High Court of Ireland Decisions

1. This judgment deals with two applications for orders that the Plaintiff furnish security for costs: one brought on behalf of the first and second named Defendants and the other brought on behalf of the third named Defendant.

I have outlined the factual background to these proceedings in the judgment I delivered on 8 August 1997 on the Plaintiff's application for interlocutory injunctions against the Defendants and the fourth named Defendant's application for an interlocutory injunction against the Plaintiff.

The Plaintiff being a limited company incorporated in accordance with the laws of Northern Ireland, security for costs is sought not pursuant to the provisions of s 390 of the Companies Act 1963 but under O 29 of the Rules of the Superior Courts 1986. However, it is common case that, in broad terms, the same principles govern the determination whether a Plaintiff should be ordered to furnish security for a Defendant's costs under s 390 and under O 29. The following is a brief summary of the relevant principles, which are well settled, in so far as they are relevant for present purposes:
 
(a) A Defendant who establishes prima facie compliance with the requirements of the relevant provision has a prima facie entitlement to an order for security for costs. In the case of an application under s 390, where it is established or conceded that the Plaintiff limited company would be unable to meet the costs of the Defendant if successful in his defence, if the Plaintiff company seeks to avoid an order for security for costs it must, as a matter of onus of proof, establish to the satisfaction of the court the special circumstances which would justify the refusal of the order (per Finlay CJ in Jack O'Toole Ltd v MacEoin Kelly Associates [1986] IR 277 at p 283). In the case of an application under O 29, a Defendant who establishes a prima facie defence to a claim made by a Plaintiff residing outside the jurisdiction of the court has a prima facie right to an order for security for costs, as was held by the Supreme Court in Fares v Wiley [1994] 2 IR 379.
 
(b) The prima facie right is not an absolute one and the court has a discretion to be exercised according to the facts of each particular case.
 
(c) Amongst the circumstances which the court may have regard to in the exercise of its discretion is whether the Plaintiff has made out a prima facie case that his or its financial state flows from the wrong alleged to have been committed by the Defendant. In the case of a Plaintiff attempting to resist an application under O 29, this will arise if the Plaintiff pleads inability to give security. In the case of an application under s 390, it is not sufficient 'to make a mere bald statement of fact that the insolvency of the company has been caused by the wrong the subject matter of the claim' (per Finlay CJ in the Jack O'Toole Ltd case at p 284).

These applications are, as it were, hybrids, in that the Plaintiff is incorporated outside the jurisdiction but is a limited company. The decision of Keane J in Pitt v Bolger [1996] 1 IR 108; [1996] 2 ILRM 68 to the effect that the undoubted discretion provided for in O 29 should never be exercised by an Irish court so as to order security to be given by an individual Plaintiff who is a national of and resident in another member state of the European Union, which is a party to the Brussels Convention, save, possibly where there is cogent evidence of substantial difficulty in enforcing a judgment in that other member state, is not of relevance, given that the Plaintiff is a limited company and not an individual.

It was acknowledged by Mr Walsh SC, on behalf of the Plaintiff, that, on the evidence, there is reason to believe that the Plaintiff would be unable to pay the costs of the first, second and third named Defendants if they are successful in their defence. In my view, this was a proper concession to make, as, on the evidence, one could not reach any other conclusion. Mr Walsh submitted that, as a certain admission had been made by the first named Defendant on affidavit in relation to the use of information which she acknowledged was confidential, having regard to that admission, the Plaintiff must succeed in its claim to some extent. However, I did not understand Mr Walsh to contend that these Defendants have or any of them has failed to establish a prima facie defence upon the merits, but rather that the admission and its consequence was a circumstance which the court should have regard to in exercising its discretion. In any event, I am satisfied that each of these Defendants has established a prima facie defence upon the merits as required by O 29, r 3. Therefore, I am satisfied that the onus rests on the Plaintiff to establish prima facie a special circumstance or special circumstances which would induce the court to exercise its discretion in favour of the Plaintiff.

On behalf of the Plaintiff, Mr Walsh submitted that the court should have regard to the following factors, which he contended constitute special circumstances on account of which the court should not make orders for security for costs:
 
(1) The position of the Plaintiff is analogous to the position of the Plaintiff company in Peppard & Co Ltd v Bogoff [1962] IR 80. There, Kingsmill-Moore J found that a special circumstance did exist, because the financial position of the Plaintiff company might, if it substantiated its case, be due to the very actions of the Defendant for which they were being sued. Here, it was contended, the potential of the Plaintiff for enhancement of its financial position and future growth and prosperity has been hindered by wrongdoing on the part of these Defendants.
 
(2) The Plaintiff, being an exploration company, has intangible assets such as information and expertise in relation to oil and gas exploration and a licence to prospect in Northern Ireland, which are not properly reflected on its balance sheet but which, nonetheless, it was contended should be taken into account, on the same basis as it was contended in Bula Ltd v Tara Mines Ltd (No 3) [1987] IR 494 that the ore body owned by the Plaintiff in that case should be taken into account.
 
(3) The first named Defendant, by her own admission, referred to data which was confidential to the Plaintiff and should not have been referred to in the revised application for a prospecting licence to the fourth named Defendant in February of 1996. The conduct of an Applicant for security for costs is a factor to be taken into account, as was held by Costello J, as he then was, in Irish Commercial Society Ltd v Plunkett [1988] IR 1; [1989] ILRM 461. The admitted conduct of the first named Defendant should disentitle these Defendants to security for costs.
 
(4) The Plaintiff's action would be stifled and the Plaintiff would be deprived of access to the courts and to justice if orders for security for costs were made. Mr Walsh relied on the following passage from the judgment of McCarthy J in SEE Co Ltd v Public Lighting Services Ltd [1987] ILRM 255 at p 258:

The argument that the section of the Companies Act was mandatory was rejected in Peppard & Co Ltd v Bogoff [1962] LR 180. The consequent discretionary nature of the order is emphasised when read in the light of the constitutional right of access to the courts . . .

Mr Walsh submitted that the statement in the judgment of Keane J in Lismore Homes Ltd v Bank of Ireland Finance Ltd [1992] 2 IR 57 at p 63; [1992] ILRM 798 at p 803 to the effect that to refrain from granting an order for security, save in exceptional circumstances, simply because it might have the effect of stifling a Plaintiff's action would be to render s 390 nugatory, is out of line with other authorities and, in particular, Porzelack KG v Porzelack (UK) Ltd [1987] 1 WLR 420.

The factors which Mr Walsh submitted the court should have regard to, in my view, do not, either individually or in combination, make out a prima facie case of special circumstances such as to justify the refusal of these Defendants' applications for security for costs. Dealing with each of the factors in turn, my observations are as follows:
 
(1) The Plaintiff has not made out a prima facie case that its current financial position flows from the Defendants' alleged wrongdoing. The Plaintiff has put in evidence its audited accounts for the year ended 31 October 1996 which clearly established that the Plaintiff did not trade at all in the years commencing respectively on 1 November 1994 and 1 November 1995 and that in those years the Plaintiff generated no turnover and that the expenses incurred in the main related to professional fees. The Plaintiff was in substantially the same financial state prior to the commission of the acts on the part of these Defendants complained of as it is now. Accordingly, the Plaintiff has not established that it comes within the ambit of the special circumstance recognised in Peppard & Co Ltd v Bogoff and subsequent cases. The Plaintiff's attempt to extend the principle recognised in those cases, in my view, is unsustainable because it is based on an assumption that, but for the commission of the acts on the part of the Defendants of which the Plaintiff complains, the Plaintiff would have been involved in some exploration venture which would have proved to be a success. I accept the submission made by Mr Callanan, on behalf of the first and second named Defendants, that this proposition is far too speculative, far-fetched and remote to be tenable.
 
(2) The asset in controversy in the Bula case, the ore body, was a tangible asset which it was acknowledged was valuable, although its precise value was in controversy. Nonetheless, it is clear from the judgment of Murphy J in that case that its existence was not a factor to which he gave any weight in determining whether to make an order under s 390. There is even less basis for giving weight to the intangible assets which Mr Walsh contends for because there is no evidence that these intangible assets could ever be converted into an asset of substance which could be realised to meet an award for costs made against the Plaintiff.
 
(3) In Comhlucht Paipear Riomhaireachta Teo v Udaras Na Gaeltachta [1990] 1 IR 320; [1990] ILRM 266, McCarthy J, delivering judgment in the Supreme Court, endorsed the following passage from the judgment of Murphy J in the Bula case ([1987] IR 494 at 50):

At the same time I stated and I repeat now that it is no part of my function as I see it to forecast the outcome of the litigation or to prejudge the facts or express an interim view on the questions of law involved. On behalf of the Defendants it was argued that the weakness of the Plaintiffs' case is a factor to which regard should be had. Whilst it must be established that the Plaintiffs do have an arguable case it does not seem to me that it is either necessary or proper to evaluate the prospects of success.

Other than to say that I do not construe the admission made by the first named Defendant in paragraph 103 of her affidavit sworn on 16 June 1997, which she prefaced by the statement that she was drawing the matter to the attention of the court 'for the purpose of avoiding any further misunderstanding', as an admission of liability on the part of the first named Defendant or any other Defendant so as to entitle the Plaintiff to the relief claimed by the Plaintiff in these proceedings, I do not think it would be proper for me to express any view as to whether by that admission the first named Defendant has admitted to conduct so reprehensible that it will have a bearing on the ultimate outcome of these proceedings.
 
(4) There is no evidence that the consequence of an order for security for costs would be to stifle these proceedings. As I outlined in my judgment of 8 August 1997, James F Kenny, directly and indirectly through Ulster Natural Resources Ltd, is the beneficial owner of the majority of the equity of the Plaintiff and the first named Defendant indirectly through Ulster Natural Resources Ltd is the beneficial owner of the minority stake. In an affidavit sworn by her on 28 July 1997, the first named Defendant averred that Mr Kenny, on whose sole initiative the Plaintiff has instituted the present proceedings, is a person of some substance, while the Plaintiff is effectively devoid of any assets from which to satisfy an order for costs. This averment has not been controverted.

Accordingly, there will be orders that the Plaintiff furnish security for the costs of the first and second named Defendants and the costs of the third named Defendant.