IIB Internet Services Ltd and Others v Motorola Ltd
| Jurisdiction | Ireland |
| Judge | Mr. Justice Brian J. McGovern |
| Judgment Date | 07 February 2013 |
| Neutral Citation | [2013] IEHC 48 |
| Court | High Court |
| Date | 07 February 2013 |
[2013] IEHC 48
Commercial law – Practice and procedure – Security for costs – Evidence as to solvency of plaintiff – Whether appropriate to order security for costs – Whether plaintiff unable to meet costs of defendant if unsuccessful – Companies Act, 1963 section 390.
Facts The case arose out of losses allegedly incurred by the plaintiff companies in the purchase of Wimax Wireless Internet Technology from the defendant. The defendant brought a motion for security for costs under s. 390 of the Companies Act 1963 against the plaintiff. It was accepted that the defendant had set out a prima facie defence at law but there was a dispute as to the plaintiffs’ ability to discharge an order for costs. On behalf of the defendant it was submitted that it was sufficient for evidence that was prima facie credible to be put before the Court, to show that there was reason to believe that the plaintiff would be unable to pay costs. The plaintiffs contended that they possessed very substantial assets and would be capable of discharging quite substantial costs.
Held by McGovern J in refusing the application: The jurisdiction under s. 390 was a discretionary one. A plain reading of s. 390 would indicate that “credible testimony” involved a consideration of evidence proffered on both sides, rather than simply addressing the evidence produced by the moving party. The court was not satisfied that the defendants had met the first test required by s. 390, namely that they had demonstrated by credible testimony that there was reason to believe the plaintiff companies would be unable to pay the costs of the defendant if successful in its defence. There was also cogent evidence to show that the requirement for the plaintiffs to write down the value of their assets was as a direct consequence of the alleged breaches by the defendant which were the subject of the proceedings.
The Application
1. The defendant brings this application for security for costs pursuant to s. 390 of the Companies Act 1963.
2. The proceedings concern a claim for damages in excess of €138m arising out of losses allegedly incurred in the purchase and delivery of WiMax wireless internet technology from the defendant by the plaintiff companies.
3. Although this matter has been admitted to the commercial court, it has had a rather lengthy procedural history. Proceedings issued on 23rd December, 2010, and a number of interlocutory motions have been brought before the court, requiring redrafting of pleadings.
4. The matter last came before the court on 20th June, 2012, on the defendant’s motion to strike out the fourth statement of claim delivered by the plaintiffs, for non-compliance with an order of Clarke J. made on 9th November, 2011, or in the alternative, dismissing the plaintiffs claim as bound to fail. Judgment was delivered on 2nd October, 2012, which resulted in the defendant’s application being unsuccessful on both grounds. On 16th October, 2012, the current motion was issued.
Jurisdiction to order Security for Costs under s. 390 of the Companies Act 1963
5. Section 390 provides:-
“Where a limited company is plaintiff in any action or other legal proceeding, 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.”
6. The jurisdiction to grant security for costs is well established, with the test having been summarised in Inter Finance Group Limited v. KPMG Peat Marwick (Unreported, High Court, Morris P, 29th June, 1998), which may be paraphrased as follows:-
To succeed there is an onus on the moving party the defendant to establish:-
(a) that he has a prima facie defence to the plaintiff’s claim; and
(b) that the plaintiff will not be able to pay the defendant’s costs if successful in his defence.
On the defendant’s establishing these two facts, then the order sought should be made unless it can be shown that there are specific circumstances in the case which would cause the court to exercise its discretion not to make the order sought.
7. Thus, the jurisdiction under s. 390 is a discretionary one, as set out by Kingsmill Moore J. in Peppard v. Bogoff [1962] I.R. 180 at page 188:-
“I am of opinion that the section does not make it mandatory to order security for costs in every case where the plaintiff company appears to be unable to pay the costs of a successful defendant but that there still remains a discretion in the Court which may be exercised in special circumstances. In this case I find two special circumstances. The financial position of the plaintiff may, if he substantiates his case, be due to the very actions of the defendants for which they are sued; and there is a co-plaintiff within the jurisdiction to whom the defendants may look for payment of their costs.”
8. It is accepted by the plaintiffs that the defendant has set out a prima facie defence at law. But there remains a dispute as to the plaintiffs’ ability to discharge an order for costs.
“Credible Testimony”
9. Counsel for the defendant contends that, in discharge of the onus upon it to show that the plaintiffs will be unable to meet a potential costs order, it is sufficient for evidence that is prima facie credible to be put before the Court, to show that there is reason to believe that the company will be unable to pay costs. Further, counsel for the defendant submits that, in the absence of cross examination, the Court cannot adequately address the credibility or otherwise of the evidence proffered, but should rather, in the absence of any obvious flaws or defects, accept it as credible on its face.
10. In support of this proposition, counsel for the defendant cites the approach taken by in Re McInerney Homes Limited (No. 2) (Unreported, High Court, Clarke J., 10th January, 2011), in the context of an Examinership. Here, the court had regard to the decision of the Supreme Court in Boliden Tara Mines Limited v. Cosgrove [2010] IESC 62, in holding, essentially, that it would be inappropriate to dispose of the application on affidavit without cross examination:-
“The evidence of the Banking Syndicate on those issues did not seem to me to disclose obvious flaws or gaps of that type such as would allow the court to treat the conclusions reached from same as unsafe in the absence of cross examination. In those circumstances the only possible conclusion is that there is a credible basis for the Banking Syndicate’s position.”
11. Counsel for the defendant further cites Bula Limited v. Tara Mines(No. 3) [1987] I.R. 494, with regard to the standard of scrutiny that may be expected of the Court, per Murphy J. at page 498:-
“There is, therefore, impressive evidence of insolvency. In fact the plaintiffs rightly and necessarily accept that they are insolvent insofar as that expression connotes an inability to meet debts as they fall due…
However, I do not think it is necessary for me to enter into a detailed analysis of the assets and liabilities of Bula Limited. All that the section requires is that it should appear by credible testimony ‘that there is reason to believe that the company would be unable to pay the costs of the defendant if successful in his defence.’ The defendants believe that to be the position and the fact that the company’s bankers have been pressing unsuccessfully for some five years to procure payment of the monies due to them must surely justify the pessimistic views of the defendants.”
12. Counsel for the plaintiffs places significant reliance on Irish Press v. Warburg Pincus Capital Co. L.P. & Ors [1997] 2 ILRM 263. In that case, an application under s. 390 was successfully resisted on the basis of the purported ability of the plaintiff to pay costs. Irish Press Plc was clearly insolvent, but put evidence before the court of assets being held in subsidiary companies. In the High Court, McGuinness J., taking into consideration the approach adopted by Murphy J. in Tara v. Bula, but, having particular regard to the evidence proffered from the plaintiff’s auditors, held:-
“While Irish Press Plc is not in a particularly happy position and while its assets appear to be diminishing, it is not insolvent and continues to hold reasonably substantial assets through its subsidiary company. I must also take account of the fact that Mr. McHugh, a partner in the firm of Messrs Deloitte & Touche, who is not a director or member of the plaintiff company but the audit partner with overall responsibility for the plaintiff’s audit, is prepared as a professional accountant with full knowledge of the plaintiff’s financial affairs to aver that in his opinion the assets of the plaintiff will be sufficient to discharge the costs of the defendants.
On the balance of the evidence available, I feel that the plaintiff has sufficient...
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IBB Internet Services Ltd and Others v Motorola Ltd
... [2007] 4 IR 157; Inter finance Group Limited v KPMG Peat Marwick (Unrep, Morris J, 29/6/1998); IIB Internet Services Ltd v Motorola Ltd [2013] IEHC 48, (Unrep, McGovern J, 7/2/2013); Jirehouse Capital v Beller [2008] EWCA Civ 908, [2009] 1 WLR 751; Phillips v Eversheds [2002] EWCA Civ 486,......