Lismore Homes Ltd ((in Receivership)) v Bank of Ireland Finance Ltd (No. 2)

• Jurisdiction: Ireland
• Court: Supreme Court
• Judgment Date: 01 January 1999
• Docket Number: [S.C. Nos. 123, 124, 125, 126, 127, 128, 129, 130, 174
• Date: 01 January 1999

Lismore Homes Ltd. (In receivership) v. Bank of Ireland Finance Ltd.

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.

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

[S.C. Nos. 123, 124, 125, 126, 127, 128, 129, 130, 174 and 175 of 1992]

Supreme Court

Company - Security for costs - Insolvent plaintiff companies - Discretion of court to refuse application - Whether insolvency of plaintiffs due to alleged wrongdoing of defendants - Whether prima facie case - Companies Act, 1963 (No. 33), s. 390.

Section 390 of the Companies Act, 1963, 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."

The plaintiffs were related companies involved in a building scheme. The scheme was financed by the first defendant. In February, 1989, the plaintiffs were unable to meet their current liabilities as they fell due, and the first defendant, in consultation with the second defendant, agreed to provide additional finance to the plaintiffs. As part of the agreement, the first defendant insisted on the appointment of the second, third and fourth defendants as financial controller, quantity surveyors and auctioneers to the plaintiffs. By September, 1989, the plaintiffs were still in financial difficulties, and the first defendant appointed the fifth defendant as receiver.

The plaintiffs issued separate proceedings against all the defendants alleging that their businesses failed because of the mismanagement of the defendants. Each of the defendants sought orders for security for costs against the plaintiffs. The High Court (Keane J.) granted orders for security for costs against the plaintiffs in respect of the first four defendants. The application of the fifth defendant was dismissed see [1992] 2 I.R. 57.

The plaintiff in the first action appealed against the order for security for costs in respect of the third and fourth defendants. The plaintiff in the second action appealed against the orders in respect of the first four defendants. The fifth defendant appealed against the refusal to grant him an order for security for costs against both the plaintiffs.

Held by the Supreme Court (Barrington, Lynch and Barron JJ.), in allowing the appeals of the plaintiff in the second action in respect of the first and second defendant (Lynch J. dissenting), and in dismissing the plaintiffs' appeals against the third and fourth defendants, and in allowing the appeal of the fifth defendant, 1, that while the first defendant had known that the plaintiff in the second action was insolvent in February, 1989, it had agreed to make further advances to the plaintiff company in order to enable it to complete its building programme.

2. That as the first defendant had insisted on a member of the second defendant being appointed financial controller of the plaintiff in the second action in February, 1989, the first and second defendants controlled the company from then until the appointment of the fifth defendant as receiver seven months later.

3. That the first defendant, before it made its financial advance to the plaintiff company, knew or ought to have known what risks it was taking.

4. That the plaintiff in the second action had made out a prima facie case that the acts complained of in the proceedings, so far as the first two defendants were concerned, were responsible for its inability to pay the costs of the defendants in the event that they were successful in the proceedings.

Per Lynch J. dissenting: the allegations made by the plaintiff in the second action against the first two defendants were no more than bald allegations without any substantial evidence to support them that the inability to pay the costs of the said defendants if they were successful in their defences was brought about by the very wrongs complained of by them against the said defendants.

5. That it was not clear that the acts alleged against the third and fourth defendants would, even if proved, show that they or either of them had been responsible for making the plaintiffs insolvent.

6. That both plaintiffs were insolvent prior to the third defendant becoming involved in the building scheme.

7. That once the plaintiffs had obtained the benefit of its contention that the first and second defendants were responsible for making them insolvent, they could not at the same time maintain that they were fully solvent at the date of the receivership and would have remained so but for the conduct of the fifth defendant.

8. That there were many objective reasons for questioning the valuation of the assets of the plaintiff companies and that no weight should be attached to that evidence. As such the plaintiffs failed to establish a prima facie case that an order for security for costs should not be made in favour of the fifth defendant.

Cases mentioned in this report:-

Bula Ltd. (In receivership) v. Tara Mines Ltd. [1987] I.R. 494.

Comhlucht Páipéar Ríomhaireachta Teo. v. Údarás údarás na Gaeltachta [1990] 1 I.R. 320; [1990] I.L.R.M. 266.

Lismore Homes Ltd. (In receivership) v. Bank of Ireland Finance Ltd. [1992] 2 I.R. 57; [1992] I.L.R.M. 78.

Jack O'Toole Ltd. v. MacEoin Kelly Associates [1986] I.R. 277; [1987] I.L.R.M. 269.

Peppard & Co. Ltd. v. Bogoff [1962] I.R. 180; (1957) 97 I.L.T.R. 12.

Porzelack K.G. v. Porzelack (U.K.) Ltd. [1987] 1 W.L.R. 420; [1987] 1 All E.R. 1047; (1987) 131 S.J. 410; [1987] C.M.L.R. 333.

S.E.E. Co. Ltd. v. Public Lighting Services Ltd. [1987] I.L.R.M. 255.

Short v. Ireland [1996] 2 I.R. 188.

Trident International v. Manchester Ship Canal [1990] B.C.L.C. 263.

Appeal from the High Court.

The facts have been summarised in the headnote and are fully set out in the judgments of Barrington, Lynch and Barron JJ., infra.

The defendants' notices of motion seeking orders for security for costs were heard by the High Court (Keane J.) which gave judgment on the 1st March, 1992, in favour of the first four defendants and dismissed the applications of the fifth defendant (see Lismore Homes Ltd. (In receivership) v. Bank of Ireland Finance Ltd. [1992] 2 I.R. 57.)

The plaintiff in the first action filed notice of appeal against the third and fourth defendants and the plaintiff in the second action filed notice of appeal against the first, second, third and fourth defendants on the 14th April, 1992. The fifth defendant filed notice of appeal against both the plaintiffs on the 10th April, 1992. The plaintiffs served notice of appeal on the fifth defendant in relation to an order for costs on the 28th May, 1992.

The appeal was heard by the Supreme Court (Barrington, Lynch and Barron JJ.) on the 9th, 10th, 11th, 14th, 15th, 23rd and 24th July, 1997.

Cur. adv. vult.

Barrington J. 11th February, 1998

These are appeals brought in respect of eight orders made by the High Court (Keane J.) in the above entitled two actions on the 1st March, 1992. Keane J. made ten orders on that day regulating the question of security for costs as between the two plaintiffs and each of the five defendants in each of the above-named actions. However the plaintiff in the first entitled action was late in filing notice of appeal against the first defendant and against the second defendant so that only eight appeals now subsist - three in the first action and five in the second.

Facts

The two plaintiffs are sister companies owned and controlled by Mr. James Kennedy and his wife. They were, at all material times, engaged in a building programme, the plaintiff in the first action being the landholding company, and the plaintiff in the second action being the building company.

The first defendant financed their building operation but in February, 1989, the two plaintiffs were unable to meet their current liabilities as they fell due and the first defendant called in its loan. After the first defendant had consulted the second defendant, a new agreement was entered into between the first defendant and the two plaintiffs under which the first defendant was to provide additional finance for the plaintiffs to enable them to complete their building programme. As long however as there was money due and owing from the plaintiffs to the first defendant on foot of the loan the first defendant was to be entitled to insist on the appointment of a financial controller, a quantity surveyor and an auctioneer all of whom were to be approved by the first defendant. In accordance with this arrangement an agent of the second defendant became the financial controller of the plaintiffs' businesses and the third defendant was appointed quantity surveyors to the plaintiffs and the fourth defendant was appointed auctioneers to the plaintiffs.

For whatever reason the businesses of the plaintiffs did not prosper and on the 26th September, 1989, the first defendant appointed the fifth defendant to be receiver over the properties of the two plaintiffs.

In essence, the plaintiffs complain in their statement of claim, that the first and second defendants, assisted by the third and fourth defendants managed the affairs of the plaintiffs so badly that they ran the business into the ground. Against the fifth defendant, they claim that he sold the assets of the plaintiffs at an undervalue.

Why the plaintiffs thought it appropriate to institute independent proceedings in the High Court I do not know. All the...