Lismore Homes Ltd v Bank of Ireland Finance Ltd (No. 3)

JurisdictionIreland
CourtSupreme Court
JudgeMr Justice Francis D Murphy
Judgment Date05 Oct 2001
Neutral Citation[2001] IESC 79
Docket Number[S.C. Nos. 128, 129 and 144 of 2000],128/00

[2001] IESC 79

THE SUPREME COURT

Denham J

Murphy J

Murray J

Hardiman J

Geoghegan J

128/00
129/00
144/00
LISMORE HOMES LTD v. BANK OF IRELAND FINANCE & ORS

Between:

Lismore Homes Limited
Appellant/Plaintiff

AND

Bank of Ireland Finance Limited, Deloitte Haskins & Sells, Brendan Merry & Partners, PB Gunne (Dublin) Limited AND Bernard Somers
Defendants/Respondents

Citations:

COMPANIES ACT 1963 S390

LISMORE HOMES LTD v BANK OF IRELAND FINANCE LTD 1992 2 IR 57

PEPPARD V BOGOFF 1962 IR 180

O'TOOLE V MCKEOWN KELLY 1986 IR 277

SEE V PUBLIC LIGHTING SERVICE LTD 1987 ILRM 255

BULA V TARA MINES (N 0 3) 1987 IR 494

IRISH COMMERCIAL SOCIETY V PLUNKETT 1988 IR 1

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

GIBSON V COLEMAN 1950 IR 50

GLEN BAN V LEFROY 77 ILTR 19

COMPANIES (CONSOLIDATED) ACT 1908 S278

THALLE V SOARES 1957 IR 182

COMPANIES ACT 1985 S726 (UK)

INNOVARE DISPLAYS V CORPORATE BROKING SERVICES 1991 BCC 174

ROBURN CONSTRUCTION V IRWIN 1991 BCC 726

UNISOFT GROUP LTD (NO 2) 1993 BCLC 532

KEARY DEVELOPMENTS LTD V TARMAC GROUP LTD 1995 2 BCLC 400

COMPANIES ACT 1985 S726(1) (UK)

SIR LINDSAY PARKINSON V TRIPLAN 1973 QP 609

Synopsis:

Costs

Practice and Procedure; security for costs; sufficient security; High Court had ordered that plaintiff furnish security for costs of defendants in such amount as should be determined by Master of High Court and that all further proceedings be stayed pending furnishing of security; trial judge ordered that plaintiff furnish security for costs in sum of 50% of estimated total to defendants; whether sufficient security involves making a reasonable estimate of actual costs which it is anticipated a defendant will have to meet; whether trial judge's assessment of amount of security for costs realistic.

Held: Trial judge's findings upheld.

Lismore Homes Ltd. v. Bank of Ireland Finance Ltd. - Supreme Court: Denham J., Murphy J., Murray J., Hardiman J., Geoghegan J.

05/10/2001 - [2001] 3 IR 536 - [2002] 1 ILRM 541

The plaintiff was a building company which had been developing a housing estate and which had run into financial difficulties. As a consequence the first defendant, who was financing the project, advanced further finance but only on the condition that certain parties be appointed to manage the project. The plaintiff primarily alleged that the persons so appointed ran the project in a negligent fashion and issued proceedings. In the present application the court was being asked to fix the amount of security for costs to be given by the plaintiff in favour of the first two defendants. McCracken J held that the amount of costs per section 390 of the Companies Act, 1963 would appear to be approximate to the probable costs of a defendant should it succeed and fixed the amount of security in this instance to be given in favour of the first and second defendant in the sum of £200,000 each. Both parties appealed against the judgment, the plaintiff arguing that the amount was too high with the defendants arguing that it was too low. In the Supreme Court, Murphy J delivering judgment (nem. diss.), held that if a court ordered security to be given this security must be sufficient. This involved making a reasonable estimate of the actual costs that a defendant would have to meet. The figures reached by the trial judge were as realistic an assessment as could be made. Both the appeal and cross-appeal would be dismissed.

Mr Justice Francis D Murphy
[nem diss]
1

The primary issue on this appeal concerns the proper construction ofs.390 of the Companies Act,1963, which 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."

2

By orders dated the 2nd day of March, 1992, it was ordered that the Appellants (to whom I shall refer to as"Homes")should furnish security for the costs in this action of the first named Defendant (the "Bank") and for the secondly named Defendants ("Deloitte") and the orders went on to provide that the security to be furnished should be determined by the Master of the High Court. Those orders were made pursuant to the judgment delivered by Keane J (as he then was) on the 2nd day of March, 1992, and reported at [1992] IR 57. The issues in the case and the circumstances giving rise to it were fully explored in an application which continued over four days.

3

As appears from the title to the report of the judgment, the action by Homes was closely related to another action by Lismore Builders Limited (in receivership), to whom I shall refer as"Builders", against the same Defendants. The involvement of both Homes and Builders and the background to the proceedings brought by them as it appeared in 1992 was explained in the opening paragraphs of the judgment of Keane J which, with adaptations to facilitate changes in nomenclature, I would quote as follows:

"These two actions …arise out of a housing development at Weston Park, Newcastle, County Dublin. The lands in question had been bought by Homes …and the construction of the 422 houses which were to be built was undertaken by Builders. The only shareholders in both companies at all material times were Mr and Mrs James Kennedy. Finance for the acquisition of the land and development were provided by the Bank and these advances were secured by deeds of mortgage debenture over the assets and undertakings of both companies.

On the 17th February, 1989, the Bank sent letters to Homes and Builders 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 both addressed to them on the 28th February 1989, which terms were accepted by both companies .... That letter …made provision for the appointment and retention by the two companies of a financial controller, quantity surveyor and auctioneer to be approved by the Bank. Subsequent to this agreement having been arrived at between the Bank and the two companies Mr Matt McIlvenna of Deloitte, Brendan Merry & Partners and PB Gunne (Dublin) Limited, agreed to act in those capacities.

On the 26th day of September 1989, the Bank appointed Bernard Somers, the fifthly named Defendant, as the receiver and manager of all of the assets of both companies. Subsequent to his appointment, the receiver sold the principal assets of both companies ie, the land and houses built thereon.

On the 20th and 25th April, 1990, the present actions were instituted by Homes and Builders in which claims for damages for negligence and breach of contract were made against each of the defendants."

4

In strongly contested proceedings there was at least agreement on two issues: one of fact and the other of law. As a matter of fact it was agreed that neither Homes nor Builders would be able to meet an order for costs in the event of any of the Defendants successfully defending the relevant action and, as a matter of law it was agreed that while the Court had a discretion as to whether an order should be made under s.390 aforesaid the onus was on the Plaintiff 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. In Peppard & Co Ltd .v. Bogoff [1962] IR 180 the former Supreme Court, construing the corresponding section of the Companies (Consolidation) Act 1908, had drawn attention to the burden falling on the plaintiff to show the existence of such special circumstances and explored and upheld the argument of the plaintiff therein that his financial position was due, or would have been due, to the very actions of the defendants for which they were being sued if the plaintiff succeeded in the proceedings. The principle enunciated in Peppard & Co Ltd .v. Bogoff was applied and followed more recently in O'Toole (Jack) Ltd .v. McKeown Kelly Associates [1986] IR 277; SEE Co Ltd .v. Public Lighting Serviced Ltd [1987] ILRM 255; Bula Ltd .v. Tara Mines Ltd (no 3) [1987] IR 494 and Irish Commercial Society Ltd .v. Plunkett [1988] IR 1.

5

Whilst it does appear that the primary argument made by Homes (and indeed Builders) to Keane J was the contention that the then financial position of the two companies was due to or caused by the wrong doings alleged against the Defendants in those proceedings, a variety of arguments were put before the Court. It was pointed out that the applications for security for costs, if successful, would have the effect of stifling the proceedings. It was submitted that the Defendants were guilty of delay in bringing the application for security. It was urged that account should be taken of the possibility of Homes and Builders or one or other of them succeeding in one action and thus being in a position to meet the costs of the other. All of these arguments were rejected. The reasons for their rejection is not material at this stage. What is important is that the Court was invited to explore in detail the impact of an order of security for costs on the Plaintiffs and, notwithstanding those arguments, directed that security should be given. The amount of the security was not determined by the Master of the High Court as directed by the order of Keane J dated 2nd March, 1982, but was, apparently by agreement between the parties, listed before Mr Justice McCracken in the High Court. The delay in bringing the application was explained in part by the fact that Builders - but not Homes - appealed...

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