Hedgecroft Ltd T/A Beary Capital Partners v Htremfta Ltd (Formerly Dolmen Securities Ltd)

• Jurisdiction: Ireland
• Judge: Ms. Justice Costello
• Judgment Date: 27 November 2018
• Neutral Citation: [2018] IECA 364
• Date: 27 November 2018
• Court: Court of Appeal (Ireland)
• Docket Number: Neutral Citation Number: [2018] IECA 364

BETWEEN/

HEDGECROFT LIMITED

T/A BEARY CAPITAL PARTNERS

APPELLANT

- AND -

HTREMFTA LIMITED (FORMERLY DOLMEN SECURITIES LTD), HTREMFTA CORPORATE FINANCE LIMITED

(FORMERLY DOLMEN CORPORATE FINANCE LIMITED)

AND

CANTOR FITZGERALD IRELAND LIMITED

(FORMERLY DOLMEN STOCKBROKERS LIMITED)

RESPONDENTS

[2018] IECA 364

Costello J.

Birmingham P.

Peart J.

Costello J.

Neutral Citation Number: [2018] IECA 364

Record No.: 2017/225

THE COURT OF APPEAL

Practice & procedure – Costs – Security for costs – Companies Act 2014 – Whether other circumstances present that justified the requirement for security of costs

Facts: The appellant was a debt finance advisory firm that entered into an asset purchase agreement with the respondents. Both parties contended that the other had breached the terms of the agreement, which led to the issue of a claim and counterclaim. As part of the litigation, the respondents had applied for an order for security of costs against the appellant. This order was granted, and the appellant now sought to challenge the order.

Held by Costello J, that the appeal would be dismissed. The grant of the order and stay of the proceedings was within the discretion of the trial judge and was not a matter that required the intervention of an appellate court. Further, the striking out of the claim against the third appellant had been approached correctly by the trial judge.

JUDGMENT of Ms. Justice Costello delivered on the 27th day of November 2018

1 On the 28th April, 2017 Binchy J. in the High Court made an order pursuant to s. 52 of the Companies Acts, 2014 directing the appellant to provide security for such costs as are likely to be incurred by the respondents in the proceedings with a stay on the proceedings pending the furnishing by the appellant of the security for costs, the amount of the security to be determined by the Master of the High Court in default of agreement. In addition, he struck out the claim as against the third named respondent on the basis that it was frivolous and vexatious and bound to fail. The appellant appealed the order and this is the judgment in respect of the appeal.

2 The parties accepted for, the purposes of the appeal, that the appellant has a prima facie case and the respondents have a prima facie defence, that the appellant would not be able to pay the estimated costs of the respondents if they were successful in their defence and that the appellant had established special circumstances, which usually leads a court to exercise its discretion to refuse to order the provision of security. The issue in the appeal was whether there were other circumstances present which outweighed the factors in the appellant's favour so that the trial judge could exercise his discretion to make the order sought.

Background

3 The appellant is a boutique corporate finance debt advisory firm which trades as Beary Capital Partners. Its principal shareholder and director is Mr. Kevin Beary. In or about 2006 Mr. Beary was a shareholder in the first and second named respondent. In addition, Mr. Beary acted as managing director of the second named respondent and had a service contract with the first named respondent.

4 These proceedings arise from an Asset Purchase Agreement entered into between Mr. Beary, the appellant, and the first and second named respondents. Mr. Beary joined in the agreement for the purposes of providing personal covenants to the first and second named respondents. Under the Asset Purchase Agreement, the appellant purchased certain assets of the first and second named respondents. Much of the consideration was deferred and made dependant on the appellant receiving income from certain projects. The appellant says that it has received no income from these projects and so has paid no consideration.

5 On the 16th December, 2014 the appellant instituted these proceedings and alleged that the respondents breached the Asset Purchase Agreement. The appellant's claim arises in respect of two elements of the Asset Purchase Agreement. One of the pipeline projects which was assigned comprised the fees to be earned from arranging mezzanine finance in respect of what was described as the ‘Mainstream Renewal Contract’. The original mezzanine funding for this contract was put in place by the first and second named respondents in 2008 and was rolled over in 2011 and again in 2014. The appellant says that at the time of the Asset Purchase Agreement it was contemplated that this contract would be rolled over and it was a contract in respect of which the first and second named respondent had earned significant fees.

6 The second aspect of the case related to contracts with NAMA. The appellant asserts that the first and second named respondent agreed to seek the consent of NAMA to sub- contract the services to be provided under the existing NAMA contract. Instead the respondents told NAMA that they were no longer engaged in carrying out services of the nature covered by the NAMA contract. This had the effect of NAMA deciding not to proceed with awarding any contracts to the first and second named respondents thereafter which could be subcontracted to the appellant. The appellant's claim is for damages for breach of the Asset Purchase Agreement, negligence and breach of duty and misrepresentation and damages for wrongful interference with the economic interests of the appellant. It assessed the value of its claim at €6,000,000.

7 On the 15th June, 2015 the respondents counterclaimed against both the appellant and Mr. Beary as respondent to the counterclaim pleading that the appellant had failed to pay the consideration due under the Asset Purchase Agreement, that the appellant and Mr. Beary were in breach of a non-solicitation obligation, they had failed to repay loan amounts under the Asset Purchase Agreement and had acted in breach of contract and/or covenant, breach of duty (including fiduciary duty), negligence and/or misrepresentation thereby giving rise to a claim by the first and second named respondents.

Motion

8 By notice of motion issued on the 24th June, 2015 the respondents sought an order pursuant to s. 52 of the Companies Act, 2014 directing the appellant to provide security for costs and a further order staying the proceedings pending the furnishing by the appellant of security for costs. They sought an order fixing the amount of security for costs or in the alternative, an order directing the fixing of the amount of such security by the Master of the High Court. In addition, the respondents sought an order striking out the claim of the appellant against the third named respondent pursuant to Ord. 19, r. 28 of the Rules of the Superior Courts and/or the inherent jurisdiction of the court on the grounds that the pleadings disclosed no reasonable cause of action and/or are frivolous and vexatious and/or the claims are bound to fail.

The judgment of the High Court

9 The High Court noted that for the purposes of the application for security for costs the estimate of the probable costs that will be incurred by the respondents in the proceedings was €236,507.50 and further that the appellant accepted for the purposes of the application that the respondents had made out a prima facie defence to the appellant's claim. The major dispute in the application was whether or not the appellant would, in fact, be able to meet an award of costs in the estimated amount if the respondents were successful in their defence. The matter was hotly contested and gave rise to an exchange of fifteen affidavits.

10 The trial judge referred to the fact that the accountant retained by the respondents for the purposes of the application, Mr Kieran Wallace of KPMG, consistently complained that it was not possible to form a view as to the financial standing of the appellant without current financial information. Despite this the appellant failed to adduce more up to date information than the 2014 accounts save ‘up to date workings’ exhibited by Mr. Brian Hyland, accountant on behalf of the appellant. The single page document showed cash at the bank as at 25th January 2017 in the sum of €272,550 and debtors were stated to be €198,725. Creditors, including tax liabilities, are stated to be €252,536. Mr. Hyland also included as part of the assets of the company a loan advanced to a Belgian company in the sum of €40,000 and the value of a share holding of the appellant in a property investment which he estimated to be in the sum of €350,000. The judge noted that the updated workings fell a long way short of comprising accounts for the company, never mind audited accounts, and he said that the only proper accounts available for the appellant are the audited account for 2014 which were not filed until the 5th October 2016.

11 The trial judge said that the appellant advanced its case that it would be able to meet an award of costs made against it by referring to three specific assets. The first was a €40,000 loan to a Belgian company of which Mr. Beary was a 50% shareholder; the second was the sum of €157,500 ‘a success fee’ which the appellant claims was due to it from a company known as Bray Primary Care Centre Limited, now referred to as BPC DAC. The third asset was the value of the appellant's shareholding in BPC DAC held through another company known as CD-BPC.

12 In his third affidavit sworn on the 4th April 2016 Mr. Beary described the €40,000 loan as an investment in an international property fund. It was not originally referred to in the draft audited accounts of the company at all. Subsequently, it was described in the draft audited account as a fixed asset of the company. Mr. Hyland described the €40,000 investment as being ‘an indefinite unsecured loan of €40,000 with an interest rate of 20% per annum’. Following the retention of Mr. Hyland by the appellant, the sum of €40,000 was included in the draft audited financial statements...