1. This
is an application by the Defendant for an Order for security for costs pursuant
to Section 390 of the Companies Act 1963. Section 390 provides:-
2. The
original notice of Motion was directed to all three Plaintiffs but was pursued
only against the first two Plaintiffs as the third Plaintiff is an unlimited
company and so outside the ambit of the Section.
3. It
is acknowledged on behalf of the first two Plaintiffs that they are insolvent.
However the power to require security for costs to be given is discretionary to
be exercised having regard to all the relevant circumstances of the case (
Peppard
& Co -v- Bogoff
[1962] IR 180). The manner in which the discretion is to be exercised and how
the burden of proof is to be distributed has been laid down and discussed in a
number of cases among which are
Jack
O’Toole Limited -v- McKeon Kelly Association
[1986] IR 287,
Bula
Limited (in receivership
)
-v-
Tara Mines Limited
(No. 3) [1987] IR 494,
Comhlucht
Paipear Riomhaireachta Teo. -v-
Udaras
na Gaeltachta
[1991] IR 320, and
Lismore
Homes Limited (in receivership) -v- Bank of Ireland Finance Limited
[1999] 1 IR 501.
6. The
first Plaintiff was formerly in the business of growing christmas trees. The
second and third Plaintiffs are shareholders and guarantors of the first
Plaintiff.
7. The
first Plaintiff had a policy of insurance with the Defendant (policy
990F642207) dated the 15th of December, 1989, extended and renewed on the 25th
of February, 1991 for one year from the 28th of February, 1991, to indemnify
against loss or damage occurring to the first Plaintiff in growing noble fir
seedlings on certain sites. Under the contract, property damage insurance is
limited to the value of the property in the schedule. The value of the trees
in the schedule to the original policy is shown as
8. There
is also a Section which provides for an ongoing basis of valuation. There was
a further agreement under the policy to indemnify the first Plaintiff for
additional expenditure necessarily or reasonably incurred following such loss
or damage limited to £25,000. Both the Plaintiffs and the Defendant
exhibited incomplete copies of the policy in the grounding Affidavit and
replying Affidavit. In the course of the hearing the original policy taken
from the files of the Defendant was exhibited.
9. In
March 1991 the first seedlings at three sites, Pilgrim Hill, Loughill and
Knocknadiha suffered damage by windburn which was one of the risks covered
under the policy. It was not discovered until the end of May. The first
Plaintiff made a claim and the insurance investigation commenced. The
Defendants did not pay out on the policy at that time. Mr. Patrick F. Roche
was appointed receiver and manager of the first Plaintiff by deed of
appointment dated 16th of November, 1992 under debenture dated 12th October,
1989 made between the first Plaintiff and the Bank of Ireland. He was also
appointed receiver of the second Plaintiff.
10. The
provisions of the policy required the first Plaintiff and the Defendant to
submit to arbitration any difference between them. Clause six of the claims
conditions provides:-
11. By
instrument in writing (date unknown) the receiver as agent for the first
Plaintiff and the Defendant agreed to submit the first Plaintiff’s claim
under the policy to arbitration with Mr. Peter Maguire SC as arbitrator . The
referral provided:-
12. It
was also provided under clause (h) that the Defendant was not estopped in law
from raising fraud in the points of defence.
13. Points
of claim were delivered on 12th of July, 1993. The first Plaintiff claimed
damages for breach of contract.
14. Points
of defence were delivered on 24th of August, 1993. The Defendant admitted the
contract for insurance. It did not allege fraud.
15. There
was a hearing lasting 14 days between the 18th of September, 1993 and the 22nd
of November, 1993.
16. In
the arbitration the first Plaintiff claimed for damage to the trees and also
for consequential loss under the policy including an additional claim for
damages for an extra years loss on the basis of alleged delay on the part of
the Defendant to grant the first Plaintiff permission to replant at two sites,
Pilgrim Hill and Knocknadiha. The amounts claimed in the points of claim were
for damage to trees £494,971.62 and consequential loss of £25,000.
The additional expenditure claim amounted to £90,210.20 but the limit of
the indemnity was £25,000. At the arbitration the amount of the claim for
damage to trees was increased to £553,565.18.
17. In
his award dated 6th December, 1993 the arbitrator held that the policy of
insurance was never repudiated by the Defendant. The claim for an extra years
loss on the basis of alleged delay was rejected by the arbitrator. The amount
of the award was £352,746.64 for damage to trees and the increased costs
of working (maximum recovery) £25,000. Total £377,746.68.
18. In
his award the arbitrator stated that it was expressly agreed by Counsel on
behalf of both parties that the Respondent never at any time rejected the claim.
19. In
relation to fraud he said the only use of the word fraud in the documentation
was at paragraph (h) in the submission. He then went on to determine that the
Respondent wholly failed to establish any fraud or fraudulent behaviour on the
part of the claimant or any of its personnel and rejected the entire case as
made on behalf of the Respondents of fraud on behalf of the claimants.
20. It
is recited in the award that it was accepted and agreed by Counsel on behalf of
the first Defendant that no question of the payment of interest on the amount
of the award therein provided for prior to the date of the award arose or was
recoverable. The arbitrator awarded costs to the first Plaintiff and also
interest in accordance with Section 34 of the Arbitration Act 1954 on the sums
found payable to the first Plaintiff as from the date of the award (the 6th of
December, 1993).
22. On
the 2nd of December, 1996 the three Plaintiffs initiated an action against the
Defendant (Record No. 1996/10602P) claiming damages for breach of contract,
negligence and breach of duty of the Defendant. It is in respect of this
action that this application is made.
23. On
the 30th of May, 1997 the receiver brought separate proceedings (Record No.
1997/6416P) in the name of the first Plaintiff against the Defendant claiming
damages for breach of contract, negligence, breach of duty, interference with
economic interest and for the tort of bad faith. The particulars of loss and
damage in the receivers case as of the 31st of March, 1999 amount to
£2,010,300. A statement of claim was delivered on the 21st of January,
1999 and a defence was delivered on the 12th of November, 1999. The claim is
basically the claim made on behalf of the first Plaintiff in this action.
24. An
order for security for costs was made on the 10th of April, 2000 against the
first Plaintiff in the receiver’s action. (No 1997/16416P)
25. In
the present action (1996/10602P) three statements of claim were delivered dated
30th of June 1998, 8th of July 1998 and 20th of October 1998. Neither of the
latter two are expressed to be an amendment of a previous statement of claim.
Following various requests for particulars, the defence was delivered on the
12th of November, 1999.
33. The
basis of the action against the Defendant is summarised in paragraph 17 of the
replying Affidavit of Mr. Eamon Barron who is a director of the Plaintiff
companies. In it he says:-
34. In
the third statement of claim dated the 20th of October, 1998 the three
Plaintiffs claim that at the time of making the contract of insurance and
implementing and working the policy the Defendant owed a duty of care to the
three Plaintiffs.
36. The
onus is on the first two Plaintiffs to establish that there are reasonable
circumstances which would require the Court to exercise its discretion not to
order security for costs under Section 390 of the Companies Act 1963.
37. The
Defendant as moving party claimed there are no special circumstances entitling
the Plaintiff to a refusal to make an Order under Section 390 for the following
reasons:-
38. In
claiming that special circumstances did exist entitling them to a refusal of an
Order for security of costs it was submitted on behalf of the first two
Plaintiffs:-
39. In
reply the Defendant said there was no delay and gave the following dates (which
were not contested) of the course of events after delivery of the third
statement of claim on the 20th of October, 1998.
47. The
Defendant submitted that an allegation of an unfounded or over stated claim is
not the equivalent of fraud.
48. The
first thing I have to decide is whether the first and second Plaintiffs have a
stateable case. I cannot ignore that all matters touching or concerning the
Defendant’s liability to indemnify the first Plaintiff on foot of the
policy of insurance were referred to arbitration for final determination to be
binding on the parties. The Plaintiffs say they are claiming for consequential
losses not the actual losses covered by the policy and seek to do this by way
of a claim for damages for breach of contract and breach of duty of care. This
amounts to a claim for damages for delay in paying damages which is not a claim
known to the law.
49. Damages
arising from breach of contract are limited to what was reasonably foreseeable
at the time for making the contract and the liability of the Defendant under
the contract was limited to the value of the trees damaged plus £25,000
maximum for additional expense. In a contract of insurance (which is not a
contract for service) it seems to me that tortious duty is so inconsistent with
such a contract as to be excluded.
50. While
I accept that it is neither necessary or proper to evaluate the prospect of
success of a Plaintiffs case, it is necessary that the Plaintiffs must
establish that they do have a stateable/arguable/
prima
facie
case. In order to evaluate this it is necessary that I should form a view on
questions of law involved. I do so not to evaluate the weakness of the
Plaintiff’s case but to see if they have a stateable case at all.
51. For
the reasons stated above I am of opinion that the first Plaintiff does not have
a stateable case in either contract or tort. The second Plaintiff had no
contractual relationship with the Defendant. And if the first Plaintiff has no
stateable case in tort than neither has the second Plaintiff.
52. The
Plaintiffs therefore have not discharged the onus of proving that they have a
stateable case.
53. In
case I am wrong in holding that there is no stateable case however weak against
the Defendant, then I consider that the claim that the first two Plaintiffs
would not have become insolvent if the Defendant had paid monies under the
policy before June 1992 does not outweigh the special circumstances favouring
the Defendant. The allegation of a non-existent plea of fraud and the
allegation of repudiation which never happened, do not count for anything.
54. The
special circumstances favouring the Defendant are that they have already gone
through arbitration on the contract and paid damages and costs; that the
Plaintiffs are alleging a claim unknown to law; that these are proceedings
brought by two companies in receivership with no indication whether the
receiver consents or not. The case of
Wymes
-v- Crowley
does not apply as that was a case where the directors of the company in
receivership were making a claim against the receiver. Also the claim by the
first Plaintiff is essentially a duplication of a claim made by the receiver on
behalf of the first Plaintiff. The delay alleged by the Plaintiffs is not such
as would disentitle the Defendant to the order sought. The Plaintiffs were the
ones who delayed in delivering three statements of claim and delayed in
replying to notices for particulars.
55. The
Plaintiffs therefore have not discharged the onus of proving special
circumstances which would entitle them to an Order refusing the Order for
security for costs. In the exercise of my discretion I order security for
costs by the first and second Plaintiffs under Section 390 of the Companies Act
1963 and stay all proceedings until such security is given.