3V Benelux BV v Safecharge Card Services Ltd
| Jurisdiction | Ireland |
| Judge | Mr. Justice Allen |
| Judgment Date | 16 October 2019 |
| Neutral Citation | [2019] IEHC 675 |
| Court | High Court |
| Docket Number | [2017 No. 4639 P.] |
| Date | 16 October 2019 |
[2019] IEHC 675
THE HIGH COURT
Allen
[2017 No. 4639 P.]
Security of costs – Breach of contract – Prima facie defence – Defendant seeking an order directing the plaintiff to provide security for the defendant’s costs – Whether the defendant had a prima facie defence
Facts: The defendant, Safecharge Card Services Ltd, applied to the High Court for an order directing the plaintiff, 3V Benelux BV, to provide security for the defendant’s costs of an action for damages for breach of contract. It was resisted on the grounds (1) that the defendant had no prima facie defence, (2) that the plaintiff would be able to pay the defendant’s costs in what was said to be the highly unlikely event that the action should fail and (3) that the cause of any risk, if any, that the plaintiff might not be able to pay the costs was attributable to the defendant’s breach of contract.
Held by Allen J that he was not satisfied that the defendant had discharged the onus of establishing that it had a prima facie defence on the basis of frustration. However, he was satisfied that the defendant had established that it had a prima facie defence on the grounds that it did not cease to provide the services it was obliged to provide and was not obliged to secure an alternative Bank Identification Number (BIN) service provider. He was satisfied that the defendant had established that there was reason to believe that the plaintiff would be unable to pay the costs of the action if it failed. He was satisfied that the plaintiff had established on a prima facie basis that there was actionable wrongdoing on the part of the defendant in terminating the services agreement but he was not satisfied that it had adduced evidence or pointed to the availability of evidence that there was a causal connection between the alleged wrongdoing and a practical consequence or consequences for the plaintiff, or that the plaintiff had succeeded in identifying a specific level of loss which was recoverable as a matter of law.
Allen J held that the defendant was entitled to the order for security of costs which it claimed. It was agreed that the amount of the security would be left over, and Allen J would hear counsel further on that issue.
Application granted.
This is an application on behalf of the defendant for an order directing the plaintiff to provide security for the defendant's costs of an action for damages for breach of contract.
It is resisted on the grounds (1) that the defendant has no prima facie defence, (2) that the plaintiff will be able to pay the defendant's costs in what is said to be the highly unlikely event that the action should fail and, (3) that the cause of any risk, if any, that the plaintiff might not be able to pay the costs is attributable to the defendant's breach of contract.
The case is quite complicated.
The defendant is an Irish registered company which carries on the business of developing financial products that allow prepaid debit cards to be issued to customers. The plaintiff is a company registered in the Netherlands which distributes prepaid cards in the Benelux countries through its retail networks.
By a services agreement in writing dated 1st October, 2014, each of the plaintiff and the defendant agreed to provide to the other the services therein defined for the term of the agreement. In very broad terms, the defendant was to supply the cards and the plaintiff to distribute them. The revenue generated by the sale and use of the cards was to be shared as to 75% to the plaintiff and 25% to the defendant. The term of the services agreement was five years from 1st October, 2014.
The operation of the agreement between the parties depended on the involvement of a bank. The prepaid cards each had a credit card number, the first six digits of which identified the issuing bank. Those six digits are called a Bank Identification Number ( “BIN”). The services to be provided by the issuing bank are referred to as BIN sponsoring services.
The plaintiff and the defendant had been doing business together since 2009. Before the agreement the subject of these proceedings, the relationship between the parties was governed by a tripartite services agreement dated 28th January, 2010, between the plaintiff and the defendant and ABN Amro Bank NV ( “ABN Amro”), under which the BIN sponsoring services were provided by ABN Amro. That earlier agreement was for a term of three years and at the expiration of the term, ABN Amro gave notice of its intention to discontinue providing BIN sponsoring services. While ABN Amro declined to be party to the 2014 agreement, it continued to provide BIN services while the plaintiff and the defendant tried to find an alternative supplier.
Like everything else in this case, there is an issue as to who was responsible for securing an alternative BIN service provider. Moreover, there is an issue as to whether an alternative BIN services provider was available.
The services agreement provided that it would apply to an Initial Product called a Virtual Visa Voucher, referred to in the agreement as Product A, and such additional products as might be set out from time to time in additional Product Schedules, which were in turn defined as schedules to be agreed and added describing a specific product and detailing the process and terms and conditions for sale to and use by customers, and the services to be provided by each of the plaintiff and the defendant in relation to the product, and the charges applicable to that particular product.
A second product, Product B, was agreed and implemented. The plaintiff's case is that a third product, Product C, to be called Pay.com, was agreed and was to have been launched in January, 2016 but never was. The plaintiff's case is that this product would not have required a BIN sponsor, but I understand it to be common case it would have required payment processing services from a third-party provider.
The two products which were launched could be purchased more or less anonymously and could be used to draw cash from ATMs, as well as to pay for goods and services. They were subject to a variety of limits as to the frequency and amount by which the cards could be topped up.
The evidence on this application does not disclose the reason, or the reason, if any, given, as to why ABN Amro decided to cease providing BIN services but on 5th February, 2013, the EU Commission had announced that it had adopted two proposals for reinforcing the EU's existing rules on anti-money laundering, specifically by lowering the threshold below which cards could be used anonymously and strengthening the rules on customer due diligence by requiring the collection and vouching of information.
On 20th May, 2015, the European Parliament and Council made Directive (EU) 2015/849, the Fourth Anti-Money Laundering Directive. Article 67 of the Directive required Member States to bring into force such laws, regulations and administrative provisions as were required to give effect to it in national law by 26th June, 2017.
The Directive did what the Commission had two years previously said that it intended to do, namely, lowered the threshold below which more or less anonymous cards could be provided and increased the requirements of customer due diligence, specifically, the verification of information provided to financial services providers.
It is common case (without necessarily being agreed) that the products as they stood at the time of the services agreement were perfectly legal but that they would not meet the requirements of the national legislation required to transpose the Directive.
Similarly, it is common case that some modification of the products would be necessary in advance of the implementation of the Directive in the law of the Netherlands, although there is the difference of opinion between the parties' experts as to when that would need to be done: whether, as contended for by the defendant's expert, well in advance of the prescribed date for implementation of the Directive, or, as contended for by the plaintiff's expert, in advance of the date - which might be and in the event was, long after the date prescribed by the Directive - on which it was actually transposed.
There is a dispute between the parties as to whether the services agreement required them, more particularly the defendant, to modify the products to make or keep them compliant with the new requirements. That, counsel are agreed, will be a matter for the trial judge.
There is a dispute, also, as to whether such modification as was required would have meant that the product would have changed. It is said on behalf of the plaintiff that such modifications as were required were simple and straightforward, but what is not accepted is that the work and expense of complying with the new requirements would have to be done and met by the plaintiff. Before the implementation of the Fourth Anti-Money Laundering Directive the maximum limit for the use of a card without customer verification was €2,500 per annum. After implementation that limit was reduced to €250 per annum. If the limit of €2,500 per annum was to be continued, someone would have to carry out customer due diligence on such of the cardholders or applicants as would be willing to provide and vouch the required information.
Counsel are agreed that the issue as to whether the products after the necessary changes had been made would nevertheless be precisely the same as it had been before the changes were made is a matter for the trial judge. If it is, I am satisfied that the defendant has advanced a credible argument based on sufficient facts that they would not be.
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3V Benelux BV v Safecharge Card Services Ltd
...the costs of a motion for security for costs which had been the subject of two written judgments, the first given on 16th October, 2019, [2019] IEHC 675 on the substance of the application and the second given on 6th March, 2020, [2020] IEHC 139 on the amount of the security. In the earlier......