LIONHART ASIA LIMITED Applicant/Third Defendant

McPHERSON JA: The plaintiff, which is a Russian corporation based in Vladivostok, has brought this action against the third defendant, which is a commodity broker or dealer, to recover a sum of US$162,500 paid as a deposit under a contract between those parties.

The contract in question was one for the supply of some 100,000 tonnes of sugar for shipment to the plaintiff. The deposit of the sum of $162,500 was by the contract required to be paid by the plaintiff to the defendant and it was, in fact, so paid. Thereafter disputes broke out between the parties and it is now accepted on both sides of the record that the contract has been determined.

The plaintiff applied to a Judge in Chambers for summary judgment for the amount of US$162,500 plus interest thereon. The Judge having heard submissions on both sides came to the conclusion that there was a triable issue with respect to the meaning of a clause in the contract, namely article 12.4, which refers to the seller submitting "proof of product".

In dealing with the question which it raised, his Honour said that he found the construction for which the third defendant contended an unattractive one, but nevertheless considered that it should not prevent the matter from going to trial.

He accordingly said that he proposed to give the defendant leave to defend. Having said that, he went on to impose conditions on that leave and he ordered that the third defendant pay into Court the sum of US$162,500 as a condition of being given leave to defend. He also ordered that if the sum was not so paid, the plaintiff should be at liberty to sign judgment against the third defendant in the Australian equivalent of that sum with interest. The third defendant has now appealed against that decision in so far as it imposes conditions on the third defendant's right to defend the action.

The appeal before us is, of course, one that challenges the exercise of a discretionary judgment in the Court below. It is therefore necessary for the third defendant as appellant to demonstrate that his Honour committed some error of law in the course of exercising his discretion, or that he failed to take account of relevant matters, or left some such matter out of account. In the submissions before us, counsel for the third defendant seems to me to approach the question of summary judgment essentially on the basis that once a triable issue is raised, it has the right to unqualified leave to defend; and that the Judge, at any rate in a case where the question is one of law rather than of fact or credit, is not at liberty to impose conditions on that leave to defend.

In my opinion, this is not a correct view of the discretion conferred by O.18 under which the application for summary judgment was made or of the power to impose conditions on the leave to defend. It is in my view not right in some measure to split up the discretion conferred by that provision in the manner which is suggested by the appellant's argument in this Court. There is a single discretion, or perhaps one may be permitted to use the expression 'global' to describe it, which is a discretion to give leave to defend with or without such conditions as the Court sees fits to impose.

In my view, therefore, the submission advanced on this aspect of the matter on appeal cannot be supported. Nor in my view is there, in a case like this, any clear distinction to be made between disputes of fact, of credit, or of law as was suggested or sought to be made in argument. The language of O.18 does not support any such conclusion or interpretation of the rule; it makes no distinction between or among cases of that kind.

There is, in my opinion, no support for such a conclusion to be found in the decision of the Divisional Court in Bowes v. The Caustic Soda Syndicate (1893) 9 Times Law Reports 328. The decision is very old; and it reflects an outlook which may fairly be said no longer to prevail in relation to this branch of the law; but, in any event, it is not, when one looks closely at it, capable of being considered as authority for the proposition for which it was cited. It is apparent from the rather brief report of the case that it was one in which there were not only questions of law, but questions of fact as well, for the determination of the tribunal at the trial of the action which was ordered by the Court of Appeal in that case to take place unconditionally. There does not, in any event, appear to be any reason of principle why the kind of distinction suggested by the appellant third defendant should be adopted so as to limit or control the discretion conferred under O.18. There are cases in which questions of law appear, on first view, to be more or less plainly arguable by a defendant. There are cases of fact which can readily be described in the same terms. There is no basis on which one can logically distinguish between the two. The Judge in the present case evidently thought that the defendant's argument was not a particularly strong one, but he dealt with it not by refusing leave to defend, but by granting it on the conditions I have mentioned.

So far as concerns the propriety of that part of the order imposing conditions, there was a clear basis on which the imposition of a condition could be and was justified. There was, as his Honour pointed out in the course of his reasons, no evidence of any hardship to the third defendant if it was ordered to pay the sum into Court. There was a claim, in the formal sense, that the defendant had suffered a loss, but there was no evidence of any such loss having been suffered. There was, his Honour said, a need to protect the plaintiff, the more so when it was found that there was no company of the name of the third defendant registered in Australia either as a local corporation or as a foreign company.

His Honour mentioned again the proposition that the third defendant's interpretation of the critical provision in the contract was of doubtful validity, or, as counsel on behalf of the plaintiff put it, a highly questionable reading of the contract. He also mentioned that there had been persistent demands by the plaintiff for return of the money and nothing to show until, at best, a very late stage why it was not being refunded. In the result, he said he was satisfied that the case was one where leave should be given to defend, but on the basis of a condition under which the third defendant was required to pay the sum into Court.

Having read his Honour's reasons, I have come to the conclusion not only that the order imposing the condition on leave to defend was not wrong, but that it was clearly right. I do not consider that the appellant third defendant in the course of this hearing before us has demonstrated that his Honour's discretion miscarried; or that he exercised it in a way which is not permitted under the relevant provisions of O.18; or, in so far as they are capable of controlling it, the decisions that have been given under those provisions.

In view of this, it is my conclusion that the appeal should be dismissed with costs.

THOMAS J: Order 18 rule 6 of the Rules of Supreme Court gives the Judge an unfettered discretion, when leave to defend is granted, to impose such terms as to giving security as the Judge may think fit. Commonly the discretion is exercised when the Judge perceives the defence to be "shadowy", "insubstantial", "tricky", "suspicious" or "almost one in which summary judgment should be ordered". The present case does not raise any factual disputes or matters of credit and obviously an influential factor in the exercise of His Honour's discretion was a serious doubt as to the validity of the defence. There are degrees of arguability upon such questions.

The learned trial Judge saw this defence as "of doubtful validity" and "unattractive". It was also referred to by members of this Court in the course of argument as "barely arguable". It was submitted that the entertainment of serious doubts about the validity of the defence was not a sufficient basis for the exercise of the discretion. I agree with my brother McPherson's characterisation of the rule as conferring a global discretion. In my view, it is sometimes appropriate that in a dubious case that security be provided as a condition of the advantage thereby secured of delaying the plaintiff, of running up costs which are probably going to be wasted and of giving a commercial advantage to a defendant who has a faintly arguable defence.

Such factors, namely the perception of the strength of the defence, influence many forms of pre-trial execution, such as Mareva injunctions, applications for security for costs and the imposition of a condition of the present kind which is in effect a security for judgment. The apprehension of strength of the case or of the flimsiness of the defence may be a relevant basis for the exercise of the discretion and of course questions of degree are involved.

Counsel for the applicant submitted that when leave is given on a pure question of law or construction of a document not involving matters of credit, ordinarily the discretion should be exercised against granting security. He relied primarily upon obiter statements in Grimwade v. Beresford ((1974) 9 S.A.S.R. 157, 160). If the obiter statements to that effect support that proposition, they are not supported by the cases that were mentioned in Grimwade to support them, namely Bowes v. The Caustic Soda and Chlorine Syndicate (1893) 9 T.L.R. 328 and Lindsay v. Martin (1889) 5 T.L.R. 322. Having examined those cases, I do not think they support that proposition, and I also agree with the reservation which my brother McPherson has expressed about applying points of practice one hundred years ago upon contemporary applications for summary judgment.

There are additional factors mentioned by the learned Chamber Judge, unnecessary to record here, that support the exercise of the discretion against the defendant requiring the money to be paid into Court as a sound one. I also agree with the reasons which have been expressed by my brother McPherson and with the order which he proposes.

WILLIAMS J: In all of the circumstances, including the fact that the amount ordered to be paid into Court is the amount of the deposit paid by the respondent pursuant to the contract in question, I am of the view that the learned Chamber Judge did not err in the exercise of his discretion in imposing that condition although the triable issue was as to the proper construction of the contract. I agree generally with what has been said by the other members of the Court and with the orders proposed.

McPHERSON JA: The appeal is dismissed with costs.