Judgment Title: Mavior v Zerko Limited
Neutral Citation:  IESC 15
Supreme Court Record Number: 584/12
High Court Record Number: 2012 3956 P
Date of Delivery: 13/03/2013
Court: Supreme Court
Composition of Court: Denham C.J., Clarke J., MacMenamin J.
Judgment by: Clarke J.
Status of Judgment: Approved
THE SUPREME COURT
[Appeal No: 584/2012]
1.2 This Court has recently, in Farrell v. Bank of Ireland  IESC 42, had to consider the jurisdiction to award security for costs of an appeal. The judgment in that case also provides some analysis of the overall principles by reference to which security can be ordered. However, as pointed out in Farrell, at least in some respects different considerations apply as and between security for the costs of a claim as yet unresolved, on the one hand, and an appeal against an adverse finding, on the other hand. Likewise, there are differences between security awarded against limited liability companies, on the one hand, and natural persons, on the other.
1.3 Indeed, it is the position of a corporate litigant (although not a limited company) that lies at the heart of this appeal. The plaintiff/respondent ("Mavior") is an Irish registered unlimited company. It brings these proceedings claiming sums of money said to be due from the defendant/appellant ("Zerko") either on foot of a contract, or on a quantum meruit basis, arising out of building works relating to significant repairs required to be carried out to a storm-damaged hotel premises in Dublin. The claims are strongly resisted by Zerko. Indeed, Zerko goes so far as to state that it has no contractual or legal relationship with Mavior such as would allow Mavior to maintain any claim against it. In those circumstances Zerko sought security for the costs of these proceedings against Mavior. The matter came before the High Court (Finlay Geoghegan J.) and was the subject of a judgment on the 22nd November, 2012 (Mavior v. Zerko Limited  IEHC 471). In giving that judgment Finlay Geoghegan J. refused Zerko's application for security for costs. Zerko has appealed that refusal to this Court. It is appropriate to start by briefly outlining the relevant background facts.
2. Background Facts
2.2 As a result of storm damage it is said that an agreement was entered into between Zerko and MJBCH Limited to the effect that the latter would organise that repair and reinstatement works to be carried out. It is further claimed that MJBCH entered into an agreement with Mavior to carry out some of the works concerned. It is argued that MJBCH had authority, as agent of Zerko, to enter into an agreement with Mavior and that Zerko is, therefore, liable to Mavior for payment under that contract. Alternatively, as pointed out, Mavior claims monies said to be due to it by Zerko on a quantum meruit basis for the value of such building works said to have been carried out at Zerko's request and with Zerko's knowledge.
2.3 Zerko disputes the terms of the alleged agreement between it and MJBCH Limited and also the existence of any contract between it and Mavior. While Zerko does not dispute that Mavior carried out works on the hotels from which it now benefits, Zerko argues that some of the works were sub-standard. Zerko also says that the arrangements between the parties were such that, on any view, the total sums which could be paid either to MJBCH Limited or Mavior could not exceed the total sums to be paid on foot of insurance policies held in respect of the hotels concerned. It is common case that significant sums have already been paid over by Zerko in respect of building works. It is said on behalf of Zerko that the difference between the total sums actually recovered on foot of the relevant insurance policies and the sums actually paid over to date is less than the cost of dealing with what are said to have been the sub-standard elements of the work. On that basis it is argued that there could be no net sum due either to Mavior or to MJBCH Limited.
2.4 It was against that background that Zerko sought security for costs. In that context it is appropriate to refer, briefly, to the procedural history before and decision of the High Court.
3. Procedural History and the High Court decision
3.2 In pursuing the application under O.29, Zerko sought to place reliance on the judgment of Cooke J. in Goode Concrete v. CRH plc & ors  IEHC 116 for the proposition that there is jurisdiction to order that security be given by an unlimited Irish resident company. Zerko also suggested that Mavior should be considered as being a nominal plaintiff in the sense in which that term has been used in some of the jurisprudence and as was applied by Cooke J. in his judgment in Goode Concrete. I should note that it is possible that this Court will be called on to consider whether Cooke J. was correct in his decision in Goode Concrete. For that reason it is not appropriate that there be any detailed analysis of the judgment in that case for the purposes of this ruling. It is, therefore, appropriate that I refrain from expressing any further view in this judgment on Goode Concrete.
3.3 As is also clear from the analysis of Finlay Geoghegan J., Mavior placed reliance on the judgment of Laffoy J. in ABM Construction v. Habbingley Limited  IEHC 61. In that case Laffoy J. in turn placed reliance on my judgment in the High Court in Salthill Properties Limited & anor v. Royal Bank of Scotland & ors  2 IR 441, for the proposition that the jurisdiction to order security for costs under O.29 does not extend to natural persons resident in the jurisdiction or within the European Union. Thus a key and central issue before the High Court was as to the extent of the jurisdiction to order security for costs under O.29 against Irish or EU resident persons or entities without limited liability. As it will be necessary to consider the jurisprudence to which Finlay Geoghegan J. had regard in that context, I will return to her application of that jurisprudence later in the course of this judgment.
3.4 It is, however, appropriate to record her conclusions. Having analysed the relevant authorities Finlay Geoghegan J. came to the view, at para.28, that there was no basis on "which this Court may distinguish the position of a plaintiff which is an unlimited company from that of a natural person in the application of the general principle". However, Finlay Geoghegan J. went on, at para.29, to note that there appeared "to have been a long-standing jurisdiction to make orders for security for costs in relation to a person suing as a nominal plaintiff on the grounds of insolvency". While noting the jurisdiction of the courts to prevent abuse of process, such as by striking out proceedings as being bound to fail (Barry v. Buckley  IR 306), and in respect of vexatious litigants under the so-called "Isaac Wunder order" jurisdiction, Finlay Geoghegan J. came to the conclusion that it could not be regarded as an abuse of process for an insolvent or impecunious plaintiff to bring a claim pursuant to a recognised cause of action which was the relevant plaintiff's own cause of action and which could not be objected to on one of the recognised grounds of abuse such as vexatious litigation or bringing a claim bound to fail.
3.5 On the basis of that analysis Finlay Geoghegan J. came to the view that security could only be ordered against Mavior if it could be said, in accordance with the existing jurisprudence, to be a nominal plaintiff. However, Finlay Geoghegan J. concluded that, whatever may be the rights and wrongs of the issues which arise between Mavior and Zerko, the claim made in these proceedings was, she found, one which belonged to Mavior and Mavior alone, Mavior being the only entity with the cause of action as pleaded. On that basis it was concluded that Mavior could not be regarded as a nominal plaintiff in the sense in which that term developed in the traditional jurisprudence.
3.6 It is clear, therefore, that a central issue in the decision of the High Court in this case was as to the scope of the jurisdiction of the courts to order security for costs against a plaintiff such as Mavior. I, therefore, turn to that question.
4. The Jurisdiction to Order Security
4.2 In the context of inherent jurisdiction Murray J., in G. McG v D.W. (No. 2) (Joinder of Attorney General)  4 I.R. 1, stated, at p. 26, the following:-
4.4 Sometimes, however, a relevant jurisdiction may not be the subject of any, or at least any complete, delineation by statute. In such cases rules of court may seek to regulate the procedural manner in which an inherent court jurisdiction can be pursued. It is, however, important to emphasise that there is nothing in the text of O.29 which seeks to limit, per se, the jurisdiction to order security for costs in respect of natural persons to persons resident outside the jurisdiction. Some of the sub-rules (for example r.3 and r.4) make specific reference to security being directed in the context of plaintiffs resident outside the jurisdiction. However the rules do not purport to create a comprehensive code for the regulation of security for costs.
4.5 It will be necessary to turn shortly to a consideration of the jurisprudence which seems to place a significant limit on the scope of the power of the court to direct security against a natural person at least so far as a first instance hearing (rather than an appeal) is concerned. However those authorities are an interpretation by the courts of the proper scope of a jurisdiction which does not really derive from the rules but rather is one whose exercise is regulated by the rules. Any restrictions on the scope of the relevant power do not stem from the wording of the rules themselves or at least only do so in a limited way.
4.6 In such cases, where the scope of a particular jurisdiction is regulated in part by the rules and in part by case law under the rules, it seems to me that the real question which the court should ask itself in a case such as this is as to whether any proposed evolution of the interpretation of the scope of the power amounts to a permissible and legitimate exercise of the courts proper interpretative role. If so then the scope of the power regulated by the rule may be reinterpreted. If not then a rule change or, in some cases, legislation will be required. It is not appropriate that such issues be addressed by the creation of a parallel “inherent jurisdiction”. What would the point be of an elaborate analysis of the circumstances in which an order of the type under consideration in this case could be made under the rules if it were possible to by-pass the rules and the existing case law altogether by invoking a separate inherent jurisdiction. If there is a legitimate basis for extending the circumstances in which security can be ordered then it is always open to the courts to revisit the existing jurisprudence (subject to the constitutional limits which any such revisiting imposes) and, thereby, revisit the circumstances in which security can be ordered under the rules. If it would not be appropriate, for whatever reason, to engage in revisiting the scope of the jurisdiction under the rules then it does not seem to me that the same end can properly be achieved by using the backdoor of an alleged inherent jurisdiction.
4.7 I should add that there might, in other circumstances not present in this case, be a situation where the rules imposed an express restriction which the court viewed as inappropriate having regard to the powers which the court enjoys for reasons such as those identified by Murray J. in G v McG. The court's inherent jurisdiction stems from the nature of the court's judicial function or the court's constitutional role in the administration of justice. Likewise, the court may have an express jurisdiction conferred by statute. There are limits, therefore, to the extent to which the rules can properly limit such inherent or statutory jurisdiction. Rules of court are only there to regulate rather than create jurisdictions. The rules, as secondary legislation, cannot extend beyond their proper function in such regulation. If restrictions found in the rules are an excessive interference with the exercise of the court's jurisdiction, it may be that the rules have to be interpreted in a particular way or even, in an extreme case, be found to be ultra vires. However there are no express restrictions in this case. Any limitations on the power to order security for costs against Irish or EU resident entities (be they natural persons or unregistered corporations or, indeed, other bodies) stem not from an express limitation in the rules but from the case law of the court.
4.8 For those reasons it seems to me that no inherent jurisdiction of the court arises in this case. If it is proper, and appropriate, the court can extend the scope of the jurisdiction under the rules by an evolution in its own case law. It is not necessary to invoke an inherent jurisdiction to do that. If it is inappropriate to extend the scope of the case law in a particular way and to a particular extent then it would be equally inappropriate to seek to achieve the same end by invoking a separate inherent jurisdiction.
4.9 I should also deal, at this stage, with the question of Mavior's status as an unlimited company in the context of O.29. The trial judge concluded that there was no reason in principle to distinguish, so far as security for costs is concerned, between an unlimited company, resident in the jurisdiction, and an Irish resident natural person. I agree. The separate statutory regime in respect of limited liability companies has been the subject of much analysis but is not relevant in this case. Any other entity, be it a natural person or any form of corporation which is not caught by s.390, is subject to the potential for security for costs being ordered under the rules. There is, therefore, no reason why the same broad principles should not apply to an unlimited company as would apply to a natural person. I would leave over to a case in which the issue specifically arises the question of the proper approach in the case of a limited company registered outside Ireland. It is arguable that s.390 of the Companies Act, 1963 only applies to Irish registered companies. If that be correct then the only basis for directing security against a non-Irish registered limited company would be under the rules. Different questions might arise depending on whether the company was an EU-resident company or one resident outside of the EU. In the latter case it is important to note that, while the question of ordering security against non-EU limited companies in Harlequin Property (SVG) Limited & anor v. O'Halloran & anor  IEHC 13 was dealt with on the basis of applying the provisions of s.390 by analogy, that course of action was adopted in circumstances where the parties agreed that same was the appropriate basis for considering security for costs in that case. That point should not, therefore, be taken as having been definitively determined.
4.10 Before going on to the specifics of the sort of jurisdiction asserted in this case it is necessary to recall some of the rationale for ordering security for costs as analysed in Farrell. First it is pointed out, at paragraph 4.17 of my judgment, that the jurisprudence in relation to all of the areas where security for costs is considered starts from the position that, in the absence of some significant countervailing factor, the balance of justice will require that no security be given. An alternative approach would have the effect of shutting out impecunious parties from bringing cases which approach would be both untenable and disproportionate.
4.11 I went on, at paragraph 4.20, to refer to the fact that, so far as plaintiffs who are natural persons were concerned, the jurisprudence suggests that the High Court will not order security against an individual plaintiff unless that plaintiff is out of the jurisdiction (including the EU). As noted the rationale behind that jurisprudence is "that a plaintiff, though impecunious, must be entitled to bring and pursue a case". Having dealt with the question of abuse of process I went on, at paragraph 4.22, to state that it was for such reasons, (being those analysed) "that the courts have not considered it appropriate to order security against a resident plaintiff". I also noted that, for the reasons set out in Salthill Properties, if there were to be circumstances in which a court of first instance is to direct security for costs against a plaintiff who is a natural person resident within the jurisdiction (or the EU) the matter requires a considered change, either a rule change, as there noted, or, indeed, by legislation. That judgment represented the unanimous view of this Court on the issue. I see no reason to depart from those views in this case.
4.12 However it is important to recall that the issue which arose in Salthill Properties was as to whether security could be ordered against the second named plaintiff, a Mr. Cunningham, who was resident in the jurisdiction. The claims which Mr. Cunningham sought to pursue were claims which he maintained in his own right. It is also clear that the underlying rationale of the judgment in Salthill Properties was that a radical change in the existing jurisprudence could give rise to wholly unintended consequences if carried out without considered change in the rules or the law. That proposition was noted with agreement by Laffoy J. in AMB Construction and Finlay Geoghegan J. in the High Court in this case. It is an important consideration.
4.13 For the reasons already analysed I am satisfied that it is neither necessary nor appropriate to invoke an inherent jurisdiction. If there is room for expansion in the circumstances in which security for costs can be awarded under O. 29 then it should be done by a re-interpretation of the case law. If any contemplated expansion goes beyond that which could reasonably be said to be a legitimate extension of the existing case law then it seems to me that same could only be achieved either through rule change or, depending on how the significant the change might be, statutory amendment. There may well be a case at the level of policy for considering an extension of the provisions of s.390 so as to cover unlimited companies where either the immediate shareholders in such unlimited companies or other ultimate beneficial owners of such shareholding have themselves limited liability or where the shareholders although natural persons are resident outside of the jurisdiction (and the EU) so that security would, ordinarily, be available against those shareholders were they plaintiffs suing in their own name.
4.14 The logic for such an extension of the law would be that there may be a case for treating an unregistered company, which would not be able to meet the costs of a defendant should that defendant succeed, in the same way as if it were, in substance, its beneficial shareholders. If those shareholders, whether by reason of them having limited liability (and whether that limited liability arose under the laws of Ireland or of other jurisdictions) or being individuals resident outside the jurisdiction (or the EU) would be liable to have security for costs directed against them, then there is a case for ordering security against the relevant unlimited company. There is a case to be made that an unlimited company whose shareholding can be traced back to entities whose liability is limited should, for the purposes of security for costs, be treated in the same way as a limited liability company and that the law should be changed in that regard. Likewise there is a case for the proposition that an unlimited company whose shareholders are natural persons should be treated, for the purposes of security for costs, in the same way as those shareholders. However such a change would be a radical departure in the existing framework which, in my view, could only be brought about by legislative change.
4.15 On the other hand there is no doubt but that, as the trial judge pointed out, an existing and established jurisprudence, of longstanding, exists in relation to so called “nominal plaintiffs”. The jurisdiction to order security against an impecunious nominal plaintiff, even though that plaintiff be resident in the jurisdiction, is, therefore, well established. Its recognition and, perhaps definition in modern circumstances, does not involve the sort of radical change which would require considered legislation or rule alteration. The question of a nominal plaintiff did not arise in Salthill Properties nor AMB Construction, nor, indeed Farrell. The comments, in those cases, which refer to the limitations on the jurisdiction to direct security against plaintiffs who are resident natural persons must, therefore, be read as referring to such plaintiffs who sue in their own right and not to such plaintiffs who can be shown to be acting as a nominee in accordance with the existing jurisprudence.
4.16 For those reasons it seems to me that Zerko is, on the facts of this case, only entitled to security for costs, at the level of principle, if it can establish that Mavior is a nominal plaintiff in accordance with the existing jurisprudence or any reasonable evolution of same. Any expansion of the circumstances in which security might be ordered beyond such circumstances would, in my view, require, in most cases, legislative change or at least, perhaps in some limited circumstances, rule change.
4.17 It follows that this case turns on whether the trial judge was correct in her analysis of the scope of the nominal plaintiff jurisprudence and in her application of the relevant jurisprudence to the facts of this case. I, therefore, turn to the question of the meaning of nominal plaintiff.
5. What is a nominal plaintiff?
5.4 In the Irish context Kennealy v. Keane  2 IR 640 provides authority for the proposition, stated by Kenny J. at p.644-645, that:-
5.5 It seems to me that it is important to keep in mind a distinction, in the context of identifying who may or may not be a nominal plaintiff, between the person in whom the beneficial interest in the cause of action asserted properly lies as opposed to persons who may, indirectly, benefit by the success of the cause of action. There are all sorts of circumstances in which third parties can, in one way or another, benefit by the success of litigation. An impecunious plaintiff may have creditors who are unlikely to be paid unless that plaintiff successfully mounts litigation on foot of a cause of action which is his own. It may, as a matter of practise, be the case that some, or indeed most, of the fruits of the successful pursuit of the relevant litigation may inure to the benefit of creditors in the sense that the impecunious plaintiff's debts would be paid out of the proceeds of the case. It also, of course, would benefit the impecunious plaintiff to win the case for in so doing he would be able to pay his debts and thus be relieved of those liabilities. However, on any true analysis of such cases, the cause of action is the plaintiff's own and the fact that others may, indirectly, benefit from the success of litigation does not take away from that fact.
5.6 It follows that the key question is as to whether the plaintiff is the true person in whom, as a matter of substance, the beneficial interest in the cause of action lies. If that is so then it is hard to see how such a plaintiff can be regarded as a nominal plaintiff or a "mere shadow" or a "sham plaintiff". The fact that, if successful, others may indirectly benefit does not alter that fact. Of course in many cases it will only be the true person in whom the beneficial interest in the cause of action lies that can sue. However, there are circumstances in which that may not be the case. Cooke v. Whellock is a good example. In that case, at p.659, Vaughn Williams J. considered the case of actions taken by persons in bankruptcy and the distinctions which might arise, as to who might be said to be beneficially interested in the action, depending on the circumstances in which the action was brought, whether it arose prior to the bankruptcy and the like. That, and other examples, suggest that the broad approach which has historically applied in respect of the nominal plaintiff category is to identify cases where a third party had a beneficial interest in the cause of action itself. It seems to me that such is the sense in which the term "nominal plaintiff" is used in the security for costs jurisprudence. The term refers to cases where the plaintiff is simply a nominee who is, for whatever reason, entitled to maintain the proceedings but where a third party has a beneficial interest in the outcome. Such a situation is to be distinguished from one where the plaintiff is beneficially entitled to the cause of action but may, as a matter of practicality, because of independent legal obligations attaching to that plaintiff, be required to deal with the proceeds in a way which benefits a third party or third parties not because such parties beneficially own the proceeds but rather because of some independent obligation which the plaintiff owes to those third parties.
5.7 It seems to me that such is the scope of the nominal plaintiff exception. It applies in cases where the plaintiff either never had or has divested himself of the beneficial interest in the cause of action but is still legally entitled to sue. It does not apply to cases where the plaintiff retains the beneficial interest in the cause of action but may be obliged, on foot of an independent obligation, as a matter of practise, to transfer any benefit accruing to a third party or third parties. It seems to me that the approach which I have identified is the one which was adopted by the trial judge in this case. It follows that the overall approach to the question of security for costs adopted by the trial judge, being that security could only be ordered on the facts of this case if it could be said that Mavior was a nominal plaintiff in the sense that it was not beneficially entitled to the proceeds of the litigation if successful, was correct.
5.8 Against the background of that analysis of the test it is necessary to assess the finding of the trial judge that Mavior, on the facts of this case, could not be said to a nominal plaintiff.
6. Is Mavior a Nominal Plaintiff?
(ii) Likewise, Mavior has, it is said, no liabilities other than those arising out of these proceedings;
(iii) It is said that Mavior has no recent accounts or even management accounts;
(iv) Insofar as, at one stage in the correspondence which passed between the parties, it was asserted that certain fittings were owned by Mavior, it was subsequently asserted that Ms. Killilea was the beneficial owner of those fixtures and fittings;
(v) It is said that those fixtures and fittings were in fact transferred to Mavior by Mr. Dunne;
(vi) Attention was drawn to the fact that Mavior had two shareholders being Isle of Man companies called Zabingo Limited and Zinctala Limited with the latter of those having been dissolved in March of last year;
(vii) It is said that Mavior and is little more than a shell;
(viii) It is said that the minutes of various site meetings which were kept in relation to the works which are at the heart of these proceedings do not record any involvement on the part of Mavior personnel;
(ix) Attention is drawn to what is said to be the contract between Mavior and Zerko entered into, or purportedly entered into, by MJBCH Limited on behalf of Zerko which, it is said, is signed only by Mr. Dunne and individuals associated with him; and
(x) It is said that it is to be inferred from the papers before the Court that any funds made available to Mavior to conduct its business were lent to it by Ms. Killilea.
6.2 In reaching a conclusion on the question of whether Mavior was a nominal plaintiff Finlay Geoghegan J., at para.32 of her judgment, said the following:-
6.4 None of the indicia specified by counsel for Zerko could be used, even if fully correct, as a proper basis for suggesting that the beneficial ownership of the cause of action asserted rests in any party other than Mavior. That, for the reasons already analysed, is the true test. It is the test which was correctly applied by the trial judge.
6.5 The indicia relied on on behalf of Zerko seemed to be directed towards three propositions. First, that Mavior has no continuing existence outside the scope of these proceedings. Even if that be so such a finding would have no effect on the true beneficial entitlement to the proceeds of the cause of action asserted in these proceedings. Second, some of the indicia might tend, if true, to show that the affairs of Mavior were conducted in a way which suggests little more than a formal distinction between Mavior, on the one hand, and Mr. Dunne and/or Ms. Killilea, on the other. However, the affairs of many companies which have only one shareholder of substance are conducted in that way. Funds are provided to the company by way of loan. Assets may be transferred to the company. However, as long as the company concerned has a separate legal personality then any claims which arise out of its activities are claims which are beneficially held by the company and not by its principals. The conduct of a company's business in that way does not turn the company into a nominee of its principals. Any claims which such a company may have are claims which the company beneficially owns even though, of course, the principals may come to benefit should the claim be successfully pursued. Third, some of the indicia might be said to suggest that the ultimate winner in the event of these proceedings being pursued successfully will be Ms. Killilea. That may well be so. However, if it is so, it is because of independent obligations which the company owes to Ms. Killilea in her capacity as either someone to whom the company owes money or as a shareholder in the company. For the reasons already analysed such circumstances do not properly permit a company as to be properly characterised as a nominee plaintiff.
6.6 It follows that the trial judge was correct in concluding that Mavior could not be considered to be a nominal plaintiff for the purposes of the security for costs jurisprudence.
7.2 However, a party can only be described as a nominal plaintiff for those purposes where a third party or third parties have the beneficial interest in the cause of action asserted rather than having some independent entitlement, such as by virtue of being a shareholder in a company or a creditor of an individual or a company, from which relationship the relevant third party might hope to be paid monies independently owing on foot of such a separate relationship, in the event that the proceedings were successful.
7.3 While it might well be, as the trial judge noted, that Ms. Killilea will, to a greater or lesser extent, be an indirect beneficiary of a successful outcome to these proceedings, any such benefit would arise from her position as shareholder in and creditor of Mavior and not from her having any beneficial interest in Mavior's asserted cause of action. There is no evidence to suggest that Ms. Killilea is actually the beneficial owner of the cause of action asserted as opposed to being someone who might hope to benefit should Mavior come into funds as a result of the successful pursuit of this action.
7.4 It follows that the trial judge was correct in her assessment that Mavior cannot be regarded as a nominal plaintiff. It further follows that the trial judge was correct in concluding that security for costs must be refused. I would, therefore, dismiss the appeal and affirm the order of the trial judge.