Litigation & Crime
Cases Costs Security
In Mavior v Zerko Limited
[2013] IESC 15
Finlay Geoghegan J. in the Supreme Court wrote
“The separate statutory regime in respect of limited liability companies has been the subject of much analysis but is not relevant in this case. Any other entity, be it a natural person or any form of corporation which is not caught by s.390, is subject to the potential for security for costs being ordered under the rules. There is, therefore, no reason why the same broad principles should not apply to an unlimited company as would apply to a natural person. I would leave over to a case in which the issue specifically arises the question of the proper approach in the case of a limited company registered outside Ireland. It is arguable that s.390 of the Companies Act, 1963 only applies to Irish registered companies. If that be correct then the only basis for directing security against a non-Irish registered limited company would be under the rules. Different questions might arise depending on whether the company was an EU-resident company or one resident outside of the EU. In the latter case it is important to note that, while the question of ordering security against non-EU limited companies in Harlequin Property (SVG) Limited & anor v. O’Halloran & anor [2012] IEHC 13 was dealt with on the basis of applying the provisions of s.390 by analogy, that course of action was adopted in circumstances where the parties agreed that same was the appropriate basis for considering security for costs in that case. That point should not, therefore, be taken as having been definitively determined.”
Inter Finance Group Ltd. v. KPMG Management Consulting
[1998] IEHC 217 Morris J. wrote
“From these authorities it emerges that to succeed there is an onus on the moving party the defendant to establish (a) that he has a prima facie defence to the plaintiffs claim and (b) that the defendant will not be able to pay the defendant’s costs if successful in his defence.”
Greenclean Waste Management Ltd -v- Maurice Leahy
[2013] IEHC 74 Hogan J. wrote
“section 390 requires the Court to evaluate the risk that a particular event (i.e., inability to pay costs) will come about at some stage in the future based on all the relevant information presently before the Court. As already stated, I do not consider that the phrase “reason to believe” requires the Court to be satisfied that this has been established on the balance of probabilities before any such order can be made…….. Rather the Court must be satisfied following an evaluation of all the relevant evidence that there are weighty and objectively reasonable grounds to believe that this event will happen.”
Lismore Homes Ltd. (In receivership) v. Bank of Ireland Finance Ltd.
[1999] 1 I.R 507 Barrington J. in the Supreme Court wrote
The mere fact that a plaintiff is impecunious has never, on its own, been
a reason for awarding security for costs against him. Insolvent limited liability companies are in a different category simply because the liability of their shareholders is limited. If it could be shown that shareholders were using an insolvent limited liability company to harass with oppressive litigation an innocent third party, that could no doubt be restrained as an abuse of the process of the court. But the trial judge was not prepared to hold that that was the case in this case. The two plaintiffs in the present case were trading companies and their claims arise out of their trading and commercial activities.
Nevertheless they are confronted with the provisions of s. 390 of the Companies Act, 1963, which reads as follows:-
“Where a limited company is plaintiff in any action 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.”
The case law on s. 390 is discussed in the judgments of my learned colleagues. But to me it appears that the principles to be applied in the circumstances of the present case are comparatively clear. First, it is admitted that the plaintiff in the second action is now insolvent and would not be in a position to pay the costs of the defendants if they were successful in these proceedings. Secondly, it is clear that the plaintiff in the second action has a stateable case against each of the defendants. But the real question is whether the inability of the plaintiff in the second action to meet the costs of successful defendants arises from the very facts of which complaint was made in these proceedings.
The learned trial judge found an answer to this question and it was that the insolvency of the plaintiff in the second action did not arise from any act of the defendants for the simple reason that the plaintiff in the second action was insolvent (in the sense of not being able to pay its debts as they fell due) in February, 1989, before the matters complained of. However, for the reasons indicated below I do not find this solution satisfactory.
In the same case (Lismore Homes Ltd. (In receivership) v. Bank of Ireland Finance Ltd.) Lynch J. in the Supreme Court wrote
I commence by setting out what appear to me to be the principles of law relating to security for costs which are particularly relevant to these two cases. I think that the most authoritative decision on this aspect of the law is that of the majority judgment of the Supreme Court delivered by Finlay C.J. and concurred in by Henchy, Griffin and Hederman JJ. in Jack O’Toole Ltd. v. MacEoin Kelly Associates [1986] I.R. 277. I therefore quote at some length the concluding paragraphs of that judgment which are to be found at pp. 284 and 285:-
“It is clear that s. 390 of the Act of 1963, deals with the situation where an insolvent company is suing for damages or money due. That very circumstance in itself would appear to me to make it probable that in a very high majority of the cases which would come within that section recovery of the amount claimed would make a significant contribution towards the solvency of the company concerned and a corollary of that is that its insolvency is being probably contributed to, though possibly not entirely caused, by the delay in the payment of the amount alleged to be due.
Having regard to these circumstances, it does not seem to me a sufficient discharge of the onus of proof which I deem to be on a company against whom an application is made under s. 390, to make a mere bald statement of fact that the insolvency of the company has been caused by the wrong the subject matter of the claim.
…… I draw attention to the emphasis placed by Finlay C.J. on the fact that in S.E.E. Co. Ltd. v. Public Lighting Services Ltd. [1987] I.L.R.M. 255, accountants’ and auditors’ evidence was available. When Finlay C.J. referred to accountants’ and auditors’ evidence, it is clear that this was evidence on oath because the substantive trial of the action in the High Court had already been heard and the application for security was in respect of the costs of the appeal to the Supreme Court, the transcript of the evidence in the High Court having already been obtained.
Two further principles of law relevant to the facts of this case are clearly established by, inter alia, the judgment of the Supreme Court in the case of Comhlucht Phaipear Raomhaireachta Teo. v. Udaras na Gaeltachta [1990] 1 I.R. 320. Those principles are:-
1. The strength or otherwise of the parties’ case is not an appropriate consideration unless the plaintiff’s case is unanswerable in which circumstance security should be refused, and
2. if the plaintiff is insolvent before the events complained of, then the plaintiff cannot resist the claim for security for costs on the basis that the defendant contributed to or increased the insolvency.
..
In MC Medical Operations Ltd (In Liq) -v- VHI
[2015] IECA 69 Hogan J in the Court of Appeal wrote
8. In my view, the whole object of the jurisdiction conferred by s. 390 of the 1963 Act is fundamentally to protect against the potential abuse of the privilege of limited liability. In addition, this section must also be construed and applied in a fashion which does not negate the substance of the right of access to the courts. As important decisions such as McCauley v. Minister for Posts and Telegraphs [1966] I.R. 345 and Blehein v. Minister for Health and Children [2008] IESC 40, [2009] 1 IR 275 have all made clear, this principle is fundamental to the constitutional order. Accordingly, I consider that the statutory power to order security should not be exercised where this would be oppressive or would stifle a genuine claim.
9. It is true that Clarke J. suggested in his judgment in Connaughton Road Construction Ltd. v. Laing O’Rourke Ireland [2009] IEHC 7 that where, prior to the alleged wrongdoing, the plaintiff company had no significant net assets, it would need to establish that “in the absence of the wrongdoing alleged, it would have acquired net assets sufficient to enable it to discharge the defendant’s costs in the event that the defendant were successful” in order to avoid an order for security for costs under s. 390 of the 1963 Act.
10. The effect of this test appears to be that an impecunious plaintiff company may face an order for security for costs even where the plaintiff could demonstrate that it would otherwise have a good cause of action. If, for example, the company has a deficit of €40,000 and the costs of the proceedings have been estimated at €60,000, does this mean that it should face an order for security for costs under s. 390 of the 1963 Act unless in that example it could show that it is likely to recover more than €100,000 damages? I cannot help thinking that as the application of s. 390 of the 1963 Act in this manner could effectively stifle otherwise valid claims, the Connaughton Road test itself may have to be re-visited in the light of the constitutional considerations I have just mentioned.