintiff's properties is estimated at more than US$100,000 was wholly unsubstantiated and, in any event, constituted an inadmissible attempt of adducing expert opinion evidence, for which Mrs Pouvalu failed to demonstrate any expertise or foundation.
19. Mr Rosic submitted that the agreements by which the Plaintiff is said to be renting the two allotments are in breach of s 13 of the Land Act and are therefore illegal. That provision creates an offence for any landholder to enter or attempt to enter into any agreement for profit or benefit relating to the use or occupation of his holding or a part thereof other than in the manner prescribed by the Act or as approved in writing by the Minister. Mr Rosic referred to a 2012 Land Court decision.
20. In so far as the agreements in question constitute tenancy agreements, in Yang v Manoa [2016] TOCA 3, the Court of Appeal opined:

“[16] In our opinion, such agreements are not caught by s13 if they simply relate to the occupation and use of a building and its curtilage. This general statement would, of course, be subject to any specific and clear statutory exceptions. The foundation of this conclusion is the acceptance in Tongan law that buildings erected on land do not form part of the land and are chattels. Decisions of this Court recognising this status of buildings include Kolo v Bank of Tonga [1997] Tonga LR 181, Mangisi v Koloamatangi [1999] TOCA 9, Cowley v Tourist Services Ha'pai Ltd and Fund Management Ltd [2001] Tonga LR 183, Niu v Takealava [2013] Tonga LR 55 and Westpac Bank of Tonga v Fonua [2014] Tonga LR 94. In Mangisi v Koloamatangi this Court said s13 did not apply to an agreement dealing with the occupation and use of a building. Though the Court spoke of "short term tenancy agreements", the duration of the agreement cannot have a decisive effect on its legal character for the purposes of s13.

[17] It is highly likely that there are many commercial arrangements now existing in Tonga that are based on the decisions of the Courts including the Court of Appeal about the status of buildings and agreements concerning their occupation and use. A fundamentally important feature of any legal system is the creation of certainty and predictability. It is for that reason that courts and, in particular, final courts of appeal should be slow to alter the direction of the development of the law or the law itself especially where people have relied upon what the Courts have said about property rights.

[18] Different considerations arise in relation the alteration of the law by Parliament. It has the capacity to ameliorate the effect of change through transitional and other provisions. This whole question of agreements authorising the use and occupation of a building and so called "tenancy agreements" more generally was addressed in the 2012 report of the Royal Land Commission which also contained draft legislation. It is a matter for Parliament whether it wishes to act on those recommendations.”

21. Further, on the question of whether s 13 renders any agreement in breach of it illegal and unenforceable, the Court expressed the apparent view (without needing to decide the point) that an agreement with a landholder which should not have been made because of s 13, could nonetheless be enforced against the landholder.^[2]
22. The Plaintiff has failed to explain how any tenancy agreements she holds in respect of the two parcels of land are an asset against which any adverse costs order could be enforced. If she in fact owns the house, which, in Tonga, is regarded as separate to the land on which it stands,^[3] then I am prepared to accept that it has some intrinsic market value, as a separate asset, although I have no admissible or reliable evidence as to the quantum of that value. Nonetheless, the house is likely to be worth more than the amount of security sought.
23. Even though Mr Rosic bears the onus of proof, once the Plaintiff sought to engage with what is essentially an allegation of impecuniosity, the evidentiary burden shifted to her to refute that allegation. Having regard to the unsatisfactory nature of the evidence adduced by the Plaintiff on this issue, I am left with little choice but to acknowledge there may be some risk that a costs order will not be met.
24. There is no evidence that an order would be oppressive in that it will or might stifle or stultify the Plaintiff’s reasonably arguable claim.
25. There is no evidence that any impecuniousity of the Plaintiff (which has not been positively established by the Defendants but rather has been unsatisfactorily answered by the Plaintiff and therefore left uncertain) has been caused or contributed to by the conduct of the Defendants to which the Plaintiff's claim is directed.
26. There are no aspects of public interest in the Plaintiff's pursuit of the case.
27. The Defendants have delayed in making the application. Applications for security for costs should be made promptly once the Defendant has knowledge of the facts that would justify the making of an order for security.^[4] Delay on the part of the Defendant may be relevant to the exercise of the discretion of the court to order security. As the Court of Appeal stated:^[5]

“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.”

28. As a general proposition, delay in bringing an application is a factor that carries considerable weight. In the case of applications shortly before the commencement of the trial, “the closer the proximity of the hearing of the substantive proceeding to the time at which any application for security for costs is made, the more weight is likely to be given to the delay factor”: Trility Pty Ltd v Ancon Drilling Pty Ltd [2013] VSC 577 at [57].
29. For instance, an order may be refused where:
    • (a) the Defendant has allowed the Plaintiff to prepare for trial and to incur liability for costs in the litigation in the belief that security for costs would not be sought: Jennings Ltd v Cole [1934] NZ Gaz LR 165; Southern Cross Exploration NL v Fire & All Risks Insurance Co Ltd (1985) 1 NSWLR 114; or
    • (b) the Plaintiff has incurred liability for the costs of work done in the litigation which would not have been done if the application had been made at the proper time: Loreva Pty Ltd v CEFA Associated Agencies Pty Ltd (1982) 7 ACLR 164 (NSWSC).
30. Alternatively, the Defendant may only obtain an order for security for costs to be incurred beyond the date of the application: Green v CGU Insurance Ltd [2008] NSWCA 148.
31. That last alternative is relevant to the instant application which seeks security wholly in respect of past costs. It is generally inappropriate to make an order for security for costs that have already been incurred, but there is no absolute bar: Tomanovich Holdings Ltd v Gibbston Community Water Co 2014 Ltd [2018] NZHC 1471 at [16].^[6]
32. A useful summary of the relevant principles in cases of delay and past costs may be found in The Oswal matters - application for security for costs [2016] VSC 52 at [44], namely:
    • (a) Delay in making an application for security for costs, or further security for costs, is a most important and often a critical factor, essentially because it unfairly allows a Plaintiff to proceed and incur costs on the assumption that no application is to be made.
    • (b) Delay is more significant, and often critical, in relation to security for past costs although it may also be a relevant factor in relation to security for future costs.
    • (c) Prejudice to a Plaintiff is assumed and presumed because of the delay. However, each side may adduce evidence in support of, or against, such prejudice.
    • (d) Despite delay, security may be granted for past costs (in whole or in part) where it is established that there is some conduct that negates the prejudice, harshness, or oppression, that is otherwise apparent when there is a delay and substantial costs have been incurred. The Court retains a broad discretion which requires all relevant facts and circumstances to be taken into account. Each case must be decided in accordance with its own peculiar facts and circumstances.
33. In the present case, Mr Rosic did not seek to explain the delay in bringing the application. The proceedings have been on foot since July 2019. The long-awaited trial date is now less than five months away and, apart from preparation of a court book, all formal steps in the proceedings have been completed and attendant legal costs incurred.
34. Having regard to the principles discussed above, I consider the unexplained delay in bringing the application, and that it is solely for past costs, to be a heavy factor militating against the application.
35. Finally in relation to the quantum of security claimed, again, the evidence was unsatisfactory. The receipts provided by Mr Rosic only described the amount paid as being deposits for legal fees for a civil case. Such deposits are held in trust by a lawyer until such time as professional services are provided and the fees for which are drawn down against the deposits or monies in trust. Until then, a client has no legal liability for any legal costs. There is no evidence of any specific legal work (as one might expect to see in an itemised invoice or taxable bills of costs provided by the lawyer) having actually been performed, for which fees have been charged, and paid by way of the moneys deposited.
36. And, as Mrs Mailangi observed, the claim is for the full amount of the monies paid to the Defendants’ previous lawyer as opposed to what might likely be allowed on a party/party basis. Determining the amount of security justified in a particular case requires the exercise of a discretion rather than a strict mathematical approach: Sharp v Pillay [2017] NZHC 647. It does not need to be fixed by reference to a likely costs award but can be what the Court thinks fit in all the circumstances: A S McLachlan Ltd v MEL Network Ltd [2002] NZCA 215; (2002) 16 PRNZ 747. Therefore, even if I had been satisfied that it is appropriate to order security, the amount would have been reduced to say $2,500.

Result

37. For those reasons, having regard to all the circumstances of the case, I am not satisfied, on balance, that justice requires the Plaintiff to provide security for the Defendant's costs.
38. The application is therefore dismissed.
39. The First Defendant to pay the Plaintiff's costs of and incidental to the application to be taxed in default of agreement.

NUKU’ALOFA	M. H. Whitten QC
19 May 2021	LORD CHIEF JUSTICE

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^[1] JH Billington Ltd v Billington [1907] UKLawRpKQB 66; [1907] 2 KB 106; Re Little Olympian Each Ways Ltd [1994] 4 All ER 561 at 565–6; Condliffe v Hislop [1996] 1 All ER 431; Abraham v Thompson [1997] EWCA Civ 2179; [1997] 4 All ER 362; Lines v Tana Pty Ltd [1987] VicRp 53; [1987] VR 641.

^[2] at [23]

^[3] Mangisi v Koloamatangi, ibid.

^[4] Smail v Burton [1975] VicRp 76; [1975] VR 776.

^[5] Public Service Association Incorporated v Kingdom of Tonga, ibid.

^[6] Citing Ambrose v Pickard [2009] NZCA 502 ; Sisson v IAG New Zealand Ltd [2014] NZHC 616 at [71]. See also Penny v Penny [1996] 2 All ER 329, where an application for past costs of an concluded proceeding was refused.