1 This was an appeal against the decision of the assistant registrar given on 9 March 1987 in which, on an application under O 14 of the Rules of the Supreme Court by the plaintiffs for judgment, he gave the defendants unconditional leave to defend the action.

2 The plaintiffs` claim is for a sum of $340,818.67, being the balance of the price of diamonds and gems sold and delivered by the plaintiffs to the defendants. There was no dispute on the amount owing, as the defendants admitted the claim. However, the defendants contended that the contracts for the sale of diamonds and gems to them were tainted with illegality and the illegality arose in this way. The plaintiffs were well aware that the diamonds and gems sold to the defendants were meant for sale in Peninsular Malaysia and that they were to be taken there without any declaration and payment of customs duty due to the Malaysian authority. The defendants maintained that the modus operandi in the sale and delivery of the diamonds was `a joint illegal enterprise` and a director of the plaintiffs, Pradip Ramanlal Shah, `knew and was privy to this joint illegal enterprise`. That was the only defence raised and it was submitted on behalf of the defendants that that was a triable issue. The learned assistant registrar, who heard the application, gave unconditional leave to the defendants to defend the action and against that decision, the appeal was brought. At the conclusion of the hearing of the appeal, I varied the decision of the learned assistant registrar and ordered that leave be given to the defendants to defend the action on condition that the defendants furnished a bank guarantee for the sum of $340,818.67 within 21 days from the date thereof, in default of which the plaintiffs would be at liberty to enter final judgment against the defendants for the sum claimed with interest and costs.

3 In seeking to set up the defence of illegality, Mohamed Yusoof s/o Mohamed Dawood, a director of the defendants, in his affidavit affirmed on 4 November 1986 said, inter alia, as follows:

4 Mohamed Yusoof then proceeded to show how he took delivery of the diamonds and gems from the plaintiffs. He said that he went to the plaintiffs` premises, collected the diamonds and gems under consignment notes, and then brought them to Malaysia and sold them there, and that those, which were unsold were returned to the plaintiffs, who would then invoice and bill the defendants only for those diamonds and gems which were sold. That was the modus operandi in the sale of all the diamonds comprised in the 13 invoices set out in para 1 of the statement of claim, except for five lots of diamonds, in respect of which, he said this:

5 He then said that the plaintiffs were fully aware of the entire transaction and that the diamonds and gems were smuggled into Peninsular Malaysia for sale there.

6 An examination of the allegations contained in the affidavit does not really show that there was `a joint illegal enterprise` and that the plaintiffs were `privy to this joint illegal enterprise`. The defendants admitted there were sales of diamonds and gems to them and that the sales were on consignment: the plaintiffs billed for only those items sold by the defendants. The sales and delivery took place in Singapore. They were exported by the defendants to Malaysia for sale by them, and in taking them across to Malaysia the defendants committed the illegal acts under the laws there: they smuggled the diamonds and gems into Malaysia without payment of customs duty. There was no suggestion that the plaintiffs` servants or agents in any way took part in the smuggling or assisted in the smuggling. The plaintiffs might be well aware of such illegal acts of the defendants, their servants or agents. But mere knowledge on the part of the plaintiffs that the diamonds and gems sold to the defendants would be exported illegally by the defendants to Malaysia does not constitute a defence to the claim by the plaintiffs. In the case of Fielding & Platt Ltd v Selim Najjar [1969] 1 WLR 357, an English manufacturer sold to a Lebanese company an aluminium extrusion press which was delivered at a British port. The defendant, on an application under O 14, claimed that it was an express term of the contract that the goods would be invoiced as `parts for a rolling mill`, and the purpose, as the plaintiffs well knew, was to cause a false invoice to be put up so as to enable the press extrusion plant to be imported to Lebanon contrary to Lebanese law. The defendant therefore claimed that the contract was tainted with illegality. This defence was dismissed on an application under O 14 and leave to defend on this point was refused. The refusal on this ground was confirmed on appeal by the Court of Appeal. Lord Denning said that in order for such a defence to succeed, the d efendant must show two things: he must show, firstly, that the contract contained a term that the English manufacturers were to give a false invoice, and, secondly, that the English company were implicated in illegality in that they had knowledge of it and actively participated in it. He said, at p 362:

7 The passage of the judgment,of Sankey LJ in Foster v Driscoll [1929] 1 KB 470 referred to by Lord Denning, is as follows:

8 In the circumstances, having examined the allegations made by Mohamed Yusoof s/o Mohamed Dawood in his affidavits, there was really little or no substance in the suggested defence. The allegations by him of the `joint illegal enterprise` and of the plaintiffs being `privy to this joint illegal enterprise` were merely bald statements without any facts or evidence to support them. This is almost one of those cases where summary judgment should be ordered. However, in order not to shut the defendants out from such defence, I gave to the defendants conditional leave to defend.

9 As regards the condition I imposed, I do not think it is unfair or unreasonable to the defendants. They are still carrying on a diamond business and they or their directors should be able to arrange for a bank guarantee. There was no evidence that they could not do so. They had taken the diamonds and gems from the plaintiffs and had sold them, and had the benefit of such sales.

10 Order accordingly