James Street Hotel Ltd v Mullins Investment Ltd

• Jurisdiction: Ireland
• Judge: Mr. Justice Twomey
• Judgment Date: 06 October 2022
• Neutral Citation: [2022] IEHC 549
• Court: High Court
• Docket Number: Record No. 2021/4762P

Between

James Street Hotel Limited

Plaintiffs

and

Mullins Investment Limited, Peter Mullins, Delbourne Limited (In Liquidation), Eoghan Kearney, Liam Foley, Patrick Cox, Simon Fox and Cmpdm Limited

And by Order

Carrowmore Property Limited, Gallagher Shatter, a Firm and Clark Hill, a Firm

Defendants

[2022] IEHC 549

Record No. 2021/4762P

THE HIGH COURT

COMMERCIAL

Security for costs – Special circumstances – Damages – Defendants seeking security for costs – Whether special circumstances existed which entitled the plaintiff to avoid the default rule requiring a corporate plaintiff, without assets, to put up security for a defendant’s legal costs

Facts: The plaintiff, James Street Hotel Ltd, effectively a €1 company, sued various defendants for damages of over €4 million in connection with the purchase by it of a site for a hotel in James Street in Dublin 8, for which it paid €7.2 million. It financed this purchase through borrowings and finance from its parent company. The legal costs of the defendants were estimated at over €3 million, which they would not recover from the plaintiff, which had no assets, if the defendants won the action. The defendants, Mullins Investment Ltd, Mr Mullins, Delbourne Ltd (in liquidation), Mr Kearney, Mr Foley, Mr P Cox, Mr S Fox, CMPDM Ltd and by order Carrowmore Property Ltd, Gallagher Shatter, a firm, and Clark Hill, a firm, wanted the plaintiff to put up security for their legal costs, so that the defendants would have their costs covered, if they won. The plaintiff wanted the litigation to proceed without it putting up security. The plaintiff wanted to litigate on the basis that it is ‘lose/lose’ for the defendants (i.e. if they lose the litigation, they will have to pay their own legal costs of €3 million, but also if they win the litigation, they will also ‘lose’, since the plaintiff has no money to pay their legal costs of €3 million). On the other hand, the plaintiff wanted it to be ‘win/no lose’ for it as regards the outcome of the litigation. This was because if it wins, it will be paid its legal costs by the defendants, who have assets or insurance, unlike the plaintiff. However, if the plaintiff loses it will not end up paying the defendants’ costs, since it has no money. The plaintiff claimed that it was entitled to have this ‘unlevel playing field’ in its favour because of special circumstances which existed, which entitled it to avoid the default rule requiring a corporate plaintiff, without assets, to put up security for a defendant’s legal costs.

Held by the High Court (Twomey J) that the plaintiff was not entitled to inflict €3 million in legal costs on the defendants, which the defendants would never recover were they to win the litigation. He held that the only way in which to avoid such a situation, when a plaintiff has no assets, is by requiring that plaintiff to provide security for the defendants’ costs. He noted that there was no injustice being visited upon the plaintiff by requiring it to provide security for the costs of the litigation it wished to pursue against the defendants; this is a basic principle of fair-play that there should be a level playing field in litigation between plaintiffs and defendants, such that it is win/lose for both parties and not lose/lose for the defendants and win/no lose for the plaintiff. He held that if the plaintiff’s submissions were to be believed, then the plaintiff felt that it had a very clear case for damages of €4 million and was guaranteed to succeed against one of the defendants. He held that if this was indeed its belief, it should be able to obtain €3 million funding from its parent company for the security for costs, in order to ‘collect’ the €4 million in damages from the court proceedings. He observed that the parent of the plaintiff had a choice whether to spend €3 million on this ‘game of chance’. He found that this contrasted with the position of the defendants and highlighted why the courts should be so reluctant to allow a plaintiff with no assets to avoid providing security for costs; this was because if no security were ordered in this case, it would mean that the defendants would have no such choice regarding spending so much money on legal costs – a choice which remained open to the plaintiff and its parent. He held that, instead, the defendants would be forced against their will to spend €3 million in costs which, win, lose or draw, they would be guaranteed never to recover.

Twomey J ordered the plaintiff to provide security for the defendants’ costs.

Security for costs ordered.

JUDGMENT OF Mr. Justice Twomey delivered on the 6th day of October, 2022

INTRODUCTION

1 . Should a plaintiff be entitled to inflict €3 million in legal costs on the defendants, which the defendants will never recover, even if the defendants win the litigation?

2 . That is the question for this Court, since the plaintiff in this case has no assets. Yet it wishes to pursue this litigation without putting up security for the defendants' costs, which are estimated at circa €3 million. Obviously, if the defendants lose the litigation, they will have to pay their own legal costs in this amount. However, crucially, even if the defendants win the litigation, they will still have to pay those same costs, without being reimbursed by the plaintiff, as the plaintiff has no assets. Can this be fair?

3 . This situation for defendants, which has been described by the Supreme Court as ‘ something less than’ justice, is an issue that has been addressed by that court in cases where defendants were sued by a plaintiff, whether an individual or a company, with little or no assets.

4 . The Supreme Court has said that such a plaintiff is akin to a ‘highwayman’ since the plaintiff is subjecting the defendant to the ‘blackmail’ of having to ‘ buy off the case (even if it was wholly unmeritorious)’ or else…… The ‘or else’ is that if the defendant fails to buy off the case, she will have to pay High Court costs (in tens of thousands, hundreds of thousands or even millions of euro), which costs she will never be able to recover from the plaintiff if she wins the litigation.

5 . Take the case of a straight-forward or typical High Court case such as an individual plaintiff with no assets taking a speculative or unmeritorious High Court personal injuries' claim against a defendant. To continue with the Supreme Court's analogy, the ‘gun to the head’ of the defendant by such a plaintiff, is the threat of the defendant having to incur irrecoverable legal costs of €50,000-€100,000. By any standard, this is an enormous sum of money, since it would take a person on average earnings in Ireland (of €45,779 — CSO Release 31st May, 2022) over two years to earn this amount. This is the type, and extent, of the ‘ blackmail’ to which the Supreme Court is referring in even the most straight forward High Court cases. This is a matter of considerable concern to anyone who wishes to ensure that true justice, as distinct from something less than justice, is administered by the Irish courts.

6 . However, the level of injustice is even more extreme when one is dealing with a High Court case that is not straight-forward such as a commercial case like this one. This is because the ‘gun to the head’ for a defendant in what the Supreme Court has described as ‘ blackmail’ is not €50,000-€100,000 but circa €3 million — more than a person on the average wage would earn in her entire lifetime.

7 . While it is important to emphasise that it is not being suggested that the claim in this case is unmeritorious, it is important to note that even if the chances of success of the plaintiff's claim are 50:50, if the defendants win the litigation, they are still guaranteed to ‘lose’ €3 million in legal costs as they will not be able to recover this sum from a plaintiff with no assets.

8 . The Supreme Court's reference to ‘ blackmail’ in a scenario where a plaintiff has no assets makes sense because a defendant faced with having to incur irrecoverable costs, whether of €50,000 or €3 million, can save herself this amount by ‘ buying off the case’, even if, as the Supreme Court notes, the claim is a ‘ wholly unmeritorious’ one. Indeed, this is why in many cases, the merits of the case are secondary. This is because once High Court proceedings are served, the legal costs are so high as to move the focus of the litigation away from its merits to how does one reduce the legal costs which the defendant will have to pay, win, lose or draw? Usually this is by settling, regardless of the merits of the defendant's case.

9 . That is how our current litigation system operates for a defendant being sued by a plaintiff with little or no assets, whether in a personal injuries' claim or a commercial claim. As observed by the Supreme Court, this cannot be described as offering justice, whether the claim is ‘ wholly unmeritorious’ or not.

Injustice is exacerbated by removal of pyramid structure in courts in Ireland

10 . The injustice, to which the Supreme Court refers, for defendants sued by plaintiffs with no assets is exacerbated in Ireland by the fact that so much litigation can or must issue in the High Court. In this regard, there is very much a flat, rather than a pyramid, structure, between the District, Circuit and High Courts in Ireland. This is unlike, as noted below, the position in England and Wales and unlike the position in Ireland ion the 1950's (were there was a ratio of 7 High Court judges to 30 District Court judges versus today where there is a ratio of circa 2 High Court judges (45) to 3 District Court judges (63)).

11 . This injustice is further exacerbated by the fact that those proceedings, required or permitted to be, instituted in the High Court generate enormous costs (see ‘Ireland ranks among the highest-cost jurisdictions internationally for civil litigation’ per the Review of the...