Orca Financial Ltd v Ballycrag Developments Ltd
| Jurisdiction | Ireland |
| Judge | Mr. Justice Eagar |
| Judgment Date | 17 November 2016 |
| Neutral Citation | [2016] IEHC 660 |
| Docket Number | [2014 No. 3011 S] |
| Court | High Court |
| Date | 17 November 2016 |
[2016] IEHC 660
THE HIGH COURT
Eagar J.
[2014 No. 3011 S]
Company – S.52 of the Companies Act, 2014 – O.29 of the Rules of the Superior Courts – Order for security for costs – Limited company – Risk of expensive litigation
Facts: The defendant sought an order for security for costs in the present proceedings. The plaintiff/company contended that the onus had rested on the defendant to prove that the plaintiff was unable to pay for the costs incurred by the defendant in case the plaintiff failed in the present action for summary judgment.
Mr. Justice Eagar refused to grant an order for security for costs. The Court held that the test for security for costs applications was to ascertain whether the moving party had established that he had a defence to the plaintiff's claim and that the plaintiff was unable to pay the costs of the moving party. The Court held that if the moving party successfully passed the two-limb test, the Court was bound to order security for costs unless there were special circumstances warranting the Court to exercise discretion to the contrary. The Court found that though the defendant had established that it had prima facie defence to the claim for summary judgment, as the matter was being litigated by way of a plenary hearing, yet the defendant could not prove any aspect concerning the plaintiff's inability to pay the costs. The Court, after carefully scrutinising the appraisal of financial position of the plaintiff presented by the financial auditors of the plaintiff, concluded that the plaintiff despite being a limited company would be able to meet the expenses of costs, if any.
By notice of motion dated 19th October, 2015 the defendant in these proceedings seeks an order pursuant to s. 52 of the Companies Act, 2014 and/or pursuant to O. 29 of the Rules of the Superior Courts directing the plaintiff to furnish security for costs of these proceedings.
Section 52 provides:
‘Where a 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 or her defence, require security to be given for those costs and may stay all proceedings until the security is given.’
In Connaughton Road Construction Limited v. Laing O'Rourke Ireland Limited [2009] IEHC 7, Clarke J. quoted Interfinance Group v. K.P.M.G. Peat Marwick (Unreported, Supreme Court, Clarke J., 13th January, 2006), setting out the central test for security for costs applications:
‘(1) In order to succeed in obtaining security for costs an initial onus rests upon the moving party to establish:
(a) that he has a prima facie defence to the plaintiff's claim, and
(b) that the plaintiff will not be able to pay the moving party's costs if the moving party be successful.’
‘(2) In the event that the above two facts are established, then security ought to be required unless it can be shown that there are specific circumstances in the case which ought to cause the court to exercise its discretion not to make the order sought.
In this regard the onus rests upon the party resisting the order. The most common examples of such special circumstances include cases where a plaintiff's liability to discharge the defendant's costs of successfully defending the action concerned flow from the wrong allegedly committed by the moving party or where there has been delay by the moving party in seeking the order sought.
The list of special circumstances referred to is not of course, exhaustive.’’
This Court notes that the onus of proof lies on the defendant to prove the first and second limb of the test, and if these are established, the onus of proof switches to the plaintiff to establish that special circumstance exist, that ought cause the court to exercise its discretion not to grant the application for security for costs.
In Ochre Ridge Limited v. Cork Bonded Warehouses Limited and Port of Cork Company Limited [2000] IEHC 96 O'Neill J. stated:
‘Mr. Cregan submits that the Court must look forward to that point in time and determine whether at that point in time the Plaintiffs will on the balance of probabilities be unable to pay the costs of the successful Defendant.
[…]
I accept the correctness of Mr. Cregan's submissions, that the appropriate time in respect of which the Court must determine inability to pay, is the point in time where the Defendant seeking security has been successful in his defence.’
This Court is mindful of the rights of persons, or companies to litigate, and has regard in this light to the dicta of Hogan J. in CMC Medical Operations Limited (In Liquidation) trading as Cork Medical Centre v. the Voluntary Health Insurance Board [2015] IECA 68. In dealing with the statutory power to direct security for costs Hogan J. states:
‘As the Supreme Court itself made clear in that case, such a discretionary power must be exercised in accordance with fundamental constitutional principles and respect the essence of constitutional rights.
The administration of justice is committed to the judicial branch of government by Article 34.1 of the Constitution. Access to justice is, accordingly, an indispensable feature of the constitutional order so that no ‘unnecessary monetary obstacle should be placed in the path of those who seek access to the courts’.’
Security for costs applications serve a legitimate aim and purpose, in enabling the courts to engage in a balancing of the right of a plaintiff to litigate a claim, and the right of a (potentially) successful defendant not to be left without remedy. However, the Supreme Court has recognised that security for costs applications if granted, may, if fixed at too high a sum, lead to a situation where a defendant ‘may be able to defeat an honest and substantial claim because the plaintiff cannot find the necessary security’ ( Thalle v. Soares [1957] I.R. 182. The courts must be mindful of the potential of the application to be used oppressively, so as to stifle a genuine claim.
However, the position of plaintiff companies [this Court's emphasis] subject to moving parties' security for costs applications raises unique considerations for this Court. The Court has regard to the fact that the plaintiff company enjoys limited liability. Hogan J. made the point in CMC Medical Operations Limited (In Liquidation) trading as Cork Medical Centre v. the Voluntary Health Insurance Board [2015] IECA 68 that litigation brought by limited companies is different in principle to litigation brought by private individuals. Within this context, unless security is ordered, there is a risk that plaintiff companies may use limited liability as a shield, causing defendants to ‘face the threat of expensive litigation’, where costs may be irrecoverable. Hogan J. took the view that the main aim of the jurisdiction conferred then by s. 390 of the 1963 Companies Act was to balance the risk of the potential abuse of limited liability against the right of access to the courts.
Hogan J. continued:
‘It is true that Clarke J. suggested in his judgment in Connaughton Road Construction Ltd. v. Laing O'Rourke Ireland [2009] IEHC 7 that where, prior to the alleged wrongdoing, the plaintiff company had no significant net assets, it would need to establish that ‘in the absence of the wrongdoing alleged, it would have acquired net assets sufficient to enable it to discharge the defendant's costs in the event that the defendant were successful’ in order to avoid an order for security for costs under s. 390 of the 1963 Act.
The effect of this test appears to be that an impecunious plaintiff company may face an order for security for costs even where the plaintiff could demonstrate that it would otherwise have a good cause of action. If, for example, the company has a deficit of €40,000 and the costs of the proceedings have been estimated at €60,000, does this mean that it should face an order for security for costs under s. 390 of the 1963 Act unless in that example it could show that it is likely to recover more than €100,000 damages? I cannot help thinking that as the application of s. 390 of the 1963 Act in this manner could effectively stifle otherwise valid claims, the Connaughton Road test itself may have to be re-visited in the light of the constitutional considerations I have just mentioned.’
‘A court should be slow to take any step which has the effect of curtailing litigation or unduly restricting the constitutional right of access to the courts. The...
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