Wilex Cocoa and Coconut Products Ltd v Electric Power Corporation [2009] WSSC 35 (23 April 2009)

IN THE SUPREME COURT OF SAMOA
HELD AT APIA

BETWEEN:

WILEX COCOA AND COCONUT PRODUCTS LTD
a duly incorporated company having its registered office in Apia.
Plaintiff

AND:

ELECTRIC POWER CORPORATION
a statutory corporation duly established under the Electric Power Act 1972
and continued under the Electric Power Corporation Act 1980.
Defendant

Counsel: P A Fepulea’i for plaintiff
D Clarke for defendant

Hearing: 17 April 2009
Judgment: 23 April 2009

JUDGMENT OF SAPOLU CJ

Nature of proceedings

1. This is a motion for an order for security for costs brought by the defendant on the basis that there is reason to believe that the plaintiff will be unable to meet an order for costs in favour of the defendant in the event that the plaintiff is unsuccessful in its claim.
   
2. The motion is brought pursuant to the inherent jurisdiction of the Court as there is no provision in the Supreme Court (Civil Procedure) Rules 1980 for making an order for security for costs against a plaintiff who is resident within the jurisdiction as the present plaintiff is.
   

The plaintiff’s claim

3. The claim by the plaintiff which is an incorporated private company is based on the tort of negligence. It is brought against the defendant which is the Electric Power Corporation (EPC), a statutory body established under the Electric Power Corporation Act 1972 and continued under the Electric Power Corporation Act 1980.
   
4. The plaintiff carries on business as a trader, exporter and manufacturer of kava, cocoa, chocolate, coconut and soap products. The defendant is the monopoly generator, lines distributor and retail provider of electricity in Samoa.
   
5. The plaintiff’s claim arises out of a fire which completely destroyed its factory at Moata’a on Sunday, 1 June 2003. The total amount of the claim is about $17.6 million excluding legal costs.
   
6. It is alleged by the plaintiff in its amended claim dated 15 February 2008 that the fire occurred as a result of the defendant’s negligence in designing, providing and maintaining the transformer and other electrical equipment that regulated the supply of electricity to its factory. This is denied by the defendant which states in its amended defence dated 14 April 2008 that the cause of the fire was unrelated to any act or omission by the defendant.
   
7. Both counsel for the plaintiff and the defendant informed the Court that their respective clients will be calling expert witnesses from overseas to establish the cause and origin of the fire. The plaintiff says that the fire originated from an electric power pole on the roadside in front of its factory. The defendant, on the other hand, says that the fire originated from inside the factory.
   

Estimate of the defendant’s legal costs

8. Counsel for the defendant submits that the total legal costs which the defendant has incurred and will continue to incur in relation to the plaintiff’s claim is about $500,000. This is based on two affidavits filed in support of the motion for security for costs. An order for security is therefore sought in the sum of $250,000.
   
9. The first affidavit in support of the defendant’s motion is the affidavit dated 29 February 2008 by Jennifer Fruean, the financial controller of National Pacific Insurance Ltd (NPI) which was the insurer for the EPC at the time of the fire that destroyed the plaintiff’s factory on 1 June 2003. She deposes that NPI has taken over the control and management of the plaintiff’s claim on behalf of its client the EPC. She also deposes that NPI has paid $143,454.85 in legal fees to overseas counsel concerning the plaintiff’s claim and has also retained local counsel to represent the EPC in these proceedings. She further deposes that significant additional legal fees will be incurred up to and including the substantive hearing of the plaintiff’s claim.
   
10. The second affidavit in support of the defendant’s motion is the affidavit also dated 29 February 2008 by Dorothea Pouesi the legal adviser to the EPC. She deposes that he EPC has already incurred total costs of $60,335.00 for other legal services. So the total legal fees which have been incurred, including the legal fees incurred by NPI, is $203,789,789.85.
    
11. The EPC’s legal adviser further deposes that a number of interlocutory matters remain to be completed prior to the substantive hearing of the plaintiff’s claim and it is expected that substantial additional legal fees will be incurred.
    
12. Counsel for the defendant has estimated that the additional legal fees will bring the total legal fees to be incurred by the defendant to about $500,000.
    

The plaintiff’s ability to pay the defendant’s costs if its claim is unsuccessful

13. In support of its motion for security for costs, the defendant also relies on the affidavit dated 16 February 2009 by Alan Crowe a forensic accountant of extensive experience. He deposes that based on the financial records he has seen, he is of the opinion that the plaintiff is insolvent and exists on paper only with the continuing support of its shareholders. It would therefore be unable to meet a costs award made against it if its claim is unsuccessful.
    
14. The plaintiff’s managing director, who is not only a businessman but is also a public accountant, deposes in his affidavit of 17 April 2009 that the contents of Mr Crowe’s affidavit in relation to the financial situation of the plaintiff are misleading and inaccurate. He says that he plaintiff owes to external creditors $2,390,035 and not $3,766,680.
    
15. The plaintiff’s managing director then deposes that in the event that the plaintiff is unsuccessful in its claim, its external liabilities of $2,390,035 will not be paid by the plaintiff but borne by the shareholders in the form of personal guarantees. This seems to suggest that the plaintiff will not be in a position to pay an award of costs ordered against it if it is unsuccessful in its claim, especially if it is a substantial award. Such an award is likely to be borne by the plaintiff’s shareholders in the form of personal guarantees.
    
16. In the circumstances, I conclude there is reason to believe that the plaintiff will be unable to pay the costs of the defendant, which will be quite substantial, if the plaintiff’s claim is unsuccessful.
    

The ability of the plaintiff’s shareholders to pay a costs award

17. Given that if the plaintiff is unsuccessful in its claim, its substantial external liabilities will be borne by its shareholders in the form of personal guarantees, one would infer that if the plaintiff’s claim is unsuccessful and an award of costs is made against it, such award, which is likely to be quite substantial, will also be borne by its shareholders in the form of personal guarantees whatever that means in monetary terms.
    
18. However, there is nothing in the affidavit of the plaintiff’s managing director about the means of the plaintiff’s shareholders or their willingness and ability to provide personal guarantees for the payment of any costs award made against the plaintiff in these proceedings if the claim fails.
    

Merits of the parties cases

19. On the pleadings, it is strongly alleged by the plaintiff that the fire which completely destroyed its factory was the result of the defendant’s negligence. On the other hand, it is as strongly denied by the defendant that it was responsible for the cause of the fire. Both counsel informed the Court that their clients will be calling expert witnesses from overseas to support and confirm their respective positions. In terms of the pleadings and the submissions by counsel, the respective merits and bona fides of the plaintiff’s claim and the defendant’s defence seem to be evenly balanced.
    
20. However, there is attached to the affidavit by the plaintiff’s managing director a report by an expert it proposes to call as a witness at the substantive hearing which clearly suggests that in the opinion of that expert, the fire was caused by the defendant’s negligence. There is no report or other material from the experts the defendant proposes to call as witnesses. Thus, on the basis of the report by the expert that the plaintiff will call from overseas, the plaintiff clearly has a meritorious claim.
    

The relevant law

(a) Jurisdiction to order security for costs

21. As earlier mentioned, the defendant’s motion for security for costs is brought pursuant to the inherent jurisdiction of this Court because there is no provision in the Supreme Court (Civil Procedure) Rules 1980 to make an order for security for costs against a plaintiff who is resident within the jurisdiction as the present plaintiff is.
    
22. In this regard, counsel for the defendant referred the Court to relevant authorities in Samoa, Australia and New Zealand. In Malifa v Sapolu [1998] WSSC 2, Moran J, following English authorities, held that the Supreme Court of Samoa being a superior Court of record has inherent jurisdiction to order security for costs against a plaintiff where it is just to do so. I accept this as correct. It follows that the inherent jurisdiction to order security for costs in respect of a plaintiff is not to be restricted to the case of a plaintiff who is resident outside of Samoa. It also applies to the case of a plaintiff who is resident within Samoa. The applicability of the inherent jurisdiction does not depend on whether the plaintiff is resident outside or within Samoa. This is more broad than rule 30 of the Supreme Court (Civil Procedure) Rules 1980 which empowers the Court to make an order for security of costs only in respect of a plaintiff who is resident outside of Samoa.
    
23. In the Supreme Court of New South Wales in the case of Wollongong City Council v Fpm Constructions Pty Ltd [2004] NSWSC 523, Einstein J stated at para 17:
    

"The Supreme Court has inherent jurisdiction to make an order for security for costs in addition to its specific statutory jurisdiction. It’s power is therefore broad enough to authorise the making of orders in cases other than those listed in the rules: Rajski v Computer Manufacture & Design Pty Ltd [1982] 2 NSWLR 443, Lehane J; Security for Costs Law Society Journal 37(4) May 1999, 54-56".

24. In the High Court of Australia in the case of Merribee Pastoral v ANZ Banking Group [1998] HCA 41, Kirby J stated at para 25:
    

"The result is that, in my view, this Court does have power and jurisdiction to order the provision of security for the costs of proceedings in its original jurisdiction.

25. In New Zealand in the case of Weld Street Takeaways & Fisheries Ltd v Westpac Banking Corporation [1986] 1 NZLR 741, 744, Eichelbaum J (as the then was) referred to the inherent jurisdiction of the Court to make an order for security for costs but said such jurisdiction has fallen into disuse in New Zealand because of the provisions of the New Zealand Code of Civil Procedure and statutes.
    
26. The Court also has inherent jurisdiction to review and set aside or vary an order for security for costs where there has been a material change in circumstances since the making of the order or where the interests of justice so require. In Civil Remedies in New Zealand (2003), the learned authors state at para 19.3.12, p. 739:
    

"Where there has been a material change in circumstances since the making of an order for security for costs, or where the interests of justice require, the Court has an inherent jurisdiction to review and set aside or vary an existing order".

27. From the authorities cited, it is clear that the jurisdiction of the superior Courts to make an order for security for costs is derived from three sources. These are the inherent jurisdiction, any relevant statute, and the rules of Court.
    

(b) The approach to a security for costs application

(i) The threshold test

28. The approach which the Samoan Courts have generally followed when dealing with a motion or an application for security for costs in respect of non-resident plaintiff is that set out by Master Williams QC in Nikau Holdings Ltd v Bank of New Zealand (1992) 5 PRNZ 430: see, for example, Metai v Drake [2000] WSSC 49; Trinity Christian Centre of Santa Ana v Graceland Broadcasting Network [2008] WSSC 20. However, I would recommend that reference should also be made to the approach set out by Einstein J in Wollongong City Council v Fpm Constructions Pty Ltd [2004] NSWSC 523 which was cited by counsel for the defendant. What is said in Wollongong may await further consideration in another case.
    
29. Under the approach which the Samoan Courts have followed when dealing with a motion or an application for security for costs, the first step, which is described as the threshold test, is to decide whether there is reason to believe that a plaintiff will be unable to meet the defendant’s costs if the plaintiff is unsuccessful.
    
30. The threshold test was explained in Nikau Holdings Ltd v Bank of New Zealand (1992) 5 PRNZ 430 where Master Williams QC said:
    

"(1) The Court must first be satisfied as to the threshold test, that is to say, whether it is able to conclude that there is reason to believe that a plaintiff will be unable to pay the costs of the defendant if the plaintiff is unsuccessful. There are slightly varying judicial views as to the evidential onus applying in that respect, particularly where a plaintiff declines the opportunity to inform the Court as to financial circumstances. The opposite poles of the spectrum are that ‘the defendants have established by credible testimony’ that there is reason to believe... and ‘the entire absence of evidence from the plaintiff as to his means or otherwise is prima facie reason to believe’. But the proper exercise of the discretion should not be fettered by considerations of onus of proof’’. The learned authors of McGechan on Procedure (HR 60.04.(4)) summarise the position by saying:

"Accordingly, it is prudent to advance all available evidence as to the plaintiff’s inability to pay costs if unsuccessful. However, the absence of, or inability to obtain, such evidence may not be fatal. In appropriate cases the Court may, where the plaintiff is silent as to its financial position, be prepared to draw an inference of inability to pay’.

"In considering the threshold question, a Court will give due weight to the plaintiffs’ sworn assertion that they are able to meet the costs, if so ordered, at the conclusion of the hearing..."

31. Once the threshold test has been met, that is to say, the Court concludes that there is reason to believe that the plaintiff is unable to meet the defendant’s costs if the plaintiff is unsuccessful, the Court will move on to the second step. This is whether in the exercise of the Court’s discretion, it is appropriate in all the circumstances to make an order for security for costs.
    

(ii) No predisposition one way or the other

32. In the exercise by the Court of its discretion whether to make an order for security for costs, there is no predisposition for or against making such an order.
    
33. The exercise of the discretion requires the balancing of two competing interests of justice. On the one hand, the interests of justice require that the defendant should be protected against the risk of a costs award that is of no value if the plaintiff is unsuccessful in its claim. On the other hand, the interests of justice require that the plaintiff should not be denied access to the Courts by reason of an order for security for costs. See Nikau Holdings Ltd v Bank of New Zealand (1992) 5 PRNZ 430; Trinity Christian Centre of Santa Ana v Graceland Broadcasting Network [2008] WSSC 20; Civil Remedies in New Zealand (2003), para 19.3.12 at p.738.
    

(iii) Merits

34. The Court will also take into account the merits of the plaintiff’s claim and the defendant’s defence and make an assessment of each party’s prospects of success. If the claim appears weak, it is more likely that security for costs will be ordered whereas if the defence appears weak, it is less likely that security for costs will be ordered: Nikau Holdings Ltd v Bank of New Zealand (1992) 5 PRNZ 430; Civil Remedies in New Zealand (2003), para 19.3.12 at p.738.
    

(iv) Relevant factors

35. The factors which may be relevant in the exercise of the Court’s discretion whether to order security for costs are to be found in Nikau Holdings Ltd v Bank of New Zealand (1992) 5 PRNZ 430; Metai v Drake [2000] WSSC 49: Trinity Christian Centre of Santa Ana v Graceland Broadcasting Network [2008] WSSC 20. However, the relevant factors mentioned in those cases are not to be treated as an exhaustive list. The discretion whether an order for security for costs is to be made is unfettered.
    
36. I have set out the approach based on Nikau Holdings Ltd v Bank of New Zealand which the Samoan Courts have generally followed when dealing with an application for security for costs. However, note should be taken of the observations made in AS McLachlan Ltd v MEL, Network Ltd [2002] NZCA 215; (2002) 16 PRNZ 747 where the New Zealand Court of Appeal said at pp 751-752:
    

"While collections of authorities such as that in the judgment of Master Williams in Nikau Holdings Ltd v BNZ (1992) 5 PRNZ 430, can be of assistance, they cannot substitute for a careful assessment of the circumstances of the particular case. It is not a matter of going through a checklist of so-called principles. That creates a risk that a factor accorded weight in a particular case will be given disproportionate weight, or even treated as a requirement for the making or refusing of an order, in quite different circumstances".

37. Taking on board the observations of the New Zealand Court of Appeal in AS McLachlan Ltd v MEL, Network Ltd [2002] NZCA 215; (2002) 16 PRNZ 747, the approach in Nikau Holdings Ltd v Bank of New Zealand still provides a helpful framework for dealing with a motion for security for costs as long as it is not applied in an over mechanical fashion without due regard to the circumstances of the particular case.
    

Discussion

38. I have already concluded on the basis of the material placed before the Court that there is reason to believe that the plaintiff, if unsuccessful in its claim, will be unable to pay the defendant’s costs. The threshold test has therefore been met.
    
39. The next step is to consider whether in the exercise of my discretion it is appropriate in all the circumstances to make an order for security for costs. In this regard, I approach the exercise of my discretion without any predisposition one way or the other, that is to say, without any predisposition for or against making an order for security for costs.
    
40. I will then consider the merits of the plaintiff’s claim and the merits of the defendant’s defence and their respective prospects of success. On the basis of the report by the overseas expert the plaintiff proposes to call as a witness, the plaintiff appears to have a meritorious claim. In terms of the pleadings and upon consideration of the submissions by both counsel, the respective merits and bona fides of the parties seem to be evenly balanced.
    
41. I will then consider the factors which counsel for the plaintiff submitted are relevant to the exercise of the Court’s discretion. These are: (a) that this litigation involves an issue of public interest and (b) that the plaintiff’s shareholders are standing behind the plaintiff in support of the plaintiff.
    
42. In respect of the first factor, namely, that this litigation involves an issue of public interest, the plaintiff relies on a passage in a letter dated 17 June 2003 from the then Attorney General to the then solicitors for the plaintiff. The passage states: "It is in the interest of the community and all parties that we establish how the fire was caused".
    
43. I accept that the fact that a litigation involves public interest issues is a factor that may be taken into account in the exercise of the Court’s discretion whether it is appropriate to order security for costs. But in my respectful view, this is not a litigation which involves public interest issues. I also do not think that the then Attorney General in the passage cited from her letter dated 17 June 2003 meant that this is a public interest litigation. The central issue in this litigation is whether the defendant was negligent as alleged by the plaintiff and as a result caused the fire which destroyed the plaintiff’s factory. That is more an issue of individual interest to the plaintiff and the defendant themselves as it is with the usual case of negligence that comes before the Courts. This is not a negligence case which may be categorised as a "public interest litigation" or one involving public interest issues. I therefore put aside the first factor upon which the plaintiff relies.
    
44. In respect of the second factor which is that the plaintiff’s shareholders are standing behind the plaintiff supporting the plaintiff, I would also accept that this is a relevant factor to the exercise of the Court’s discretion whether it is appropriate to order security for costs. However, as I have earlier pointed out, the support of the plaintiff’s shareholders which is mentioned seems to be personal guarantees from them. There is no evidence about the means of those shareholders or their willingness and ability to provide personal guarantees for the payment of any costs award against the plaintiff if it fails in its claim. In the absence of any such evidence, I am rather sceptical about the financial ability of the plaintiff’s shareholders and their willingness to provide personal guarantees, particularly as a costs award against the plaintiff, if it is unsuccessful in its claim, may be quite substantial. I, therefore, give no weight to this second factor raised for the plaintiff.
    
45. In the course of submissions by counsel, I raised with them the question of whether, if the plaintiff is impecunious, its impecuniosity was caused by the defendant’s actions. I did not receive a clear answer to that question. Presumably, that is because the plaintiff argued that it is not insolvent, as alleged by the defendant, but solvent.
    
46. I have, therefore, come to the conclusion that in the exercise of my discretion derived from the inherent jurisdiction of the Court, this is an appropriate case for making an order for security for costs.
    
47. The remaining question is one of quantum.
    

Quantum of security for costs

48. In Nikau Holdings Ltd v BNZ (1992) 5 PRNZ 430 Master Williams QC mentioned the factors which would be relevant to fixing the quantum for a security order. I need not for present purposes refer to all these factors. They are mentioned in Nikau Holdings Ltd. Some of them as stated by Master Williams QC are:
    

"(a) The amount fixed should be that which is appropriate in the interests of justice and having regard to all the circumstances of the case. The Court takes into account the amount or the nature of the relief claimed, the nature of the proceeding including the complexity and novelty of the issues, the estimated duration of the trial and any unusual costs in conducting the trial such as expert evidence or the necessity to obtain the attendance of overseas witnesses.

"(b) The amount of the order ‘should not be illusory or oppressive not too little nor too much’

"(c) The amount of any order for security is not intended as a pre-estimate of the actual amount of party and party costs, but some comparability is often retained with the likely award of costs to a successful defendant pursuant to the Second Schedule to the Rules based on the amount in issue or the relief claimed, the estimated duration of the trial, and the number of interlocutory applications. The scale, however, is not to be applied mechanically..."

"(d) In appropriate cases security for costs may be awarded in stages...The usual order is for security for costs up to the time of setting down with a second order to cover the costs of trial".

49. Because the scale of costs in our relevant Rules is no longer considered to be realistic, factor (b) above will not apply to this case. However, what is said in (b) about the amount in issue or the relief claimed, the estimated duration of the trial, and the number of interlocutory application would still be relevant.
    
50. In Wollongong City Council v Fmp Construction Pty Ltd [2004] NSWSC 523, Einstein J said at para. 50:
    

"In any event, the Court in exercising its discretion to order security for costs will always stand back from the precise amounts claimed and from the precise assessment of costs to consider every case on its own particular facts and if an order is to be made at all, make such order as is just and reasonable in the circumstances"

Discussion

51. As earlier mentioned, in terms of the pleadings and the submissions by counsel, the merits of the plaintiff’s claim and the defendant’s defence seem evenly balanced. The plaintiff’s claim cannot be said to be weak. In fact, on the basis of the report by the expert the plaintiff proposes to call as a witness, the plaintiff’s claim clearly has merit. The competing interests of justice which require that a plaintiff should not be lightly denied access to the Courts by reason of an order for security for costs requires careful consideration.
    
52. The focus of the dispute between the parties seems to be whether the fire that destroyed the plaintiff’s factory originated from the factory or from the electric power pole on the road side in front of the factory. The inference seems to be that if the fire originated from the electric power pole, then it is more likely that the defendant was at fault and therefore negligent. On the other hand, if the fire originated from the factory, then it is more likely that the fire was not caused by any fault of the defendant. This would be a question of fact rather than of law.
    
53. The plaintiff claims that the fire originated from the electric power pole while the defendant says that the fire originated from the factory. Both parties will be calling experts from overseas to testify as witnesses in support of their respective positions.
    
54. I am not so clear why the total legal costs that the defendant has already incurred in $203,789.85. However, the defendant estimates that its legal costs will probably reach $500,000 if this matter does proceed to trial. Security for costs is therefore sought in the sum of $250,000.
    
55. Bearing in mind what is said in Wollongong City Council v Fmp Construction Pty Ltd [2004] NSWSC 23 that if the Court is to make an order for security it must be an order that is just and reasonable in the circumstances, I will fix the quantum of the order for security for costs at $60,000.
    
56. The defendant is always entitled to return to the Court seeking additional security depending upon the circumstances: Wollongong City Council v Fmp Construction Pty Ltd [2004] NSWSC 23 at para 51. The Court has an inherent jurisdiction to review and vary an order for security for costs where there has been a material change in circumstances since the making of the order or where the interests of justice so require: Civil Remedies in New Zealand (2003) at para 19.3.12, p.739.
    

Formal orders

57. (a) The defendant’s motion for an order that the plaintiff provides security for the costs of the defendant if the plaintiff is unsuccessful in its claim is granted.
    

(b) The quantum of the order for security for costs is fixed at $60,000

(c) The plaintiff is to give security for costs in that sum either by paying the same into Court within 28 days or by giving security for the same within 28 days to the satisfaction of the Registrar after the Registrar has consulted with the defendant.

(d) If the security is to be paid into Court, the Registrar is to invest that money in an interest – bearing term deposit account with a local bank until further order of the Court.

(e) Should the plaintiff fail to provide security for costs as ordered in (c), the defendant may apply to the Court for a stay of proceedings.

CHIEF JUSTICE

Solicitors
Patrick Fepulea’i Law Firm
Latu EY