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Cite as: [2015] IECA 40
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Judgment
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THE COURT OF APPEAL Neutral Citation Number: [2015] IECA 40
Appeal No. 296/2010 [Article 64 transfer] Irvine J. Hogan J. Mahon J. PAGNELL LIMITED (TRADING AS SNAP PRINTING) PLAINTIFF/APPELLANT AND
O.C.E. IRELAND LIMITED DEFENDANT/RESPONDENT JUDGMENT of Mr. Justice Gerard Hogan delivered on 3rd day of March 2015 1. Where a defendant asserts that it was entitled to terminate a fixed term service contract prior to the end of that term by reason of the existence of an implied term justifying such termination, is this sufficient to constitute a prima facie defence such that it would then be inappropriate to make an order providing for security for the defendant’s costs in accordance with s. 390 of the Companies Act 1963 (“the 1963 Act”)? That is in essence the principal issue which is presented on this appeal, although the more specific question of whether security should be ordered where the defendant has made a significant lodgement also arises for consideration. The issue arises in the following way. 2. The appellant, Pagnell Ltd. (“Pagnell”) had originally appealed to the Supreme Court against the decision of the High Court (Hedigan J.) of 11th May 2010 directing the provision of security pursuant to s. 390 of the 1963 Act. This appeal was, however, transferred to this Court by direction of the Chief Justice (with the concurrence of the other members of the Supreme Court) pursuant to Article 64 of the Constitution following the establishment of this Court on 29th October 2014. 3. Pagnell was the corporate vehicle whereby a printing service company (which traded as Snap Printing) provided certain printing services to the defendants company, O.C.E. Ireland Ltd. (“OCE”). In November 2000 OCE obtained a contract from Allied Irish Banks plc (“AIB”) whereby the former was to operate the latter’s central facilities printing (“CFP”) from AIB’s headquarters in Ballsbridge, Dublin 4. A month later OCE entered into a sub-contract with Pagnell whereby the latter company would operate the CFP from Ballsbridge for a 5 year period. Under this arrangement Pagnell invoiced OCE for services carried out on a monthly period and OCE billed AIB in turn. 4. In August 2003 OCE terminated the contract with the result that Pagnell lost the effective benefit of the AIB work. In November 2004 Pagnell commenced these proceedings seeking damages for breach of contract as a result of what it contended was the premature and unlawful termination of the contract. A statement of claim was delivered on 15th December 2004. 5. It is common case that the parties made a serious endeavour to settle the case in May 2005. When those negotiations floundered OCE delivered a defence on 9th June 2005. OCE then amended its defence to make an open lodgement of €50,000. 6. In 2006 Pagnell’s principal, Mr. McGovern, fell ill. On medical advice he decided to sell the Snap Printing franchise along with the principal assets of the company and goodwill. Most of the net proceeds were used to discharge Pagnell’s bank borrowings. Counsel for Pagnell, Mr. Banim S.C., did not dispute but that Pagnell is effectively being kept alive for the purpose of completing this present litigation which remains outstanding. 7. In the wake of the sale of the underlying assets, OCE’s solicitors first raised the question of security for costs in April 2008. Correspondence between the parties subsequently ensued. Finally, by notice of motion issued on the 18th November 2009 OCE sought an order for security under s. 390 of the 1963 Act. 8. It was not in dispute but that Pagnell would not be in a position to pay the costs of OCE were the latter to prove successful in its defence. The application was, however, opposed by Pagnell on the basis that OCE had not, in fact, established that it had a bona fide defence. Specifically, it contended that the fact that the latter had elected to make a substantial lodgement was inconsistent with the existence of such a bona fide defence. The judgment of the High Court
Section 390 of the 1963 Act
(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.” Whether the defendant has established a prima facie defence
If such evidence is adduced, then the defendant is entitled to have the Court determine whether or not it has established a prima facie defence upon an assumption that such evidence will be accepted at trial. Further, the defendant must establish an arguable legal basis for the inferences or conclusions which it submits the Court may arrive at based upon such evidence.” 16. It follows, therefore, that it is not sufficient for a defendant merely to assert a defence. Recalling again the underlying objective of the section - namely, that defendants should not have to face claims made by limited liability companies who would have insufficient assets to meet an order for costs - a defendant must show that there are reasonable prospects that this is likely to occur unless security is ordered. In this respect and in this particular statutory context, it should be stressed that it is for the defendant to establish a prima facie defence. Contrary to what Hedigan J. may have suggested in his judgment, the fact that the plaintiff has taken no steps to apply to have the defence struck out as unsustainable is not in itself a relevant factor. After all, the prima facie defence requirement imposes a higher requirement on a defendant than that required, for example, to establish a defence to an application for summary judgment where it is merely necessary to show that the defence is simply arguable: see, e.g., Danske Bank v. Durcan New Homes [2010] IESC 22. 17. It is against this general background that the question of a prima facie case requires to be considered. 18. While the defence as delivered formally denies that there ever was an agreement or that, if there was, that it was terminated by it, so far as this appeal is concerned three substantive defences are advanced by OCE. First, it is said that there was an implied term which would justify the advance termination of the contract in August 2003. Second, it was said that Pagnell was guilty of a fundamental breach of contract by reason of the manner in which the CFP services were provided by it. Third, it was contended that Pagnell failed adequately to mitigate its loss in the aftermath of the termination of the contract. These arguments can be considered in turn. Was there an in implied term justifying the termination?
21. It is clear that a term will only be implied into a commercial agreement of this kind where it is necessary - and not merely reasonable - to do so and the term must also be necessary to give business efficacy to the agreement: see Meridian Communications Ltd. v. Eircell Ltd. [2002] 1 I.R. 17, 41, per O’Higgins J. Having regard to the fixed term nature of this commercial supply of services contract, it seems unlikely that a term providing for reasonable notice would be implied. This is especially so, as given that the time period agreed (60 months) was by no means excessively long for contracts of this kind, it might be difficult to say that the implication of such a term was necessary to give the contract the necessary business efficacy. 22. Even if such a term could be implied, it would be necessary to have details of the extent of the notice which OCE contends it afforded to Pagnell. In Webprint Concepts one of the defendants seeking security for costs contended that it had a prima facie defence of force majeure in circumstances where the contract had been terminated without the plaintiff having been given the two months notice to which it was contractually entitled. Finlay Geoghegan J. held, applying the Tribune Newspapers test, that this particular defendant had not established a prima facie defence of force majeure because:
24. So far as the customer satisfaction issue is concerned, there would doubtless be an implied term to the effect that Pagnell would discharge its contractual obligations in a satisfactory way. Of course, if it failed in this obligation in some fundamental or highly material fashion, this would probably have amounted to a fundamental breach of contract in its own right which would have entitled OCE to repudiate the contract, irrespective of the existence of any specific contractual term, whether express or implied. 25. Here again, however, OCE’s claims in this regard fail the Tribune Newspapers test. No objective evidence has been advanced to substantiate the contentions that AIB were dissatisfied with Pagnell’s performance or that AIB terminated OCE’s contract by reason of these alleged shortcomings. In a further affidavit sworn on 4th May 2010 Mr. Lowe claimed that he was informed by AIB “that if the defendant did not terminate its contract with the plaintiff that AIB plc would end its contract with the defendant” 26. To that end Mr. Lowe exhibited a letter from OCE to Pagnell dated 7th March 2003 which raised a number of issues. The first complaint related to the attitude of Pagnell’s staff which, it was said, was clearly affecting the willingness of Bank staff to approach the copying centre to have work done. OCE insisted that “a full change in staff be made”. The second major complaint related to colour pricing which was said to have been uncompetitive. OCE asked for a “significant” reduction in this pricing. The write concluded by suggesting that a service level agreement was necessary in order to measure “OCE’s requirements to provide AIB Central Facility Management with an excellent service.” 27. This single of item of correspondence certainly shows that OCE had raised important issues with Pagnell, particularly in respect of one important aspect of staff performance. Yet taken on its own it cannot be said that it comes close to demonstrating the existence of prima facie defence that there had been a fundamental breach of contract on the part of Pagnell. If there had been such a deficiency of performance on the part of Pagnell or if AIB had threatened to terminate the contract with OCE unless Pagnell was not itself removed as sub-contractors one would expect that such would have attested by further correspondence after March 2003 or, at the very least, by some other documentary records which might tend to bear out these contentions. 28. In these circumstances, it cannot be said that OCE has furnished a prima facie defence to these claims by reason of the existence of some implied term. Fundamental breach of contract 30. Putting this another way, OCE has not even pleaded that Pagnell was guilty of a fundamental breach of contract and, even if it had, the objective evidence adduced falls a good way short of showing that it could substantiate this claim.It follows, therefore, that OCE has not advanced a prima facie defence so far as the fundamental breach of contract claim is concerned. The mitigation of loss argument 32. There are, it is true, exceptional cases where the failure to mitigate has been so gross that no award of damages at all would be justified, any breach of contract notwithstanding. An example here is McCord v. Electricity Supply Board [1980] I.L.R.M. 153 where the plaintiff’s failure to sign a non-incriminating document saying that he had not interfered with the electricity meter was held by the Supreme Court to amount to such a gross failure to mitigate loss as to disentitle him to any damages, even though the Court also held that the disconnection of the plaintiff’s electricity supply was itself a breach of contract. 33. It may be that in special and unusual cases such as McCord the existence of such extensive plea of failure to mitigate might have amounted to a prima facie defence. In the majority of cases, however, the failure to mitigate will simply go to the issue of damages and could not properly be regarded as a prima facie defence in its own right. 34. The present case is no different. OCE have certainly asserted that Pagnell failed to mitigate its loss. It may well be that at the trial of the action this can be established such that the level of damages otherwise payable in respect of any finding of breach of contract that might be made might be reduced or abated. As things stand, however, OCE have adduced no evidence to show, for example, that there was another printing contract immediately available to Pagnell in August 2003 to which it might readily have switched after the termination of the contract, thus avoiding any loss whatsoever, even if a breach of contract were to be established. 35. In this respect, therefore, this plea fails the Tribune Newspapers test articulated by Finlay Geoghegan J., namely, the obligation “objectively [to] demonstrate the existence of evidence upon which he will rely to establish those facts.” It follows, therefore, that as the defendant has not established a prima facie defence, it would not be appropriate to direct the making of an order for security for costs. The making of the lodgement 37. The present case cannot, however, be realistically viewed in this manner. While it is true that the present claim is valued by the plaintiff at over €400,000 and the lodgement is but a fraction of that claim, the sum itself so lodged is nevertheless a significant one, even if the security subsequently fixed by Hedigan J. at €140,000 is also a very large one. It is also significant that a lodgement of this nature was made well in advance of any suggestion that an application for security for costs might even arise. This is surely a factor to which the court can properly have regard in the particular circumstances of this case, since it suggests that the defendant itself had thereby tacitly acknowledged that the plaintiff’s claim is one of substance ever before the question of security for costs actually arose. 38. This matter was considered by the English Court of Appeal in Parkinson & Co. v. Triplan Ltd. [1973] 1 Q.B. 609, a case where the defendant made an open offer in correspondence but later sought security for costs. While the exact sum tendered was not disclosed in the judgment - as an arbitration was pending - it appears to have been a significant sum. The Court certainly saw the existence of such a lodgement as a highly relevant factor. 39. Lord Denning M.R. first helpfully set out some of the governing considerations regarding the exercise of discretion in matters of this nature. These included ([1973] 1 Q.B. 609, 626):
42. In my view, therefore, the very fact that the defendant has paid a substantial sum into court by way of open lodgement in the circumstances in which it did in this case well in advance of any subsequent application in respect of security for costs can only be regarded as an acknowledgment that the plaintiff’s case has significant merits. In these circumstances, this in itself is a reason not to order security for costs under s. 390 of the 1963 Act. Conclusions 44. The existence of a substantial open lodgement made well in advance of the circumstances giving rise to an application for security for costs can only be regarded as a tacit admission that the plaintiff’s claim is significant and meritorious. The making of the lodgement in the present case amounts to special circumstances such as would justify this Court in refusing to make an order for security pursuant to s. 390 of the 1963 Act. 45. It is for these reasons, therefore, that I would allow the appeal and set aside the order directing that Pagnell furnish security pursuant to s. 390 of the 1963 Act. |
