Coolbrook Developments Ltd. -v- Lington Development Ltd & anor, [2018] IEHC 634 (2018)

Docket Number:2017 1366 P
Party Name:Coolbrook Developments Ltd., Lington Development Ltd & anor
 
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THE HIGH COURT

COMMERCIAL[2017 No. 1366 P]

BETWEEN

COOLBROOK DEVELOPMENTS LIMITEDPLAINTIFF/APPLICANTAND

LINGTON DEVELOPMENT LIMITED AND

DAVY TARGET INVESTMENTS PLCDEFENDANT/RESPONDENT

JUDGMENT of Mr. Justice David Barniville delivered on the 15th day of November, 2018

Introduction

  1. This is my judgment on applications brought by both defendants, Lington Development Ltd (“Lington”) and Davy Target Investments plc (“DTI”) for orders for security for costs against the plaintiff, Coolbrook Developments Ltd (“Coolbrook”) pursuant to s. 52 of the Companies Act, 2014 (the “2014 Act”). While the notices of motion also seek orders pursuant to O. 29 of the RSC, the defendants confined their applications to s. 52. By separate applications, Lington and DTI seek orders directing Coolbrook to provide security for their costs, orders determining the form and amount of the security for costs to be provided and orders staying the proceedings until the security for costs has been provided by Coolbrook.

  2. The authorities establish that an applicant seeking an order for security for costs pursuant to s. 52 of the 2014 Act must establish:-

    (1) a prima facie defence to the claim of the plaintiff company; and

    (2) that there is reason to believe that the plaintiff company will be unable to pay the costs of the defendant, if successful in its defence.

  3. If those two tests are satisfied by the applicant for security for costs, the authorities establish that the court ought to direct that security for costs be provided unless the plaintiff company can show that there are special circumstances why an order for such security should not be made. If the court decides that an order for security for costs should be made, an issue often arises as to the amount of such security.

  4. In these applications, Coolbrook has conceded that Lington and DTI have each established a prima facie defence to its claim. Coolbrook does not, however, accept that Lington and DTI have established that there is reason to believe that it will be unable to pay their costs if they are successful in the proceedings. Therefore, Coolbrook contends that no order for security for costs should be made. Coolbrook does not seek to rely on the existence of any “special circumstance” in order to persuade the court to exercise its discretion not to direct it to provide security for costs.

  5. In the event that the court decides to direct Coolbrook to provide security for costs, Lington and DTI contend that the amount of the security to be provided should be in accordance with the estimates which legal costs accountants for Lington and DTI have put before the court as representing the likely costs of the defendants in defending the proceedings.

  6. Coolbrook has offered to lodge a sum of €250,000 in an escrow account held in the name of its solicitors pending the determination of the proceedings, which it submits constitutes the appropriate amount of security which it should be required to provide, in the event that the court decides to make orders for security for costs against it. Coolbrook submits that that amount represents roughly one third of the likely costs which may be incurred by Lington and DTI in defending the proceedings.

  7. Lington and DTI have raised various issues in relation to this offer. They contend that the court has a discretion under s. 52 of the 2014 Act to direct full security and that the court is not bound by, and should not follow, any rule or practice which may indicate that the amount of security for costs to be provided should be in the region of one third of the total likely costs to be incurred in the defence of the proceedings. Coolbrook, on the other hand, supports the application of the so-called “one third rule” or “practice”.

  8. The essential issues, therefore, to be decided on these applications are:-

    (1) whether Lington and DTI have established that there is reason to believe that Coolbrook will not be in a position to pay their costs in the event that they are successful in the defence of the proceedings; and

    (2) if so, the amount which the court should direct Coolbrook to provide by way of security for costs.

  9. While Coolbrook has accepted, solely for the purpose of these applications for security for costs, that Lington and DTI have established a prima facie defence to claims made by Coolbrook in the proceedings, it is nonetheless appropriate, in order properly to understand the circumstances in which these applications arise and in order properly to consider the respective positions of Lington and DTI, that I should set out briefly the claims being made by Coolbrook in the proceedings and the responses made by Lington and DTI to those claims.

    Background to the proceedings

  10. The proceedings arise from a dispute between Coolbrook, Lington and DTI concerning the sale by Lington to DTI of the 25% interest Lington held in a commercial property on Burlington Road, Dublin 4, known as the “Burlington Plaza” (the “Property”) in February 2017. Prior to that sale, the Property was owned by the following companies in the following percentages:- Coolbrook (50%), Lington (25%) and another company, Percy Nominees Ltd (“Percy”) (25%). Percy’s 25% interest in the Property was acquired by Coolbrook in March 2017. As a consequence of that acquisition, Coolbrook now owns a 75% interest in the Property. The sale by Lington to DTI of its 25% interest in February 2017 is challenged in the proceedings.

    The claims in the proceedings

  11. The proceedings commenced by a plenary summons which was issued by Coolbrook on 13th February, 2017. At that stage, the proceedings were brought against Lington only. DTI was joined as a co-defendant to the proceedings on 24th July, 2017. The plenary summons was then amended to reflect the joinder of DTI. A statement of claim was delivered by Coolbrook on 28th July, 2017. Thereafter, notices for particulars and replies to particulars were exchanged between the parties. Separate defences were delivered by Lington and DTI on 8th December, 2017. Lington and DTI are represented in the proceedings by different firms of solicitors and by different counsel.

  12. Coolbrook alleges in the proceedings that the sale by Lington of its 25% interest in the Property to DTI in February 2017 was in breach of the provisions of an agreement dated 23rd February, 2011 which governed and regulated the relationship between the owners of the Property known as the Owners’ Agreement (the “Owners’ Agreement”). Coolbrook seeks to have that sale declared null and void and seeks an order rescinding or setting aside the sale. Specifically, Coolbrook contends that the sale was in breach of clause 6 of the Owners’ Agreement which provides for what is to happen in circumstances where an owner wishes to transfer its interest in the Property. Coolbrook alleges that Lington failed to comply with the requirements provided for in clause 6. It alleges that in breach of the Owners’ Agreement, Lington:-

    (a) failed to market its interest properly or at all;

    (b) in the alternative, failed to market its interest properly or at all with a view to securing an offer from any “arm’s length third party”;

    (c) in the further alternative, wrongfully sold its interest in the Property to a connected entity (DTI) rather than to an “arm’s length third party” as required by clause 6 of the Owners’ Agreement.

  13. Coolbrook contends that Lington was not permitted to transfer its interest in the Property other than in accordance with the provisions of the Owners’ Agreement and that its failure to comply with those provisions rendered the sale of its interest to DTI void and of no effect.

  14. Coolbrook makes an alternative case against Lington. It says that Lington acted in breach of an express or implied term of the Owners’ Agreement that required Lington:-

    (a) to allow Coolbrook to participate further in the sale process in respect of Lington’s interest in the properties;

    (b) to allow Coolbrook to bid again for that interest,

    (c) to include Coolbrook as a recipient in any marketing of its interest during the transfer period provided for under clause 6,

    (d) to inform Coolbrook of the quantum of any offer made and

    (e) to inform Coolbrook of the identity of the person making such offer.

    Alternatively, Coolbrook contends that Lington acted in breach of a duty to act in good faith towards Coolbrook (which duty is alleged to arise pursuant to clause 12.1 of the Owners’ Agreement).

  15. Coolbrook contends that the sale by Lington of its 25% interest in the Property to DTI was not a sale to an “arm’s length third party” as required under clause 6 and that DTI is a company that was connected, directly or indirectly, to Lington or was a related company for various reasons. Coolbrook further contends that Lington acted in breach of the Owners’ Agreement by wilfully concealing the identity of DTI from Coolbrook with a view to preventing Coolbrook from intervening to stop the sale.

  16. Various other causes of action are asserted against Lington including alleged breach of confidence, alleged wrongful and unlawful combination or conspiracy with DTI to prevent Coolbrook from acquiring Lington’s interest in the Property.

  17. The case made by Coolbrook against DTI in the proceedings is that DTI wrongfully received confidential information in relation to an offer made by Coolbrook to acquire Lington’s 25% interest in the Property in August 2016, that DTI wrongfully and unlawfully combined or conspired with Lington to prevent Coolbrook from acquiring Lington’s 25% interest in the Property and that DTI, having actual or constructive notice of the provisions of the Owners’ Agreement, wrongfully and unlawfully combined with Lington to prevent Coolbrook from exercising its rights and entitlements under that agreement.

  18. Apart from seeking declaratory relief to the effect that the sale by Lington of its 25% interest in the Property to DTI was null and void and an order rescinding or setting aside that sale, Coolbrook...

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