CMC Medical Operations Ltd ((in Liquidation)) t/a Cork Medical Centre v Voluntary Health Insurance Board

• Jurisdiction: Ireland
• Judge: Mr. Justice Gerard Hogan,Mr. Justice Mahon
• Judgment Date: 27 March 2015
• Neutral Citation: [2015] IECA 68
• Court: Court of Appeal (Ireland)
• Date: 27 March 2015

CMC Medical Operations Ltd (in liquidation) t/a Cork Medical Centre v Voluntary Health Insurance Board

[Article 64 Transfer]

BETWEEN

CMC Medical Operations Limited (In Liquidation) trading as Cork Medical Centre

Plaintiff/Appellant

- and -

The Voluntary Health Insurance Board

Defendant/Respondent

[2015] IECA 68

Peart J.

Hogan J.

Mahon J.

Appeal No. 575/2014

THE COURT OF APPEAL

Company – Security for costs – Medical services – Plaintiff seeking to appeal against the decision of the High Court – Whether plaintiff should provide security for costs

Facts: The plaintiff/appellant, CMC Medical Operations Ltd, opened a newly constructed private hospital at Citygate, Mahon Point, Cork in September 2010. Less than twelve months later the hospital was forced to close because of financial difficulties and a liquidator was appointed to the company in May 2011. There was an association between the promoters of the CMC private hospital and the promoters of the Blackrock Clinic in Dublin and the Galway Clinic. The defendant/respondent, the Voluntary Health Insurance Board (VHI), is a private health care insurer. CMC formally applied to the VHI in 2009 for its approval for the provision of medical services to individuals who had private medical cover with the VHI. Allegedly, following discussions and contact between the two parties over a period of nearly two years, VHI unlawfully refused to extend coverage to CMC with the effect that VHI declined to provide private health insurance cover to individuals insured with it in respect of CMC”s medical services. This refusal, CMC maintained, was catastrophic for its business and led directly to its financial collapse and the appointment of the Liquidator in May 2011. CMC maintained that, having regard to VHI”s dominant position within the market of health care insurance in Ireland, its refusal and failure to provide its approval to the hospital was unlawful. VHI denied that CMC”s financial collapse was caused as a consequence of any failure on its part to approve the hospital for medical services provided to its insured clients, or that it had any obligation to provide such cover, and that it had acted unlawfully. In particular, VHI said that the financial collapse of the hospital was because of underlying financial issues unrelated to VHI. VHI maintained that the hospital was constructed and opened for business in 2010 in the full knowledge on the part of CMC that an agreement to provide cover for the provision of its medical services had not been secured with VHI, nor had VHI given an indication that such approval was forthcoming. VHI maintained that it had good reason to, and was lawfully entitled to refuse to approve the hospital. The High Court, in June 2012, made an order pursuant to s. 390 of the Companies Act 1963 directing that CMC provide security for costs: [2012] IEHC 292. CMC appealed to the Court of Appeal against that decision.

Held by Mahon J that because it was conceded that VHI had a prima facie defence to the CMC claim, and that CMC would be unable to pay VHI”s costs if it successfully defended the action, the only option available to CMC to enable it to defeat VHI”s application for security for costs was to establish the existence of special circumstances. Mahon J, therefore, considered the requirements of the special circumstances test, as correctly identified by the High Court judge. Considering Connaughton Road Construction Limited v Laing O”Rourke Limited [Unreported Clarke J 16th January 2009), Mahon J held it to be reasonable to conclude that there was actionable wrongdoing on the part of the defendant in its refusal to approve CMC”s Cork hospital in relation to medical services provided for its insured members, and that such constituted an abuse of a dominant position within the meaning of s. 5 of the Competition Act 2002, based on the strong possibility that at all material times VHI probably held a dominant position. Having regard to the restricted nature of the imposition on a court in making a determination as to evidence relating to complex financial matters as part of a motion seeking security for costs, Mahon J held that CMC established prima facie evidence of a causal connection between the wrong alleged (namely, the abuse by VHI of its dominant position) and the alleged practical consequences for CMC (namely its rapid demise within a year of its opening). Mahon J held that such loss is recoverable in law if it is also established that VHI held a dominant position at the material time, and there was an abuse of that dominant position by it by reason of its failure to grant approval. Mahon J answered the question of whether that loss was enough to account for the difference between the plaintiff”s ability to meet an order for costs in favour of the defendant and not being so able in the affirmative.

Mahon J held that he would allow the appeal and dismiss VHI”s application for security of costs pursuant to s. 390 of the 1963 Act.

Appeal allowed.

1 1. I have read the judgment which Mahon J. is about to deliver and I agree with it. I would merely wish to add some comments of my own.

2 2. The statutory power to direct security for costs conferred by s. 390 of the Companies Act 1963 ("the 1963 Act") represents a classic example of "proceedings, procedures, discretions and adjudications which are permitted, provided for, or prescribed by an Act of the Oireachtas" described by Walsh J. in East Donegal Co-Operative Livestock Mart Ltd. v. Attorney General [1970] I.R. 317, 341. As the Supreme Court itself made clear in that case, such a discretionary power must be exercised in accordance with fundamental constitutional principles and respect the essence of constitutional rights.

3 3. The administration of justice is committed to the judicial branch of government by Article 34.1 of the Constitution. Access to justice is, accordingly, an indispensable feature of the constitutional order so that no "unnecessary monetary obstacle should be placed In the path of those who seek access to the courts": Malone v. Brown Thomas & Co. Ltd. [1995] 1 I.L.R.M. 369, 373, per Hamilton C.J. While there is no doubt but that a requirement as to security for costs does serve a legitimate aim and purpose, the Supreme Court has already recognised in other contexts that the security for costs requirements may, if fixed at too high a sum, may lead to a situation where a defendant "may be able to defeat an honest and substantial claim because the plaintiff cannot find the necessary security": Thalle v. Soares [1957] I.R. 182, 193, per Kingsmill Moore J. This passage has been expressly approved by the Supreme Court in more recent times: see Framus Ltd. v. CRH plc [2004] IEHC 25, [2004] 2 I.R. 25, 58, per Murray J.

4 4. The position of limited companies is, of course, different in principle to that involving litigation brought by private individuals. Such companies enjoy the privilege of limited liability and, unless security was ordered, there is a real risk that such companies could use the shield of limited liability in such a manner as to force other litigants either to compromise on unfavourable terms or else, to adopt the words of Kingsmill Moore J. in Thalle, to face "the threat of expensive litigation whose costs may be irrecoverable." This has been the consistent view of both the pre-1922 legislature and (post 1922) the Oireachtas since the special statutory power to order security for costs in the case of limited companies was first provided for by s. 69 of the Companies Act 1862. This section represented the earliest precursor to the modem s. 390 power.

5 5. Of course, it may be said that nobody is obliged to trade through the vehicle of a limited company and that, if they do, they cannot be heard to complain if the company is required to give "sufficient security" should it be otherwise unable to pay the costs of the other party. This, however, in some respects obscures the reality of modern commercial life, since it would be unrealistic to expect entrepreneurs (such as the plaintiffs in the present case) to take on the huge financial risks of an important venture such as the establishment of a major private hospital without the protection of limited liability, not least where their competitors will inevitably enjoy such protection. Of course, the development of entrepreneurship and the creation of new corporate entities who will innovate, compete and improve and who are prepared to offer new products and services is an important aspect of public policy on which the future progress and prosperity of this country depends.

6 6. In this regard it must be recalled that Article 40.6.1.iii of the Constitution guarantees the general right to form "associations and unions". The substance of the constitutional right to form associations would, I think, be compromised if citizens could not, at least generally speaking, choose to form an association with legal personality which could sue and be sued, even if, of course, the formalities of incorporation and the manner in which that right was to be exercised must naturally be regulated by law. That constitutional right to associate would nevertheless be severely impaired in many cases if citizens could not form an association with legal personality, especially if they considered that this was the mechanism which could best give effect to their collective aims and objectives, whether this be for commercial, representational, sporting or other purposes. Indeed, absent legal personality, no "association or union" in the sense contemplated by Article 40.6.1.iii could really come into existence, as one would otherwise be simply left with a loose assembly of private citizens with no particular legal standing which was not recognised by the law. Insofar as Carroll J. suggested...