IN THE HIGH COURT OF FIJI
AT LAUTOKA
CIVIL JURISDICTION
HBC No.250 of 2008

BETWEEN:

SUNFLOWER AVIATION LIMITED 
[FORMERLY KNOWN AS SUN AIR (PACIFIC) LIMITED] 
a duly incorporated company having its registered office at Shop 1, Beddoes Plaza, Namaka, Nadi.
1ST PLAINTIFF

AIR FIJI LIMITED 
a duly incorporated company having its registered office at Hangar Road, Nadi Airport.
2ND PLAINTIFF

AND:

CIVIL AVIATION AUTHORITY OF THE FIJI ISLANDS 
a body corporate created under the Civil Aviation Authority Act 1979, having its registered office at Nadi International Airport, Nadi, Fiji Islands.
1ST DEFENDANT

AND:

AIRPORTS FIJI LIMITED 
a duly incorporated company having its registered office at Nadi International Airport, Nadi, Fiji Islands.
2ND DEFENDANT

AND:

HOT SPRING HIRE SERVICE LIMITED 
a company incorporated having its registered office at Estate of Umar Building, 11 Nanuku Street, Labasa.
3RDPARTY

Solicitors : Fa & Company for the Plaintiffs
Patel & Sharma for the 1st & 2nd Defendants
Munro Leys for the 3rdParty

RULING
(Security for Costs in a Subrogated claim)

INTRODUCTION

[1].	The background to this case is set out in my earlier ruling which is reported in paclii (Sunflower Aviation Ltd v Civil Aviation Authority of the Fiji Islands [2015] FJHC 260; HBC250.2008 (20 April 2015).The issue has arisen as to whether or not I should order security for costs against the plaintiffs, given: firstly, that the plaintiffs are in no position to pay security for costs by reason of the fact that, one of them has been wound up and, the other, to quote counsel, “is no longer in operation” (whatever that means in terms of current solvency or corporate status); secondly, that the claim is a subrogated recovery action being driven by their insurer. 

[2].	The defendants are seeking an order for security for costs in the sum of FJD$500,000 each against the plaintiffs. 

[3].	The application is made pursuant to section 402 of the Companies Act 1983 (Cap 247) and also to Order 23 Rule 1(1)(b) of the High Court Rules 1988.

[4].	Section 402 of Fiji’s Companies Act (Cap 247) provides:

Costs in actions by certain limited companies

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

[5].	Order 23 Rule 1(1)(b) of the High Court Rules 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-

(a)…….

(b) 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

[6].	In resisting the application, the insurer’s Australian solicitors assert that the insurer is solvent with substantial assets abroad and is perfectly capable of meeting any costs order in favour of the defendant in the event. And flowing from that, they reason also that, as the insurer is fully funding and pursuing this as a subrogated recovery action for its own benefit, it is hardly necessary to make any order for security for costs against the plaintiffs either. In other words, the insurer is the real plaintiff able to pay the defendant’s, in the event, if it comes to that. 

[7].	The plaintiffs are in no position to post security for costs. As for the insurers, there are two issues to be considered. 

[8].	Firstly, because it (insurer) is not a party on record in this action, does this court have any power to order it to pay security for costs, including security for costs? 

[9].	Secondly, if this court does have power to order the insurer to pay security for costs, should it exercise that power in this case and order the insurer to post security for costs?

DOES THIS COURT HAVE POWER TO ORDER THE INSURER, A NON-PARTY, TO POSE SECURITY FOR COSTS?

[10].	The general position in law is that no Court has power in any given matter to order a person or entity, not a party on record, to pay any costs. Lord Justice Blackburn’s sentiments in Mobbs v. Vandenbrande, (1864) 33 LJ QB 177 at page 180 is oft cited in support:

In ordinary cases, where there has been no abuse of its process, the Court has no jurisdiction to order a person not a party on the record to pay costs. 

[11].	The same general proposition would apply ipso facto in relation to the posting and payment of security for costs. But having said that, there are situations where the court might award costs against a non-party. 

[12].	In Knight v FP Special Assets Ltd (1992) 174 CLR 178, the Australian High Court (as per Mason CJ and Deane J) at 192reviewed some English and Australian authorities from which they formed therather compelling view that (i) where a party to litigation is insolvent and (ii) there is a non-party behind the scene who/which (iii) has played an active part in the conduct of the litigation, and (iv) has an interest in the subject of litigation, the court has power to award costs against that non-party:

We consider it appropriate to recognise a general category of case in which an order for costs should be made against a non-party and which would encompass the case of a receiver of a company who is not a party to the litigation. That category of cases consists of circumstances where the party to the litigation is an insolvent person or a man of straw, where the non‑party has played an active part in the conduct of the litigation and where the non‑party, or some person on whose behalf he or she is acting or by whom he or she has been appointed, has an interest in the subject of the litigation.

[13].	Dawson J in Knight, lent further support from a slightly different theoretical angle:

When it is said that as a general principle costs ought not be awarded against a person who is not a party to the proceedings, what is really being asserted is, not that there is no jurisdiction to do so, but that there is no justification for it because generally speaking persons who are not parties lack a sufficient connection with the litigation to provide a proper basis upon which to award costs against them.

[14].	Broadly speaking, Australian courts have used Knightas the foundation upon which an order for security for costs might be made against a non-party insurer pursuing and playing an active part in a subrogated recovery claim in the name of an insured plaintiff (see for example Matthews v SPI Electricity Pty Ltd & Ors (No 9) [2013] VSC 671 (9 December 2013).

[15].	I adopt the general approach in Knightfor guidance.

SHOULD THIS COURT EXERCISE ITS POWER TO ORDER THE INSURER TO POSE SECURITY FOR COSTS IN THIS CASE?

[16].	The question I ask is, whether the facts of this case, when held up against the principled approach in Knight, do support the ordering of security for costs against the non-party insurer? As a starting point, I reiterate that all counsel concede that Sun Flower and Air Fiji, are in no position to post any security for costs. Above, I have alluded to the reasons why they cannot do so. Having established that, two questions of fact then arise. Firstly, whether the insurer in this case, which is not a party on record, is playing an active role in the conduct of this litigation and, secondly, does the insurer have sufficient interest or connection in the subject matter of the claim? 

[17].	The short answer to these questions are contained in a letter dated 10 November 2011 by the insurer’s Australian Solicitors, Carter & Newell, to Airports Fiji Limited. This letter I reproduce below.

We recently received a Summons for Security for Costs via your Fijian Town Agents, Munro Leys
As you know this matter is a subrogated recovery action which has been commenced in the name of our client’s insured’s’ Sunflower Aviation Limited formerly known as Sun Air (Pacific) Limited and Air Fiji Limited. We confirm the action is being funded at the cost and the benefit of our insurer client only.

We understand that you have been on notice of our insurer client’s involvement in this matter since August 2007, over four years. In light of this, we were surprised that you instructed your Fijian Town Agents to bring a security for costs motion against our insurer client.

Do you have a particular concern about the solvency of our insurer client? If so, we would be pleased to discuss this with you further. If not, then given the involvement of our insurer client, we see your client’s motion as unnecessary in all circumstances
…………………….

[18].	Once it is established that the insurer is playing an active role in the conduct of this litigation, and that it has a sufficient connection with the outcome of this case, then what I have to do next is to accept that the power is discretionary in nature and must be exercised judicially.

[19].	Lord Justice Peter Gibson inKeary Developments Ltd v Tarmac Construction Ltd [1995] 3 All ER 534 in commenting on the English equivalent of Fiji’s section 402 and Order 23 (see above), said that the Court has a complete discretion whether to order security against a plaintiff company, and must act in the light of all the relevant circumstances. The principles in Keary(outlined below) are still applied by English Courts today, even in the face of change in the legal landscape in England -as the English Court of Appeal observed recently in Seakom Ltd & Anor v Knowledgepool Group Ltd [2014] EWCA Civ 1164 (08 August 2014).The persuasive force of Keary in Fiji must be placed rather highly, in my view. At the end of the day, the question remains: is there cause to believe from the evidence that the insurer would not be able to pay the defendant’s costs in the event? Should the discretion then be exercised in favour of ordering security for costs against the insurer? 
Factors 

[20].	The Irish High Court inGreenclean Waste Management Limited v Maurice Leahy Practising Under The Style And Title Of Maurice Leahy & Co. Solicitors [2013] IEHC 74 (19 February 2013) and reported in BAILLII, said obita that the existence of an insurance policy would, ordinarily, be sufficient security for costs for any defendant because one may assume that the insurer will meet the defendant’s costs in the event.

16. …… in the ordinary way, the existence of a policy of insurance would generally be highly relevant to an assessment of this nature. If, for example, a court were to enter judgment in a routine commercial claim, one could not generally say that there would be “reason to believe” that a properly insured defendant “will” be unable to discharge this award. At the risk of stating the obvious, this is because one may fairly assume in such circumstances that the insurer will meet the costs of the award. 

[21].	However, if there is no provision in the policy to cover security for costs, or if the plaintiff had done things to enable the insurer to void or repudiate the policy, or if there is any doubt as to the financial capacity of the insurer, the court may be justified in refusing to accept that the policy per se is sufficient security for costs.

[22].	It might, of course, be different if there was reason to believe that the award was not within the scope of the policy in question or that the defendant was guilty of conduct such as would enable the insurer to void the policy or would otherwise repudiate liability or even perhaps that significant doubts had emerged about the financial capacity of the insurer. 

[23].	In the matter before me, I understand that the insurer would have already indemnified the plaintiffs for their insured loss(es) and would be seeking to recover the same from the defendants. As such, it is fair to say that any fear that the defendants may harbor to the effect that the insurer may void or repudiate the policy and, on that basis, elude any cost order against it - would be ill-founded. The only lingering issue is the ability of the insurer to pay the defendants’ costs in the event.

Insurer’s Solvency

[24].	Peter Gibson LJ in Keary(supra) proposes that the fact that a plaintiff company is unlikely to be able to pay security for costs may be overlooked in some situations (see footnotes).However, the same does not necessarily follow where the company concerned is an insurer. I say that because of the fact that an insurer, by the very nature of its business, is required by law to maintain a (usually statutorily defined) level of solvency as a matter of public policy. For that very reason, insurers generally are closely monitored under a statutory scheme which inter alia regulates their solvency. I presume from the letter of Carter & Newell (supra) that the insurer in this case is not subject to the relevant statutory regulatory scheme applicable in Fiji.
Onus

[25].	Having said that, it is not clear to me whether the onus, initially, should be on the insurer to establish its ability to pay the defendant’s costs in the event, or whether it should be on the defendant to establish otherwise.It is safe to say that, because the solvency of insurers is a matter of public law regulation, the very fact that an insurer is active in the market place, is a testament to its solvency, for, otherwise, the regulator would have intervened to wind it up. In Fiji for example, as this court observed in In re Dominion  Insurance Ltd [2011] FJHC 294; HBF39.2008 (23 May 2011), the Insurance Act 1998:
[21]. …… sets up various checks to ensure that solvency is maintained. Amongst these, is the requirement that every insurer pays and maintains a deposit in the prescribed form acceptable to the Reserve Bank of Fiji with a market value of not less than the surplus of assets over liabilities required under section 31 of the Act (section 20). This deposit exists solely for the benefit of policy holders and cannot be assigned, transferred or encumbered or even be liable to attachment in execution of any judgement in any other way save for the discharge of any liability arising out of a policy of insurance issued by the insurer (see section 21). 

 [22]. Section 25 of the Act sets out the conditions that an applicant must fulfill before a licence to begin or carry on an insurance business in Fiji can be issued. Included amongst these is the requirement that the applicant satisfies the Reserve Bank as to its margin of solvency. For a general insurer incorporated in Fiji such as DIL, the prescribed margin of solvency is set out in section 32(2)(c) of the Act. Generally – the requirement is that the insurer must have a surplus of assets over liabilities and should have books and actuarial accounts to prove this – annually - to the satisfaction of the Reserve Bank (see Part V of the Act).

[26].	The following obita comments of the Irish High Court inGreenclean Waste Management Limited v Maurice Leahy Practising Under The Style And Title Of Maurice Leahy & Co. Solicitors [2013] IEHC 74 (19 February 2013) may be read in support of the proposition that the solvency of an insurer may be presumed from the very fact of the insurer’s continuing existence in the marketplace. 

16. …… in the ordinary way, the existence of a policy of insurance would generally be highly relevant to an assessment of this nature. If, for example, a court were to enter judgment in a routine commercial claim, one could not generally say that there would be “reason to believe” that a properly insured defendant “will” be unable to discharge this award. At the risk of stating the obvious, this is because one may fairly assume in such circumstances that the insurer will meet the costs of the award. 

[27].	InMatthews v SPI Electricity Pty Ltd &Ors (supra),the Supreme Court of Victoria in Australia was dealing with a class action relating to the 2009 “Black Saturday” bushfires. One of the defendants had applied for security for costs against the lead plaintiff as well as the band of insurers that were behind their respective members’ class action. The court refused to order security for costs in the absence of anyevidence that the insurers would not be able to pay the defendant’s costs in the event.

The result is that, in my view, the power exists to make an order for costs against the Insurers. However, in light of the matters to which I refer below, it is not necessary to come to a final conclusion as to the power because, assuming the power to exist, this is not a case where the court should, in the exercise of its discretion, make such an order.

[28].	I accept the sentiments in both Mathews and Greenclean. However, because the insurer in question is not one that is regulated under the appropriate regulatory framework in Fiji (Insurance Act 1998), the benefit of any “presumption” of solvency, in my view, must only be made upon the presentation of evidence of certification from the relevant Australian regulator. This, the insurer must provide.

Undertaking to Pay Defendants’ Costs

[29].	I observe, from the few cases I have reviewed, that, once they are satisfied of the insurer’s solvency, courts would then require from the insurer an undertaking to pay the defendant’s costs, rather than assess and order the payment into court of a an appropriate cash sum. 

[30].	In the Canadian case of Offrey v. Ryan, 2003 FCT 35 which is reported in CanLII (http://www.canlii.org/en/ca/fct/doc/2003/2003fct35/2003fct35.html), the defendant applied for security for costs. The action was a subrogated action brought by the plaintiff's insurers. The Court there noted that, although the plaintiff did have an interest in his deductible, he was a nominal plaintiff. The plaintiff did not adduce any evidence that he had assets to satisfy a judgment in costs. In light of that, the Court ordered that security for costs be posted. Notably, in obita, Lemieux Jsaid that he would not have ordered the plaintiff to post security for costs had his insurers undertaken to pay any costs. 

When an insurance company with a subrogated claim sues for that claim in the name of the insured, that person, the insured, is a nominal plaintiff. (See, Gough v. Toronto and York Radial Co.(1918), 42 O.L.R. 451 (C.A.).

It appears that Mr. Offrey has an interest in recovering the deductible he has paid. In my view, he does not have a substantial interest in the action. (See, Steinberg v. Blum, [1953] O.W.R. 246, so as to take him out of the category of a nominal plaintiff.

I am satisfied it appears there is reason to believe the plaintiff would have insufficient assets in Canada to pay the defendants' costs. He had an opportunity to reveal his true financial picture which he failed to do despite the Court's order.

In the circumstances, the defendants are entitled to security for costs. I might have been inclined not to order security for costs if counsel for the plaintiff, on proper instructions from the insurance company, had undertaken to pay the defendants costs if ordered against him. That was not forthcoming.

 The defendants' draft bill of costs was for the entire proceeding including trial and disbursements. I prefer to adopt a step approach. For now, I order the plaintiff to post security for costs in the amount of $5,000 within 30 days from the date of this order with liberty granted to the defendants to seek additional security as costs are incurred or reasonably anticipated to be incurred.

[31].	In Greenclean (supra), the type of insurance cover in question was an ATE ("After the Event") insurance policy. Such policies, I gather are commonly taken out by plaintiffs in the United Kingdomand other bigger jurisdictions to cover legal costs in the event he (plaintiff)were to lose his case. A high premium is paid if/when the plaintiff wins his case. The ATE insurance contract contained a “prospects clause” which entitled the insurer to repudiate the contract if there was a reasonable prospect that the plaintiff’s claim would fail. The defendant applied for security for costs against the insolvent plaintiff. The latter relied on its ATE policy. The issue as defined at paragraphs 3, 15 and 24 were: 

3. The question which arises in this application for security for costs brought by the defendant is rather a different one, namely, whether the plaintiff’s ATE insurance is a factor to which I properly can have regard in determining whether to order security for costs, whether pursuant to O. 29 of the Rules of the Superior Courts 1986 or s. 390 of the Companies Act 1963 (“the 1963 Act”). 
……………….

15. Given that the plaintiff is insolvent, one cannot but assume that it would be unable to pay these costs in the ordinary course. The real question is whether the existence of the plaintiff’s ATE insurance policy requires one to alter this assessment. 
…………………..

24. …. the crucial question is the extent to which the insurer can legitimately repudiate liability so as effectively to eviscerate the insurance policy so as to deprive the insured (and, by extension, the defendant) of any real security in respect of costs. 

[32].	The Court held that the features of the “prospects clause”were enough reason not to accept the policy per-se as sufficient for security for costs purposes. 

29. One can, therefore, sum up this present dilemma by saying that whereas security would be ordered if the plaintiff was not insured because it is clearly insolvent, conversely I would take the contrary view if it were insured in the ordinary way. The difficulty presented by ATE insurance is that such is the breadth of the repudiation clause and the fact that its operation is made contingent on precisely those matters into which a court cannot legitimately inquire that the risk that the plaintiff will not be in a position to discharge an award of costs defies any objective appraisal. In that respect, ATE insurance cannot be regarded in quite the same way as a standard contract of insurance. 

[33].	However, the Court further commented that an undertaking by the insurer not to invoke the “prospects clause” would be sufficient security for costs.

30. In these circumstances, I find myself coerced by the very novelty of the issues presented by ATE insurance to approach this matter somewhat differently than in the case of the standard s. 390 application. I propose accordingly to adjourn the present application to a date no greater than three months hence to enable the plaintiff, its legal advisers and its insurers to take final counsel regarding its prospects in the litigation. 

31. At that point, I shall require a binding assurance from the plaintiff’s insurers that it does not propose to exercise the right to repudiate based on the prospects clause. In the event that such an assurance is forthcoming – and I stress that this is entirely a matter for the insurer – I will not make an order for security for costs. If, on the other hand, no such assurance is forthcoming, then I will be compelled to conclude that, in the words of s. 390, I have reason to believe that the plaintiff will be unable be unable to discharge a costs award which might be made in favour of the defendant and in those circumstances will direct the making of an order for security for costs.

(the case of Michael Phillips Architects Ltd. v. Rilkin[2010] EWHC 834, [2010] Lloyd's Rep. IR 479, is excellent reading).

OBSERVATIONS

[34].	There are important lessons to be learnt from all the cases discussed above. I assume that the insurer in question is not regulated under Fiji's Insurance Act 1998, and is not incorporated in Fiji. It is safe to assume (at the risk of stating the obvious), that the solvency of this insurer is subject to statutory regulation in Australia as a matter of public policy, and under which statutory regime the insurer is accountable in maintaining a prescribed level of solvency. Some sort of certification from the appropriate Australian regulator would be ideal to allay any issue about the insurer's solvency. In addition to that, I would take heed of the Canadian approach in Offrey v. Ryan (supra) and in the Irish approach in Greenclean (supra) and require a binding assurance from the insurer that it will undertake to pay the defendants' costs if ordered to pay so.

ORDERS

[35].	The insurer is to file and serve within 35 days of the date of this Ruling (i.e. by 2.30 p.m. Friday 12 June 2015) a supplementary affidavit annexing the following:

(i)	a certificate from the appropriate Australian regulatorre: the insurer's solvency status.

(ii)	an undertaking duly executed by the insurer that it will pay the defendants' costs if, in the event, the plaintiff (and/or the insurer) were to be so ordered.

[36].	If, no such binding assurance is forthcoming from the insurer by the above mentioned date, then I will be inclined to the view that there is no proper evidence before me concerning the insurer's solvency and, accordingly, that the insurer therefore cannot be said with any certainty to be in a position to discharge a costs award which might be made in favour of the defendants. 

[37].	Accordingly, in the event, I will have no option but to order for security for costs in the amount that the defendants had sought in their application.

[38].	Case adjourned to 26 June 2015 for mention at 10.30 a.m. Costs in the cause.

Anare Tuilevuka
JUDGE
Lautoka 

08 May 2015