Paulson Investments Ltd v Jons Civil Engineering Ltd

• Jurisdiction: Ireland
• Judge: Mr. Justice Gerard Hogan,Ms. Justice Finlay Geoghegan
• Judgment Date: 08 June 2016
• Neutral Citation: [2016] IECA 169
• Date: 08 June 2016
• Court: Court of Appeal (Ireland)
• Docket Number: 2014 No. 728 [Article 64 Transfer]

[2016] IECA 169

THE COURT OF APPEAL

Finlay Geoghegan J.

Hogan J.

2014 No. 728

[Article 64 Transfer]

Finlay Geoghegan J.

Peart J.

Hogan J.

BETWEEN:

PAULSON INVESTMENTS LIMITED

AND

ALBERT ENTERPRISES LIMITED

PLAINTIFFS/APPELLANTS

AND

JONS CIVIL ENGINEERING LIMITED

AND

P.J. EDWARDS & COMPANY LIMITED

DEFENDANTS/RESPONDENTS

Property development – Breach of contract – Security for costs – Respondents seeking order for security for costs – Whether respondents could establish a?prima facie?defence

Facts: The appellants, Paulson Investments Ltd and Albert Enterprises Ltd (AEL), are related companies involved in property development. Paulson is the owner of a site at Dyer Street, Drogheda. In 2000, it was decided that the site would be developed and that the development would take place through AEL. It was intended that the development would consist of a three storey basement, with six floors above ground. The first respondent, Jons Civil Engineering Ltd, carried on a civil engineering business, while the second respondent, P.J. Edwards & Co. Ltd, is a specialist piling contractor. Jons was engaged as the main contractor to excavate the basement. It was also to design and construct the temporary and permanent works required for the three basement floors. Tender documentation was furnished to Edwards, which responded and ultimately took on the task of piling. Shortly after the commencement of piling operations, the ground in the vicinity of the piling became unstable. This resulted in ground movement or settlement which exceeded the stipulated maxima. There followed attempts at site improvements involving, in particular, engaging in a process known as ?grouting? in an effort to stiffen the ground. However, those efforts to keep settlement within the specified parameters ultimately failed. Work was then suspended in September 2001 at which stage the respondents were requested to leave the site. The appellants ultimately proceeded with a modified development consisting of a seven storey over ground structure, thus omitting the basement which had been proposed. Proceedings were commenced by the appellants in November 2005. The claim against Jons involved allegations of breach of contract and claims in tort, whereas the claim against Edwards was brought entirely in tort. The appellants claimed sums of approximately ?2m for wasted professional fees. There was, additionally, a claim for approximately ?22m in respect of the reduced capital value of what was actually constructed as compared with what had been originally intended. For the purposes of the application for security for costs the parties reached agreement on a number of factual matters. First, the defence costs of trial were estimated at ?784,983 plus VAT in the case of Jons and ?769,000.73 plus VAT in the case of Edwards calculated on the basis of a twenty day hearing. Second, the aggregate value of the appellants by reference to the accounts filed by them for year ending the 31st March, 2010, amounted to ?830,579, while the accounts for year ended the 31st March, 2011, showed aggregate net asset values of ?158,859. It was not in dispute that the appellants would be unable to pay the costs of either respondent if both respondents were successful in their defence. The principal issues before the High Court were whether: (i) the respondents could establish a?prima facie?defence; and (ii) whether there were other special circumstances which would justify the Court in not making any such order for security for costs. Birmingham J concluded that it was appropriate to make the requisite order for security for costs in favour of the respondents pursuant to s. 390 of the Companies Act 1963. The appellants appealed to the Court of Appeal against the decision of Birmingham J.

Held by Hogan J that he was obliged to conclude that no?prima facie?defence was established in relation to the poor workmanship in respect of the auger withdrawals on the part of Edwards with the consequent implications for Jons in respect of its?Norta Wallpapers v John Sisk & Sons?[1978] IR 114?defence. Hogan J held that the unusual circumstances of the case in themselves constituted special circumstances.

Hogan J held that he would allow the appeal and refuse to make an order for costs pursuant to s. 390 of the 1963 Act.

Appeal allowed.

JUDGMENT of Ms. Justice Finlay Geoghegan on the 8th day of June 2016

1 This is an appeal against an order of the High Court (Birmingham J.) of the 6th December, 2012, that the plaintiff furnished security for costs to each of the defendants. The order was made pursuant to a judgment in writing delivered on the 2nd November, 2012.

2 The orders of the High Court were made pursuant to s. 390 of the Companies Act 1963. It remains the applicable provision to the determination of the appeal notwithstanding the enactment of the Companies Act 2014.

3 There has been one significant and material development in the litigation which whilst indicated in the course of the hearing of the appeal occurred subsequent to the hearing. The Court has been informed that the plaintiffs have lodged ?500,000 with their solicitors to be held to the credit of the action to meet any costs orders made against the plaintiffs in the substantive action by which I understand is meant following the full hearing. At the appeal hearing, it had been indicated on behalf of the plaintiffs that this would be done and the court directed that it should be told if such a sum was provided to its solicitors.

4 It is appropriate to note at the commencement of this judgment that the parties were in agreement that the figures which had been estimated for the defence costs of trial namely, ?784,983 plus VAT in the case of the first defendant and ?769,000.73 plus VAT in the case of the second defendant calculated on the basis of a twenty day hearing were simply estimates agreed for the purposes of the application for security for costs. It is agreed that they were estimates of the entire costs and were not intended to form the basis of the amount for which security would be ordered in the event that the defendants' applications were successful. The amount for which the order should be made was not in issue in the High Court and it appears that the parties had envisaged that if orders for security were made that the determination of the amount might be remitted to the Master.

5 In the course of the hearing I raised a question as to whether the amount had been estimated in accordance with the Supreme Court judgment in SEE Company Limited v. Public Lighting Services Limited [1987] ILRM 255, i.e. costs incurred after the demand for security was made. On the facts herein proceedings commenced on the 1st November, 2005 and the applications for security was made by the first defendant in April 2011 and by the second defendant in May 2011. Irrespective of the outcome of the substantive appeal, the parties, through their counsel at the hearing were in agreement that the part of the order made in the High Court which specifies the estimated amounts as the amounts payable would have to be vacated and in the event that the appeal against the order for security failed there would have to be a determination of the amount to be provided by reference to an estimate of costs after the date of demand for security.

Background to the proceedings

6 The first named plaintiff, Paulson Investments Limited (?Paulson?) is the owner of a site at Dyer Street, Drogheda, beside the river Boyne. In 2000 it was decided that the site would be developed and the development would take place through the second named plaintiff Albert Enterprises Limited (?Albert?). Both companies are part of the Mirella Group of which Mr. William Smyth is a director and principal shareholder.

7 In 2000 there were discussions with the first named defendant Jons Engineering Limited (?Jons?) in relation to a fixed price contract to construct the three storey basement of a proposed nine floor development on the site. Ultimately agreement was reached but no written contract entered into which contributes significantly to the complexity of the factual and legal issues in the proceedings. P.J. Edwards & Company Limited (?Edwards?) the second named defendant is a specialist piling contractor who in response to a tender agreed to carry out piling works on the site. The plaintiffs retained Consulting Engineers, Hendrick Ryan and Associates who issued drawing specifications and instructions for the construction of the basement and associated piling works. Jons retained AGL Consulting to provide geo-technical design consultancy works.

8 Work commenced without any contractual documents being entered into. The first element of the works was the construction of what is referred to a secant pile wall around the full perimeter of the development site. There is a dispute as to whether this wall forms part of the temporary works or the permanent works with potentially different consequences as to the persons responsible. Jons went on site in September 2000 and Edwards entered on site and commenced piling work in February 2001. Almost immediately, problems ensued. The piling operations gave rise to settlement which exceeded parameters specified by Hendrick Ryan and Associates. Piling work stopped in March 2001. Further investigations were carried out, other expert engineers engaged and ultimately the defendants left the site in September and November 2001. The plaintiffs subsequently constructed a modified development consisting of a seven storey over ground structure.

9 The initial proceedings relating to the works carried out on the site were plenary proceedings by Jons against Mr. William Smyth in 2001. Subsequently, in those proceedings, Jons applied to join Paulson and Albert as...