Flannery and Another v Walter and ors

• Jurisdiction: Ireland
• Judge: Mr. Justice Brian J. McGovern
• Judgment Date: 22 July 2014
• Neutral Citation: [2014] IEHC 373
• Court: High Court
• Date: 22 July 2014

[2014] IEHC 373

THE HIGH COURT

[No. 2473P/2014]

[No. 36 COM/2014]

Flannery & Lexington Services Ltd v Walters & Ors

COMMERICAL

BETWEEN

JAMES PATRICK FLANNERY AND LEXINGTON SERVICES LIMITED

PLAINTIFFS

AND

MORTIMER JOHN WALTERS, BRIAN CONNELL, ACTIVITY MONITORING SOLUTIONS LIMITED, CATHARSIS TECHNOLOGIES LIMITED, ASHLEY TRUST LIMITED AND ASHLEY NOMINEES LIMITED

DEFENDANTS

AND

CATHARSIS TECHNOLOGIES LIMITED

COUNTERCLAIM PLAINTIFF

AND

JAMES PATRICK FLANNERY, BRUCE BASHEER AND SEAF-2 LIMITED

COUNTERCLAIM DEFENDANTS

RSC O.29

COMPANIES ACT 1963 S390

RSC O.29 r3

RSC O.29 r4

MALONE v BROWN THOMAS & CO LTD & FEDERAL SECURITY SERVICES LTD 1995 1 ILRM 369 1994/11/3491

HARLEQUIN PROPERTY (SVG) LTD & HARLEQUIN HOTELS & RESOURCES LTD v O'HALLORAN 2013 1 ILRM 124 2012/17/4887 2012 IEHC 13

LOUGH NEAGH EXPLORATION LTD v MORRICE & ORS 1998 1 ILRM 205 1998/23/9195

BULA LTD (IN RECEIVERSHIP) & ORS v TARA MINES LTD & ORS (NO 3) 1987 IR 494 1987/5/1305

DUBLIN INTERNATIONAL ARENA LTD v CAMPUS & STADIUM IRELAND DEVELOPMENT LTD & ORS 2008 1 ILRM 496 2007/16/3296 2007 IESC 48

BJ CRABTREE (INSULATIONS) LTD v GPT COMMUNICATION SYSTEMS LTD 59 BLR 43

BOYLE v MCGILLOWAY UNREP CLARKE 19.1.2006 2006/7/1199 2006 IEHC 37

OLTECH (SYSTEMS) LTD v OLIVETTI UK LTD 2012 3 IR 396 2012/37/10865 2012 IEHC 512

SAMUEL J COHL CO v EASTERN MEDITERRANEAN MARITIME LTD 1980 1 LLOYDS 371

SYKES v SACERDOTI 1885 15 QBD 423

Security for Costs – Counterclaim – Application – Insolvency – Reasonable Grounds for Entitlement – Additional parties to proceedings – Jurisdiction

These proceedings involved various parties making applications for security for costs. The defendants (Walters, Catharsis Technologies Limited and others) sought security for costs against the plaintiff (James Patrick Flannery and Lexington Services Limited). The counter claim involved the plaintiff in the original claim James Patrick Flannery, Bruce Basheer and Seef -2 Ltd now defendant claiming for security for costs against Catharsis Technologies Limited (CTL). The issue was brought before McGovern J in High Court.

Dealing with the first claim for security of costs, McGovern J. scrutinized the solvency of Lexington Limited and emphasized the courts discretion in deciding whether or not to order security for costs, even though Lexington Limited resides out of jurisdiction. McGovern J. stated that the onus of proof is on the applicants to establish reasonable grounds for the entitlement to the order and to meet the test set out in sec 390 of the Companies Acts., McGovern J. wasn”t convinced that the evidence adduced by the defendants met that test, and accordingly refused the defendants” application for security for costs against James Patrick Flannery and Lexington Services Limited. McGovern J. next analyzed the counterclaim brought by James Patrick Flannery, Bruce Basheer and Seef -2 Ltd against CTL on the basis that it is insolvent and would be unable to discharge the costs of the counterclaim defendants if required. McGovern J. applied the general principle that security for costs applications brought by defendants to a counterclaim will not be given if the counterclaim arises as a defensive action and where a sufficient nexus exists between the claim and counterclaim. McGovern J. decided that the counterclaim not only joins additional parties to the proceedings, but also raises new claims raising new legal and factual issues and furthermore he was convinced that the defendants to the counterclaim had adduced credible evidence that there is reason to believe that the counterclaim plaintiff, CTL, would be unable to pay the costs of the defendants to the counterclaim if successful in their defence. McGovern J. held that the defendant and counterclaimant must furnish security for costs in respect of the issues arising on the counterclaim.

1 1. Applications have been made by various parties to these proceedings for security for costs. The defendants seek security for costs against the plaintiffs. The defendants in the counterclaim seek security for costs against the plaintiff in the counterclaim.

2 2. Dealing with the defendants' application, the court has to determine whether James Patrick Flannery (hereinafter "JPF") and Lexington Services Ltd. (hereinafter "Lexington") are sufficiently solvent to meet a costs order if they are unsuccessful in these proceedings. The first named plaintiff, JPF, resides in the principality of Andorra, while the second named plaintiff, Lexington, is a company incorporated under the laws of Malta, a Member State of the European Union.

3 3. The application is made pursuant to O. 29 of the Rules of the Superior Courts so far as the first named plaintiff is concerned. In the case of the second named plaintiff, the application for security is brought pursuant to O. 29 of the Rules of the Superior Courts and/or s. 390 of the Companies Acts 1963 to 2013. Order 29, r. 3 requires a defendant seeking security to file a satisfactory affidavit showing a defence upon the merits, and O. 29, r. 4 provides that the onus is on the applicant to establish reasonable grounds for his entitlement to the order.

4 4. The plaintiffs concede that the defendant have a prima facie defence, and also concedes that, prima facie, the defendant are entitled to an order for security for costs against the first named defendant, but argue that the court must consider the position of the second named plaintiff, Lexington. Counsel for the applicants accepts that if Lexington is solvent, the position of JPF is irrelevant.

5 5. Even though the first named plaintiff resides outside the jurisdiction and it is conceded that the defendants have a prima facie defence, the court retains a discretion in deciding whether or not to order security for costs. In the exercise of its discretion, the court must consider all the circumstances of the case. See Malone v. Brown Thomas & Co. Ltd. [1995] 1 ILRM 369. From the concessions made by the parties at the hearing of this motion, the matter can be most efficiently dealt with by considering the question as to whether or not Lexington will be unable to pay the costs of the defendant if successful in its defence. Lexington is a company which was previously domiciled and registered in the British Virgin Islands and is now registered in Malta. Since it is not a company incorporated within the State, strictly speaking, the provisions of s. 390 of the Companies Acts do not apply to it. In HarlequinProperty (SVG) Ltd. & Anor. v. O'Halloran & Anor. [2012] IEHC 13, and in Lough Neagh Exploration Ltd. v. Morrice et al (Unreported, High Court, Laffoy J. 27 ^th August 1997), the parties accepted that the principles to be applied in such an application were the same as those found in section 390. In this case, the parties also accept that is so, and that the appropriate test is whether there exists "… 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 …"

6 6. The plaintiffs argue that, in cases...