Greenclean Waste Management Ltd v Leahy (t/a Maurice Leahy & Company Solicitors)

• Jurisdiction: Ireland
• Court: High Court
• Judge: Mr. Justice Hogan
• Judgment Date: 19 February 2013
• Neutral Citation: [2013] IEHC 74
• Docket Number: [No. 7548 P/2009]
• Date: 19 February 2013

[2013] IEHC 74

THE HIGH COURT

[No. 7548 P/2009]

Greenclean Waste Management Ltd v Leahy (t/a Maurice Leahy & Co Solicitors)

BETWEEN

GREENCLEAN WASTE MANAGEMENT LIMITED

PLAINTIFF

AND

MAURICE LEAHY PRACTISING UNDER THE SYLE AND TITLE OF MAURICE LEAHY & CO. SOLICITORS

DEFENDANT

RSC O.29

COMPANIES ACT 1963 S390

COMPANIES ACT 1963 S311(1)

CPR r25.13(2)(C) (UK)

JIREHOUSE CAPITAL & ANOR v BELLER & ANOR 2009 1 WLR 751 2009 BUS LR 404 2008 CP REP 44 2008 BCC 636

MICHAEL PHILLIPS ARCHITECTS LTD v RIKLIN 2010 AER (D) 164 (JUN) 2010 LLOYDS REP IR 479 2010 BLR 569

CIVIL LIABILITY (AMDT) ACT 1964 S2

CIVIL LIABILITY (AMDT) ACT 1964 S2(A)

GREENE v HUGHES HAULAGE 1997 3 IR 109 1998 1 ILRM 34 1998/20/7609 1997 IEHC 110

DENNEHY v NORDIC COLD STORAGE LTD UNREP HAMILTON 8.5.1991 (TRANSCRIPT NOT AVAILABLE)

CIVIL LIABILITY ACT 1961 S50

High court litigation - Professional negligence - Breach of contract - Lease - Repairing covenant - Security for costs - Insurance - After the event insurance - Indemnity - Repudiation

Facts: These proceedings concerned a claim of professional negligence brought by the plaintiff company against the defendant, its former solicitors. Specifically, the action related to the advices given by the defendant to the plaintiff regarding the condition of certain commercial premises for which a lease was subsequently taken out; and therefore, the extent of their obligations under a covenant to repair contained within the lease. It was also claimed the defendant failed to advise the plaintiff in relation to a relevant limitation period and to disclose a relevant conflict of interest.

This application concerned a policy of after the event (henceforth ‘ATE’) insurance held by the plaintiff, which was a brand of insurance that carried a high premium but was only payable on the successful recovery of costs from another party. The question to be determined was whether in determining the defendant”s application for security for costs, was the court to have regard to the ATE insurance.

It was the defendant”s contention that whilst it had to be accepted that policies of insurance would generally be relevant to applications of this kind, the ATE insurance policy had such a wide range of avoidance provisions that it had serious doubts it would be able to recover costs if successful.

Held by Hogan J that if it appeared to the court through credible testimony that the plaintiff would be unable to pay costs if unsuccessful in the action, an order for security for costs could be made pursuant to s. 390 of the Companies Act 1963. The evidence to support the application should be convincing, which doesn”t merely raise the possibility of the event occurring. The plaintiff company was insolvent and so it had to be assumed that without the policy of insurance, it would be unable to pay costs.

The key consideration was held to be the extent to which the insurer could legitimately repudiate on its liability under the policy. If the extent was great enough, it could be said that the insurance provided no real security for costs. On consideration of the policy, it was discovered that the insurer was not entitled to terminate for no reason, but under the prospects clause it could do so if agreed following discussions with the plaintiff”s legal advisors that the action was likely to fail. This right to terminate could therefore theoretically arise at any stage of the proceedings. In the circumstances, the best course of action was deemed to be an adjournment of the application for three months. If the plaintiff”s insurers offered a binding assurance to the court that it would not terminate the policy of insurance based on the prospects clause, an order for security for costs would not be made. Conversely, if an assurance wasn”t forthcoming, security for costs would be ordered pursuant to s. 390 of the Companies Act 1963.

Application adjourned.

Mr. Justice Hogan

1 After the event ("ATE") insurance is a relatively new form of insurance product, at least so far as this jurisdiction is concerned. As the name implies, it is a form of insurance taken out in the wake of the specific event and it is often closely linked with "no win no fee" arrangements. The premium is generally high, but is only payable following successful costs recovery against another party.

2 While one could not deny but that features of this type of policy may suggest to some a form of contingency fee arrangement and may also possibly involve features of champerty(i.e., sharing in the profits of litigation in which the party has no legitimate interest), it should also be acknowledged that ATE may well assist many in securing access to justice in a manner to which they might not otherwise have ready access. For my part, however, I should make it clear that I am not here at all concerned with the underlying merits of ATE and still less any questions of its legality having regard to the traditional tort of champerty.

3 The question which arises in this application for security for costs brought by the defendant is rather a different one, namely, whether the plaintiff's ATE insurance is a factor to which I properly can have regard in determining whether to order security for costs, whether pursuant to O. 29 of the Rules of the Superior Courts 1986 or s. 390 of the Companies Act1963 ("the 1963 Act").

4 The claim itself is in essence an action for professional negligence brought by the company against its former solicitors arising from advices which were given initially in relation to the lease of certain industrial premises in 2001/2002. The plaintiff claims that the premises in question were in very poor condition at the end of the lease due to lack of effective maintenance coupled with wear and tear, so that total refurbishment of the premises was require. The complaint here is that the defendants failed to advise it of the extent of its obligations under the repairing covenants under the lease.

5 In 2006 the lessor commenced an action in this Court claiming damages for breach of covenant against the plaintiff. These proceedings were ultimately settled the sum of €310,000, together with a contribution for costs of some €150,000.

6 In these proceedings, however, the plaintiff contends that the defendants were guilty of further and independent acts of breach of contract and professional negligence by,inter alia, failing to advise in relation to a relevant limitation period and by failing to disclose a material conflict of interest. So far as the latter point is concerned, it is contended that the defendants ought to have advised of the plaintiff that it had a cause of action against a former principal of the firm who had given the original advice in relation to the lease.

7 Contingent perhaps on the outcome of this application, the defendants have prepared a draft defence (which has been exhibited in an affidavit) which takes full and detailed issue with these pleas. It is sufficient to say following a review of that draft defence that this Court could not possibly form any view of the underlying merits, save to observe that the terms of that draft defence, if duly established, affords a prima facie defence to the action.

8 The plaintiff went into voluntary liquidation in December 2011 and there would seem to be no doubt but that it is currently hopelessly insolvent. In principle, therefore, the defendants are prima facie entitled to an order for security for costs, unless it can be shown the plaintiff's ATE insurance sufficiently mitigates the risk that the plaintiff would be unable to discharge the defendant's costs.

1963

9 Section 390 of the 1963 Act provides in material part that:

".... 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."

10 The section does not in terms say that the party seeking security must establish as a matter of probability the likelihood of the company's inability to pay the costs. Yet it is nonetheless clear that the risks of this occurring must be significant, appreciable and weighty. The Oireachtas, after all, stipulated that these risks must be established by "credible testimony". Furthermore, the fact the section makes reference to the existence of a "reason to believe", strongly suggests that the risks must be objectively evaluated and weighed dispassionately, even if they are incapable of precise measurement.

11 At the same time, the section provides that the Court must have reason to believe "that the companywill be unable to pay the costs of the defendant…" (emphasis supplied). It will not suffice that the Court should think that the company might not be in a position to discharge these costs.

12 It may be of some interest that the words "reason to believe" (or, at least, some close version of these words) are also employed by the 1963 Act in other contexts. Thus, for example, s. 311(1) of the 1963 Act provides:

"(1) Where the Registrar of Companies has reasonable cause to believe that a company is not carrying on business, he may send to the company by post a letter inquiring whether the company is carrying on business."

13 In that specific...