Kimpton Vale Ltd and Others v Ferox Ltd t/a Johnston Reid & Associates and Another

• Jurisdiction: Ireland
• Judge: Mr. Justice Keane
• Judgment Date: 21 November 2013
• Neutral Citation: [2013] IEHC 577
• Court: High Court
• Date: 21 November 2013

[2013] IEHC 577

THE HIGH COURT

Record No. 9646P of 2012

Kimpton Vale Ltd & Keegan v Ferox Ltd t/a Johnston Reid & Associates & Control Aer Ltd (in receivership)

BETWEEN

KIMPTON VALE LIMITED, LAWRENCE KEEGAN AND MAIREAD KEEGAN

APPLICANTS

AND

FEROX LIMITED T/A JOHNSTON REID & ASSOCIATES

AND

CONTROL AER LIMITED (IN RECEIVERSHIP)

COMPANIES ACT 1963 S390

KIMPTON VALE DEVELOPMENTS LD v BORD PLEANALA UNREP HOGAN 4.10.2013 2013 IEHC 442

PEPPARD & CO LTD v BOGOFF 1962 1 IR 180

BULA LTD (IN RECEIVERSHIP) v TARA MINES 1987 1 IR 494

SALTHILL PROPERTIES LTD v ROYAL BANK OF SCOTLAND PLC 2011 2 IR 441

COUNTY MONAGHAN ANTI-PYLON LTD v EIRGRID PLC UNREP CHARLETON 30.3.2012 2012/7/1968 2012 IEHC 103

LISMORE HOMES LTD v BANK OF IRELAND FINANCE 1999 1 IR 501

High court - Breach of contract - Negligence - Breach of duty - Interlocutory application - Security for costs - Prima facie defence - Ability to pay costs - Special circumstances - Discretion - Natural persons - Companies Acts 1963-2009

Facts: In these proceedings, the plaintiffs sought damages for breach of contract against the first-named defendant and damages for negligence and breach of duty against both defendants. The second named plaintiff had contracted the first named plaintiff, a company to which he was a director, to develop a private dwelling for the personal use of his wife, the second named plaintiff, and him. The first named plaintiff then contracted the first named defendant to design a ventilation system for the property, who in turn contracted the second named defendant install it. The second named plaintiff was dissatisfied with the system, claiming it was defective and inoperable, which led to the substantive proceedings being issued. The second named defendant also brought proceedings against the first named plaintiff in the Circuit Court on the basis of non-payment for the work done in installing the ventilation system, which prompted a counterclaim for breach of contract. At the time of this judgment, it was anticipated that the plaintiffs would bring an application for the Circuit Court proceedings to be consolidated with the present proceedings.

In this particular application, the first named defendant sought orders pursuant to s. 390 of the Companies Acts 1963-2009 for security of costs against the first named plaintiff and a stay of proceedings until such security was given. The first named plaintiff accepted that the first named defendant had a prima facie defence to the plaintiffs” claim and that there was credible evidence suggesting that the first named plaintiff would be unable to pay the first named defendant's costs. Nevertheless, the first named plaintiff argued that because the second and third named plaintiffs were individual litigants, special circumstance existed that would justify the refusal of the application.

Held by Keane J that in an application for security of costs, it was for the applicant to show that it had a prima facie defence to the respondent”s claim and secondly, the court has to be satisfied that the respondent would be unable to pay the applicant”s costs in the event of the applicant being successful in the proceedings. It was pointed out that it was not for the court to determine the strengths and merits of the substantive proceedings on an interlocutory stage such as this. It was also noted that the Court”s power to order security for costs was discretionary.

In light of the first named plaintiff”s concessions and the evidence before the Court, it was said to be clear that the first named defendant had a prima facie defence to the plaintiffs” claims and that the first named plaintiff would not be able to pay the first named defendant”s costs in the event that the latter was successful in his defence. Nevertheless, it was held that in an application for security for costs against a company, the existence of a co-party who is a natural person might constitute a special circumstance that would justify a refusal as long as the party defending the application could show that the natural person would be in a good position to meet a costs order if ultimately unsuccessful.

The second and third named plaintiffs had claimed they would be able to meet a costs order if they were ultimately unsuccessful. However, there was no evidence submitted in support of this assertion. On the other hand, a copy of the first named plaintiff”s abridged audited accounts for the year ended 30 June 2012 showed that the National Assets Management Agency held personal guarantees against the second named plaintiff in the amounts of €8,563,000 and €8,095,000 as security in relation to the first named plaintiff”s borrowings. Those accounts also showed that the first named plaintiff had net liabilities on 30 June 2012 of €12,636,191. On that basis, it was held that the presence of the second and third named plaintiffs as co-plaintiffs was not a factor of sufficient significance to constitute a special circumstance justifying the exercise of the Court's discretion to refuse to make the order sought pursuant to s. 390 of the 1963 Act.

Order for security of costs made.

Introduction

1 By motion dated the 3 ^rd May 2010, the first-named defendant seeks Orders pursuant to s. 390 of the Companies Acts 1963 - 2009 requiring the first-named plaintiff to provide security for costs and staying the proceedings until that security is given.

Background

2 In the underlying proceedings, a Plenary Summons issued on the 26 September 2012, whereby the plaintiffs seek damages for breach of contract against the first-named defendant and damages for negligence and breach of duty against both defendants.

3 While no further pleadings have been exchanged between the parties since then, in the affidavit that he swore on the 2 ^nd May 2013 to ground the present application, Colin Reid, a director of the first-named defendant, avers to the factual background to the dispute.

4 According to Mr. Reid, the relevant events are as follows. The second-named plaintiff Laurence Keegan retained the first-named plaintiff Kimpton Vale Ltd - a company of which Mr. Keegan is a director - to build a private dwelling at 32 Castleknock Village ("the house") for his own use. Kimpton Vale Ltd ("Kimpton Vale") contracted with the first-named defendant Johnston Reid & Associates ("Johnston Reid") to design a ventilation system for the house. Kimpton Vale contracted separately with Control Aer Limited ("Control Aer") to install that ventilation system.

5 Mr. Keegan was dissatisfied with that system, so that, when Control Aer sued Kimpton Vale in the Circuit Court for work done, Kimpton Vale counterclaimed for breach of contract and joined Johnston Reid to those proceedings as a third party.

6 Mr. Reid anticipates that the plaintiffs will apply to transfer the Circuit Court proceedings into the jurisdiction of this Court so that they might be consolidated with the present proceedings. Mr. Reid contends that Johnston Reid has a good defence to the plaintiffs' claims in that the ventilation system concerned was designed in accordance with the applicable building regulations and the plaintiffs' specifications and that any defect there may be in the system must therefore be attributable to the installation performed or the materials used, for which Johnston Reid has no responsibility. Mr. Reid further contends that Johnston Reid did not contract with Laurence or Mairead Keegan and did not owe either of those plaintiffs any duty of care, whereas Kimpton Vale has suffered no loss in circumstances where it emerged at the hearing of the present motion that Laurence and Mairead Keegan (who are husband and wife) are currently the joint owners of the property, the property having previously been owned solely by Mairead Keegan.

7 Laurence Keegan swore a replying affidavit on behalf of all of the plaintiffs on the 28 ^th June 2013, from which it appears that the plaintiffs broadly accept the foregoing summary of the dispute between the parties, while wishing to emphasise a number of additional propositions for which they specifically contend. The first such proposition is that the design of the ventilation system was defective. The second is that Johnston Reid was not only responsible for designing the ventilation system but was also responsible for securing Control Aer to install it and for supervising Control Aer in doing so, so that Johnston Reid did owe each of the plaintiffs a duty of care. The third is that the ventilation system is entirely inoperable, rather than merely unsatisfactory, and therefore represents a dangerous defect in the construction of the house. The fourth is that Johnston Reid knew that the completed house was to be used as the family home of Laurence and Mairead Keegan, which emphasises the existence of a duty of care owed by the former to the latter.

Security for Costs

8 Section 390 of the Companies Acts 1963-2009 ("the 1963 Act") provides as follows:

"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."

9 There is no dispute between the parties concerning either the proper interpretation of that section or the broad principles governing its application, as elucidated in numerous decided cases.

10 From those cases, the following propositions emerge:

(i) Section 390 may impose a serious handicap on an impecunious limited liability company where lack of funds would not create the same problem for an individual litigant.

(ii) The power requiring security to...