Pebble Beach Owners Management Company Ltd v Neville

JudgeMr. Justice Noonan
Judgment Date18 January 2019
Neutral Citation[2019] IEHC 111
CourtHigh Court
Docket Number[2014 No. 7345 P.]
Date18 January 2019

[2019] IEHC 111


Noonan J.

[2014 No. 7345 P.]












Company Law – Companies Act 2014 – Security for Costs – Defendants seeking an order for security for costs against the plaintiff pursuant to S.52 of the Companies Act , 2014 – Whether there was a prima facie defence to plaintiff’s claim and whether plaintiff would be unable to pay defendant’s costs if defendant successful

Facts: An application was brought by the first to seventh named defendants (the Neville defendants) for an order for security of costs against the plaintiff company pursuant to s.52 of the Companies Act, 2014. The plaintiff brought an action against the defendants alleging that they failed to maintain common areas of an estate of 223 holiday homes in County Waterford. The Neville defendants denied the claim and argued that the plaintiff company suffered no loss as they would ultimately have been financially responsible for any repairs to the common areas.

Held by Noonan J that the Neville defendants were able to demonstrate a prima facie defence and that the financial status of the plaintiff company was such that they would be unable to pay costs if the Neville defendants were successful. However, Noonan J found that there were special circumstances requiring the court to exercise its discretion against ordering the security. Noonan J held that the Neville defendants’ delay in seeking an order for security of costs led the plaintiff to believe that security was not being sought, and as such, induced the plaintiff to proceed with the action. In light of that, Noonan J refused the application.

Relief refused.

JUDGMENT of Mr. Justice Noonan delivered on the 18th day of January, 2019

This application is brought by the first to seventh named defendants (‘the Neville defendants’) for an order for security for costs against the plaintiff pursuant to s. 52 of the Companies Act, 2014.

Background Facts

The Neville defendants, through an associated construction company, developed a scheme of some 223 holiday homes in Tramore, County Waterford, the last of which was sold in 2003. The development was designed to take advantage of the provisions of the Finance Act, 1995 which provided tax relief for investors in holiday homes. The available tax break extended over a ten year period during which the homes were required to be available for rental to the tourist market. To achieve that objective, the owners of each property entered into a 21 year lease with the Neville defendants who collectively traded as the ‘Pebble Beach Holiday Homes Operator’. The leases contained a break clause after the expiry of the ten year tax relief period.


The plaintiff is the management company of the development, the members of which are the owners of the holiday homes. In the normal way, in a multi-unit development of this nature, the ownership of the development would be transferred to the management company on the sale of all the properties. In the present case however, it would appear that the common areas were not transferred to the management company until the 30th December, 2009.


Although the management company was theoretically responsible for the upkeep and maintenance of the development and its common areas prior to that time, it would appear that the Neville defendants effectively left the management company dormant and instead of the management company collecting maintenance charges directly from the owners, the Neville defendants, as the operator, collected the rents from the tourists who were renting the properties and deducted the management fees from those rents.


The eighth and ninth defendants (‘the Doyle defendants’) were the accountants and auditors of the plaintiff and it would appear that at least up until the 31st December, 2009, the returns filed with the Companies Registration Office showed a nil figure for both income and expenditure.


The plaintiff's claim in the within proceedings arises from an alleged failure on the part of the Neville defendants to maintain the common areas of the estate so that by the time of the transfer to the plaintiff management company, the common areas had fallen into a poor state of repair and there were no funds in the company to address the alleged disrepair. The plaintiff alleges that the defendants failed to operate the plaintiff company properly and intermingled the management charges with the rental income. It is alleged further that the Neville defendants failed to set up a sinking fund to provide for the sort of contingencies that have now arisen and that they failed to collect appropriate management charges on behalf of the plaintiff company over a period of time and to deal with other financial and administrative matters such as setting up a separate bank account for the plaintiff company, keeping proper books of account and making proper returns to the CRO and so forth.


The plaintiff alleges that it has suffered substantial losses as a result of the foregoing matters. It is not suggested by the plaintiff that the Neville defendants misappropriated any monies collected for the purpose of maintaining the estate but rather that they failed to either maintain the estate or collect adequate monies for that purpose on behalf of the plaintiff.


In response, the Neville defendants, in addition to denying the claim generally, argue that they spent substantial of their own funds on the maintenance of the common areas of the estate but more fundamentally, the plaintiff management company, and by proxy the owners of the individual homes in the estate, have in reality suffered no loss because they are ultimately the parties who would have to fund any want of repair in the estate in any event. The Neville defendants thus contend that the plaintiff's complaint is merely one of the timing of when the funds for that work are required to be made available. While this is the essence of the defence, a number of other issues are raised such as inordinate and inexcusable delay in the commencement and prosecution of this action.

Legal Principles

The governing criteria in applications of this nature are by now well settled. Section 52 of the 2014 Act 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.’


Section 52 replaces s. 390 of the Companies Act, 1963 which was in its terms very similar save that the expression ‘sufficient security’ in s. 390 has now been replaced by ‘security’ in s.52. This appears to give the court discretion in terms of the quantum of security that may be ordered.


The authorities establish that for a defendant to succeed in an application for security, he must establish (a) that he has a prima facie defence to the plaintiff's claim and (b) that the plaintiff would be unable to pay the defendant's costs if the defendant is successful. Once those criteria are established, security will in general be ordered unless there are special circumstances which would require the court to exercise its discretion against ordering security. The onus of establishing such special circumstances rests upon the party opposing the giving of security.


A prima facie defence must be more than a merely arguable defence but one which is reasonably sustainable. It has been said that it is necessary for the party seeking security to demonstrate by objective means the existence of admissible evidence, supported by relevant arguable legal submissions, which if accepted by a trial judge, would provide a defence to the claim – see Tribune Newspapers v. Associated Newspapers Ireland Unreported, High Court, March 25 2011 and Mike O'Dwyer Motors Ltd v. Mazda Motor Logistics Europe N.V. [2012] IEHC 560. Apart from the availability of such evidence, a party seeking security may satisfy the test by demonstrating that on undisputed facts, the applicable legal principles ought to result in the dismissal of the claim.


I am satisfied by reference to these principles that the Neville defendants have demonstrated a prima facie defence. In the affidavit grounding this application, these defendants go considerably further than merely denying the claim. They suggest as a matter of law that the claim is unsustainable for the reasons I have already referred to, quite...

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