Lismore Homes Ltd ((in Receivership)) v Bank of Ireland Finance Ltd

• Jurisdiction: Ireland
• Judge: Keane J.
• Judgment Date: 02 March 1992
• Neutral Citation: 1992 WJSC-HC 687
• Court: High Court
• Docket Number: No. 5724p/1990,[1990 No. 5724P]
• Date: 02 March 1992

LISMORE HOMES LTD v. BANK OF IRELAND FINANCE LTD

BETWEEN

LISMORE HOMES LIMITED (IN RECEIVERSHIP)

PLAINTIFF

AND

BANK OF IRELAND FINANCE LIMITED, DELOITTE HASKINS AND SELLS, BRENDAN MERRY AND PARTNERS, P.B. GUNNE (DUBLIN) LIMITED AND BERNARD SOMERS

DEFENDANTS

THE HIGH COURT

No. 5939p/1990

LISMORE BUILDERS LIMITED (IN RECEIVERSHIP)

PLAINTIFF

AND

BANK OF IRELAND FINANCE LIMITED, DELOITTE HASKINS AND SELLS, BRENDAN MERRY AND PARTNERS P.B. GUNNE (DUBLIN) LIMITED AND BERNARD SOMERS

DEFENDANTS

1992 WJSC-HC 687

No. 5724p/1990

THE HIGH COURT

Synopsis:

PRACTICE

Costs

Security - Company - Insolvency - Receiver - Assets - Realisation - Sales at alleged undervalues - Company's claim of negligence and breach of contract by receiver - Receiver's motion for security for his costs - Delay - Companies Act, 1963, s. 390 - (1990/5724 P - Keane J. - 2/3/92) - [1992] 2 I.R. 57 [1992] ILRM 798

|Lismore Homes Ltd. v. Bank of Ireland Finance Ltd.|

Citations:

PEPPARD & CO LTD V BOGOFF 1962 IR 180

COMPANIES ACT 1963 S390

SEE CO LTD V PUBLIC LIGHTING SERVICES 1987 ILRM 255

JACK O'TOOLE LTD V MACEOIN KELLY LTD 1987 ILRM 269

PEARSON V NAYDLER 1977 1 WLR 899

BULA LTD V TARA MINES LTD (NO 3) 1987 IR 494

COMHLUCHT PAIPEAR RIOMHAIREACHTA TEO V UDARAS NA GAELTACHTA 1990 1 IR 320

PORZELACK KG V PORZELACK 1987 1 AER 1074

1 JUDGMENT delivered the 1st day of March 1992 by Keane J.

2 These two actions, and the various applications for security for costs now before me, arise out of a housing development at Weston Park, Newcastle, County Dublin. The lands in question had been bought by the Plaintiff in the first action (which I shall call "the Property Company") and the contruction of the 442 houses which were to be built was undertaken by the Plaintiff in the second action (which I shall call "the Building Company"). The only shareholders in both Companies at all material times were Mr. and Mrs. James Kennedy. Finance for the acquisition of the land and the development were provided by the first named Defendant (which I shall call "the Bank") and these advances were secured by Deeds of Mortgage Debenture over the assets and undertakings of both Companies.

3 On the 17th February 1989 the Bank sent letters to the Property Company and the Building Company demanding the repayment to them within 21 days of all amounts then outstanding. Following discussions with the Companies, however, the Bank agreed to withdraw the two letters of demand and provide further facilities to both Companies on the terms set out in two letters addressed to them on the 28th February 1989, which terms were accepted by both Companies. While I will have to refer to the terms set out in that letter in more detail at a later stage, it is sufficient at this point to note that they made provision for the appointment and retention by the two Companies of a Financial Controller, Quantity Surveyor and Auctioneer to be approved of by the Bank. Subsequent to this agreement having been arrived at between the Bank and the two Companies, Mr. Matt McIlvenna of the second named Defendants (whom I shall call "the Accountants"), the third named Defendants (whom I shall "the Quantity Surveyors") and the fourth named Defendants (whom I shall call "the Auctioneers") agreed to act in these capacities.

4 On the 26th September 1989 the Bank appointed the fifth named Defendant (whom I shall call "the Receiver") as the Receiver and Manager of all the assets of both Companies. Subsequent to his appointment, the Receiver sold the principal assets of both Companies, i.e., the land and houses built thereon.

5 On the 20th and 25th April 1990 the present actions were instituted by the Property Company and the Building Company in which claims for damages for negligence and breach of contract were made against each of the Defendants. Each of the Defendants has now applied for an Order requiring the Plaintiff to furnish security for costs and, in the case of the Accountants, the Auctioneers and the Receiver, an Order directing the Directors of the Companies to provide undertakings in respect of the discharge by such Directors of any Order for costs that might be made in favour of them.

6 It is agreed that neither the Property Company nor the Building Company will be able to meet an Order for costs in the event of any or all of the Defendants successfully defending the relevant action. Accordingly, the Court has jurisdiction to grant any or all of the applications under s. 390 of the Companies Act 1963which provides that:-

"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."

7 It is submitted on behalf of each of the Defendants that, while the Court has admittedly a discretion as to whether an Order should be made under s. 390, the onus is on the Plaintiff Company in each case to show the existence of special circumstances as to why the Court's discretion should be exercised in its favour by refusing the application and that they have failed to show any such special circumstances. On behalf of the two Companies, it is submitted that such special circumstances have been shown, i.e., that the present inability of the Companies to provide security for costs is the result of the wrongful acts on the part of the Defendants complained of in the proceedings.

8 The law on this topic is clear. The former Supreme Court, construing the corresponding section in the Companies (Consolidation) Act 1908 in Peppard and Company Limited and Another v. Bogoff and Ors.,( (1962) I.R. 180) said that the section did not make it mandatory to order security for costs in every case where the Plaintiff Company appeared to be unable to pay the costs of the successful Defendant and that there remained a discretion in the court which could be exercised in special circumstances. One of the special circumstances identified in the judgment of Kingsmill Moore J. in that case (with which the other members of the Court agreed) was where:-

"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 ..."

9 This principle was reaffirmed by the Supreme Court in SEE Company Limited v. Public Lighting Services ( (1987) I.L.R.M. 255). But the judgment of the majority of the same court in Jack O'Toole Limited v. Mac Eoin Kelly and Another ( (1987) I.L.R.M. 269) made it clear that the onus was on the impecunious company to establish the special circumstances which would justify the refusal of an order and that this onus of proof is not discharged by what is described in the judgment of Finlay C.J. as "a mere bald statement of the fact that the insolvency of the company has been caused by the wrong the subject matter of the claim".

10 It was also submitted in the present case that there were other factors which I should take into account in exercising my discretion. It was urged on behalf of the Defendants that the present proceedings were not being prosecuted in good faith for the benefit of the Companies and were being brought at the instance of Mr. and Mrs. Kennedy because of their personal liability on foot of guarantees which they had entered into with the Bank. The actions, it was said, were brought with a view to bringing pressure on the Bank to compromise their possible claims against Mr. and Mrs. Kennedy and, it was claimed, the remaining Defendants had been joined because they were well known figures in their respective professions and it was hoped that their embarrassment at being joined in the proceedings would also lead to a compromise of the entire matter. They relied, in this context, on the statement of Megarry V-C, in Pearson v. Naydler (1977) 1 WLR 899 that:-

"The Court must not show such reluctance to order security for costs that this becomes a weapon whereby an impecunious company can use its inability to pay costs as a means of putting unfair pressure on a more prosperous Company."

11 Accepting the first of these submissions would involve me in reaching conclusions as to the general merits of the proceedings brought by the two Plaintiff Companies which would be premature at this stage. While a preliminary assessment of the case of the Plaintiff Companies against the individual Defendants may be unavoidable in considering whether they have discharged the onus of proof referred to by the Chief Justice in Jack O'Toole Limited v. Mac Eoin Kelly, I must bear in mind the warning by Murphy J. in Bula Limited (In Receivership) v. Tara Mines Limited (No. 3), (1987) I.R. 494, endorsed by McCarthy J. giving the judgment of the Supreme Court in Comhlucht Paipear Riomhaireachta Teo v. Udaras na Gaeltachta ( (1990) I.R. 320), that it is no part of the function of the judge on an application of this nature to forecast the outcome of the litigation or to prejudge the facts. It is conceded on behalf of the Receiver in particular that, despite his appointment, residual powers remain in the Directors which would entitle them to authorize the bringing of these proceedings in the names of the two Companies and I am not prepared to hold at this stage that...