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Fatafehi v Slabon [2010] TOLawRp 4; [2010] Tonga LR 28 (14 April 2010)

IN THE LAND COURT OF TONGA
Land Court, Nuku'alofa

LA 25/2008

Fatafehi anors

v

Slabon anors

Ford CJ
3 March and 9 April 2010; 14 April 2010

Practice and procedure – application for security for costs – plaintiff strong prima facie case – application dismissed

The first and second plaintiffs ("the plaintiffs"), the third named plaintiff being their son and heir, were the registered holder of a town allotment at Kolomotu'a not far along Vuna Road from the Royal Palace on which stood an upmarket restaurant and accommodation complex known as Seaview Lodge. On 2 March 1999 the plaintiff's leased the premises to the first defendant for a period of 18 years at an annual rent of $100 with an upfront lump sum payment of $50,900. The plaintiffs alleged that in May 2006 the first defendant formed and registered the third defendant company in which he was the sole shareholder and in July 2006, contrary to the provisions in the Agreement to Lease, he proceeded to assign the lease to the third defendant. The plaintiffs alleged that in so acting the first defendant breached clause 8 of the Agreement to Lease which was the provision relating to the right of the lessee to sub-lease or transfer the lease to a third-party. They sought an order cancelling the lease along with an order for possession of the allotment. Alternatively, they seek damages in the sum of $300,000. The defendants filed an application seeking two orders. First, an application for costs in respect of a mediation hearing which did not proceed and, secondly, an application for security for costs in the sum of $10,000 in relation to the substantive action. On 12 March the court ordered that the question of costs in respect of the mediation would be reserved until the substantive hearing. The grounds for the security for costs application were that the plaintiffs resided in Australia, they did not have any assets in Tonga against which an order for costs could be enforced, and the plaintiffs' claim was weak. The plaintiffs opposed the application.

Held:

1. The plaintiff established a strong prima facie case. The court cited the White Book: "It may be a denial of justice to order a plaintiff to give security for the costs of a defendant who has no defence to the claim".

2. The court concluded that it was not appropriate for an order to be made requiring the plaintiffs to provide security for costs and the application was dismissed.

Cases considered:

Adler v Upper Grosvenor Street Investment Ltd [1957] 1 All ER 229

Bocardo SA v S & M Hotels Ltd [1979] 3 All ER 737

Creer v P & O Lines of Australia Pty Ltd [1971] HCA 65; (1971) 125 CLR 84

Porzelack KG v Porzelack (UK) [1987] 1 All ER 1074

Rules considered:

Rules of the Supreme Court (UK)

Supreme Court Rules 2007

Counsel for the plaintiffs : Mr Edwards
Counsel for the defendants : Mr Niu

Judgment

[1] On 3 March 2010 the defendants filed an application seeking two orders. First, an application for costs in respect of a mediation hearing which did not proceed and, secondly, an application for security for costs in the sum of $10,000 in relation to the substantive action. At a Chambers hearing on 12 March I ordered that the question of costs in respect of the mediation would be reserved until the substantive hearing. This present Ruling, therefore, relates only to the application for security for costs.

[2] The grounds for the security for costs order are that the plaintiffs reside in Australia; they do not have any assets in Tonga against which an order for costs could be enforced; and the plaintiff's claim is weak. The plaintiffs, for their part, oppose the application. It was agreed that I would give a Ruling based upon the stated grounds in support of and in opposition to the Application before the Court.

The substantive action

[3] The first and second plaintiffs ("the plaintiffs"), the third named plaintiff being their son and heir, are the registered holder of a town allotment at Kolomotu'a not far along Vuna Road from the Royal Palace on which stands an upmarket restaurant and accommodation complex known as Seaview Lodge. On 2 March 1999 the plaintiff's leased the premises to the first defendant for a period of 18 years at an annual rent of $100 with an upfront lump sum payment of $50,900.

[4] In their statement of claim, the plaintiffs allege that in May 2006 the first defendant formed and registered the third defendant in which he was the sole shareholder and in July 2006, contrary to the provisions in the Agreement to Lease, he proceeded to assign the lease to the third defendant. It is further pleaded that in November 2006 the first defendant on-sold or transferred all his shares in the third defendant to the second defendant, Franz Strauss. It is alleged that the second and third defendants are now the occupier and owner of the lease.

[5] The plaintiffs allege that in so acting the first defendant breached clause 8 of the Agreement to Lease which is the provision relating to the right of the lessee to sub-lease or transfer the lease to a third-party. They now seek an order cancelling the lease along with an order for possession of the allotment. Alternatively, they seek damages in the sum of $300,000.

[6] The defendants do not dispute the basic facts but they allege that it is the third defendant alone that is now the owner and occupier of the lease and they also dispute the meaning and interpretation which the plaintiffs seek to place on clause 8 of the Agreement to Lease. The case, in other words, essentially involves the construction of a covenant in the Agreement to Lease.

Principles applicable to security for costs applications

[7] The application for security for costs is made pursuant to Order 17 of the Supreme Court Rules 2007. Order 17 Rule 1 provides as follows:

"O.17 Rule 1.

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

(a) the plaintiff is ordinarily resident out of the jurisdiction, or

(b) the plaintiff may be unable to pay the costs of the 90 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 cost of the proceeding in such sum and in such manner as the Court may determine."

[8] Order 17 Rule 1 is very much based on O.23, r.1 of the former Rules of the Supreme Court (RSC) in England (the White Book) and traditionally in dealing with applications for security for costs this Court has applied the same criteria as the English courts. The English cases have stressed the discretionary element of the rule. The approach of the courts is summed up in the following passage from The Supreme Court Practice (1991) 23/1-3/2:

"Rule 1(1) provides that the Court may order security for costs "if, having regard to all the circumstances of the case, the Court thinks it just to do so." These words have the effect of conferring upon the Court a real discretion, and indeed the Court is bound, by virtue thereof, to consider the circumstances of each case, and in the light thereof to determine whether and to what extent or for what amount a plaintiff (or the defendant as the case may be) may be ordered to provide security for costs. It is no longer, for example, an inflexible or rigid rule that a plaintiff resident abroad should provide security for costs....

A major matter for consideration is the likelihood of the plaintiff succeeding. This is not to say that every application for security for costs should be made the occasion for a detailed examination of the merits of the case. Parties should not attempt to go into the merits of the case unless it can be clearly demonstrated one way or another that there is a high degree of probability of success or failure."

[9] In Porzelack KG v Porzelack (UK) [1987] 1 All ER 1074, Brown-Wilkinson V-C made the point (p.1076):

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

Discussion

[10] Although the plaintiffs presently reside in Sydney, Australia, they are Tongan Nationals and they have property interests in Tonga in the form of a town and tax allotment. I accept that, because of the rather unique land tenure system in the Kingdom, it cannot be claimed that property is readily available for enforcement of a costs award in the same way as freehold property in other countries but enforcement measures can be taken in appropriate cases and the Court does take comfort from the fact that allotment holders do have an established link with the Kingdom. In this case there is the added quite unique feature of the plaintiffs being the lessor, i.e., the first defendant's landlord.

[11] The passage cited earlier from the White Book goes on to state that investigation of the merits of a claim can only be justified when the plaintiffs can demonstrate a very high probability of success. "If there is a strong prima facie presumption that the defendant will fail in his defence to the action, the Court may refuse him any security for costs."

[12] In Porzelack, Brown-Wilkinson V-C warned against the practice of having a major court hearing on security for costs in which the parties seek to investigate in considerable detail the likelihood or otherwise of success in the action. I accept that caveat. Given, however, the nature of the issues involved in the present proceedings, it appears to me that this is one of those cases where it is possible and appropriate for the Court to make an assessment as to the prima facie strength of the plaintiffs' case from the pleadings without the need for any details investigation or examination of the possibilities of success or failure.

The issues

[13] The controversial provision in the Agreement to Lease is clause 8 which reads as follows:

"Sub-Lease/Transfer

8. The Lessee shall have the right to sub-lease or sell and transfer the lease to any third party on the same terms and conditions as set out in this Agreement. Provided that the Lessee shall give to the Lessor the right of first refusal, which unless accepted shall lapse after 30 days from the date it was offered to the Lessor."

[14] The plaintiffs claim that the first defendant breached clause 8 by setting up a company, the third defendant, and selling or transferring the lease to the company without offering the lessor the right of first refusal. The defendants deny that they have breached the agreement. In their grounds in support of their application for security for costs, they state in part:

"11. The claim of the plaintiffs is weak. It depends upon an interpretation of a provision of a contract which clearly does not include the interpretation which is claimed.

12. The defendants admit the contract and the provisions which the contract contains, but rightly deny the meaning and interpretation which the plaintiffs seek to put on the words used."

[15] Without hearing argument on the matter, it appears to me that clause 8 is an example of the wide proposition common to assignments, namely, that the very right to assign, or in this case sub-lease or sell, may be made subject to a condition. Similar provisions in relation to the assignment of leases have been judicially considered in other cases. The provision in question is one which gives a right to sub-lease or transfer to a third-party but it is a right made dependent upon or subject to the condition that the tenant is to give the lessor the right of first refusal: Adler v Upper Grosvenor Street Investment Ltd [1957] 1 All ER 229; Creer v P & O Lines of Australia Pty Ltd [1971] HCA 65; (1971) 125 CLR 84; Bocardo SA v S & M Hotels Ltd [1979] 3 All ER 737.

[16] In their stated grounds in support of their application for security for costs, the defendants do not claim to have offered the lessor the right of first refusal.

Conclusion

[17] I find it unnecessary to go further into the merits of the case one way or the other. It appears to me that the plaintiff has established a strong prima facie case and I am unaware of any obvious authority which would support a contrary interpretation of the covenant in question. The White Book states (23/1 – 3/2):

"It may be a denial of justice to order a plaintiff to give security for the costs of a defendant who has no defence to the claim."

[18] Having regard to all the circumstances of the case I have concluded, in the exercise of my discretion, that it is not appropriate for an order to be made requiring the plaintiffs to provide security for costs and the application is, accordingly, dismissed.