Tom McEvaddy Property Ltd Trading as Nexus Homes ((in Liquidation)) v National Asset Loan Management DAC

• Jurisdiction: Ireland
• Judge: Mr. Justice Twomey
• Judgment Date: 20 November 2020
• Neutral Citation: [2020] IEHC 593
• Docket Number: [2018 No. 11047 P]
• Court: High Court
• Date: 20 November 2020

BETWEEN

TOM MCEVADDY PROPERTY LIMITED TRADING AS NEXUS HOMES (IN LIQUIDATION)

PLAINTIFF

AND

NATIONAL ASSET LOAN MANAGEMENT DAC

DEFENDANT

[2020] IEHC 593

Twomey

[2018 No. 11047 P]

THE HIGH COURT

Security for costs – Discretion – Special circumstances – Defendant seeking security for its costs in the litigation instituted by the plaintiff – Whether it was open to the High Court to exercise its discretion to refuse the security for costs sought by the defendant

Facts: The plaintiff, Tom McEvaddy Property Ltd trading as Nexus Homes (in liquidation) (the Company), claimed that it paid €228,375.84 to Dun Laoghaire Rathdown County Council on 16th September, 2008 in respect of planning fees in relation to a property development at Robin Hill, Blackthorn Road, Sandyford, Dublin 18 (the Property). The Property was owned by Mr and Ms McEvaddy. The Company was owned and controlled by the McEvaddys. The purchase of the Property had been funded by a loan from Allied Irish Banks plc to the McEvaddys and that loan and the security for that loan was subsequently transferred to the defendant, National Asset Loan Management DAC (NAMA). Thereafter, NAMA sold the loan and security over the Property to Promontoria (Gem) DAC. The Company claimed that the €228,375.84 was paid by the Company to assist with the development of the Property on the basis that the McEvaddys would hold the proceeds of sale of the Property on trust for the Company to the extent of the said sum. The substantive proceedings issued by the Company sought, inter alia, a declaration from the High Court that NAMA holds the sum of €228,375.84 on trust for the benefit of the Company, since the Company asserted that NAMA had no entitlement to realise trust assets. NAMA applied to the Court against the Company for security for NAMA’s costs in the litigation instituted by the Company. The Company claimed that it was open to the Court to exercise its discretion to refuse the security for costs sought by NAMA as there were special circumstances which existed, namely that the impecuniosity of the Company was caused as a direct result of the wrongful actions of NAMA, i.e. its failure to account to the Company for the €228,375.84 in planning fees.

Held by Twomey J that in this case there were just assertions of an actionable wrong and assertions that the millions in debt owed by the Company were statute-barred, without cogent and credible evidence to support same. Accordingly, the Court could see no basis for making a court order which would result in the somewhat extreme circumstances that the defendant would be required to ‘lose’ (i.e. spend with no prospect of recovering) money in defending the plaintiff’s proposed litigation.

Twomey J held that there was no basis for refusing to grant the defendant security for its costs, before allowing the plaintiff to proceed with litigation. The Court would grant the reliefs sought by the defendant in its notice of motion.

Application granted.

JUDGMENT of Mr. Justice Twomey delivered on the 20th day of November, 2020

SUMMARY

1 What is at stake in this case is the right to effectively force a defendant by court order to ‘lose’ tens, if not hundreds of thousands, of euro in defending High Court litigation. This is because the plaintiff is insolvent, and as matters stand, irrespective of the outcome of the litigation, the defendant will never recover its legal costs. For a defendant to have to ‘lose’ (i.e. spend without any prospect of recovering) its legal costs whether it wins, loses or draws is a very serious situation for any defendant to face, whether a person or, as in this case, a company. The prospect of such an order arises because the insolvent plaintiff is resisting the defendant's application that the plaintiff provide security for costs before allowing the litigation to proceed. In essence, the plaintiff asserts that it should be entitled to litigate against the defendant on the basis of win/win for the plaintiff but lose/lose for the defendant.

2 This is because if the insolvent plaintiff wins, it will obviously not have to pay the defendant its costs (on the basis of ‘the loser pays’ principle), but in addition if the insolvent plaintiff loses, it will also end up not paying the defendant's legal costs, as it has no money. On the other hand, it is ‘ lose/lose’ for the defendant because if it loses, it will obviously have to pay its own costs, but also if it wins it will not get its legal costs as the plaintiff is insolvent.

3 In view of these consequences for the defendant of not getting security for costs from an insolvent plaintiff, very careful consideration must be given to the claim by an insolvent plaintiff that special circumstances exist such as to justify litigation being allowed to proceed on this lose/lose basis for the defendant.

4 While this case is concerned with a well-resourced defendant, the relevant principles are equally applicable to cases where an individual defendant of modest means might be forced to defend litigation on a lose/lose basis against an insolvent plaintiff, and thereby forced by court order to ‘lose’ a considerable sum in legal costs - perhaps his entire net worth or multiples of the average annual earnings.

BACKGROUND

5 This is an application by the defendant (“NAMA”) against the plaintiff (the “Company”) for security for NAMA's costs in this litigation instituted by the Company. The Company was voluntarily wound up on 14th September, 2009 by ordinary resolution after a meeting of creditors and these proceedings are being pursued by the Company, through its liquidator, Mr. Conor O'Boyle (“Mr. O'Boyle”). The Company had a deficit of €11,861,401 at the time of its winding up.

6 The background to the substantive proceedings being taken by the Company is its claim that it paid €228,375.84 to Dun Laoghaire Rathdown County Council on 16th September, 2008 in respect of planning fees in relation to a property development at Robin Hill, Blackthorn Road, Sandyford, Dublin 18 (the “Property”). The Property was owned by Mr. Tom McEvaddy and his wife, Ms. Lorraine McEvaddy (the “McEvaddys”). The Company is owned and controlled by the McEvaddys.

7 The purchase of the Property had been funded by a loan from Allied Irish Banks plc to the McEvaddys and that loan and the security for that loan was subsequently transferred to NAMA. Thereafter, NAMA sold the loan and security over the Property to Promontoria (Gem) DAC (“Promontoria”).

8 The Company's claim against NAMA arises because the Company claims that the €228,375.84 was paid by the Company to assist with the development of the Property on the basis that the McEvaddys would hold the proceeds of sale of the Property on trust for the Company to the extent of the said sum. The substantive proceedings issued by the Company therefore seek , inter alia, a declaration from the Court that NAMA holds the sum of €228,375.84 on trust for the benefit of the Company, since the Company asserts that NAMA has no entitlement to realise trust assets.

9 The Company claims that it is open to this Court to exercise its discretion to refuse the security for costs sought by NAMA as there are special circumstances which exist, namely that the impecuniosity of the Company was caused as a direct result of the wrongful actions of NAMA, i.e. its failure to account to the Company for the €228,375.84 in planning fees.

10 In summary, the Company claims that NAMA should have accounted to it for those monies expended on the development of the Property, as this money was not the money of the borrowers (the McEvaddys) but the money of the Company. It is also claimed that the proceeds from the sale of the Property, charged in favour of AIB/NAMA/Promontoria, were to be subject to the trust which was allegedly established between the McEvaddys and the Company, which trust was established when the Company paid that sum in planning fees.

Section 52 Companies Act 2014 seeks to avoid ‘consequence-free’ litigation for a plaintiff

11 Section 52 of the Companies Act, 2014 states:

“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.”

12 It appears to this Court that the purpose of the security for costs application pursuant to s. 52 of the Companies Act 2014 is, inter alia, to avoid a situation where an insolvent company could inflict considerable legal costs on a defendant, which has no hope of recovering those costs in the event that the defendant wins the litigation.

13 Another way to put this is that one of the aims of this section is to avoid a situation where there can be ‘ consequence-free’ litigation for certain litigants, or to ensure that such litigants have ‘ skin in the game’ before instituting litigation (which will oblige a third party to incur considerable legal costs). In the Supreme Court case of W.L. Construction Limited v. Chawke [2020] 1 I.L.R.M. 50, O’ Malley J. made a similar point regarding the rationale for the jurisdiction which allows a court to join an individual to proceedings for the purpose of finding them liable for costs, where that individual will benefit from litigation initiated through an insolvent company. At para. 67 of her judgment, O'Malley J. stated:

“This is, in my view, a clear example of the mischief aimed at by the exercise of the jurisdiction. In particular, the comments made by Clarke J. [in Moorview Developments Ltd v. First Active plc [2011] 3 I.R. 615] as to the need to prevent persons litigating on a consequence-free basis, with the aim of personal benefit, seem apposite in this case.” (Emphasis -added)

14 It seems clear...