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Cite as: [2006] IEHC 37

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Neutral Citation Number: [2006] IEHC 37

THE HIGH COURT

DUBLIN

Record No. 2001 12207P

EDMOND BOYLE AND ANN BOYLE

Applicant

and

McGILLOWAY

Respondent

MR. JUSTICE CLARKE DELIVERED HIS JUDGMENT AS FOLLOWS ON THURSDAY 19^TH JANUARY 2006

In this application the plaintiff seeks an order pursuant to Order 29 of the rules of superior courts requiring each of the defendants to furnish security for the costs "in respect of their counterclaim, their defence having been struck out by order of the court."

A preliminary issue arises. There are, in fact, two separate jurisdictions involved. In relation to individuals the jurisdiction under Order 29 arises where in individual is residing permanently out of the jurisdiction or in circumstances where it is likely that he or she will remain abroad for such a length of time that there is no reasonable probability of his or her being forthcoming when the defendant may be entitled to call upon him to pay costs: Blakeney v Defour 16 BEAV 292. It is in that context that the exclusions in Rules 2 and 8 arise.

In respect of companies, the jurisdiction arises under section 390 of the Companies Act 1963. Therefore, the position differs in respect of, on the one hand, the first named defendant, who is an individual, and on the other hand the second and third named defendants who are companies. Of equal importance is the unusual nature of this application, where a plaintiff seeks security against defendants in respect of a counterclaim. In that context it is necessary to note the current state of the proceedings. The proceedings were commenced by plenary summons dated 30^th July 2001. The claim is for specific performance in relation to an alleged contract for the sale of an apartment which, at paragraph four of the statement of claim, is stated to be with "the first defendant acting on his own behalf and on behalf of the second and third defendants". It would appear that it is contended that the second defendant was the owner of the lands and the third defendant was to build the relevant apartment.

On 15^th April 2002 the defendants filed a defence and counterclaim. Apart from alleging that any dispute had been settled the principal assertion in the defence was that the agreement to sell the apartment concerned was in consideration of the plaintiff giving to the defendants a contractual licence to enable car parking on neighbouring lands owned by the plaintiff, which car parking was intended to be in support of the apartment development being engaged in by the defendants.

It is alleged that the plaintiff reneged on this agreement. It was accepted in the defence that the plaintiff had paid IR£70,000 for the apartment. The counterclaim was based on the alleged breach of contract, to which I have referred, as a result of which it was further alleged that the defendants had to construct an underground car park at a loss of IR£667,703.

On 20^th October 2003, on appeal from the Master, Carroll J. directed the defendant to make discovery. On 29^th October 2004 the Master struck out the defence and counterclaim for failure to make such discovery. On 25^th April 2005, on appeal from the order of the Master, O'Leary J. varied the order of the Master by resorting the counterclaim, and restoring the defence on condition that the defendant repay within four weeks the Euro equivalent of the sum of IR£70,000, admitted to having been paid. In default, the order provided for the striking out of the defence. It is common case that the sum referred to was not paid and that the default provisions became operative.

It is, therefore, clear that the defence now stands struck out. No appeal was brought in respect of the order of O'Leary J and it is not open to me to seek to go behind that order at this stage. It is therefore the case that, in practice, the only substantive remaining proceedings are the counterclaim. It is therefore necessary to approach this application in the light of those somewhat unusual circumstances.

The first issue concerns the jurisdiction of the court to make an order for security for costs in respect of a counterclaiming defendant. In Usk District Residents Association Limited v The Environmental Protection Agency (unreported, 13^th January 2006, Supreme Court, Clarke J.) the judgment of the court indicated at paragraph 6.6 the following:

"While the section speaks of 'plaintiff' and 'defendant', it is clear that the intent of the section is that it should apply not only to 'an action' but also to 'other legal proceedings'. It is not contested that the section can apply to any form of proceeding; for example, in Village Residents Association Limited v An Bord Pleanála (2002) 4IR 321 Laffoy J. Made and order for security for costs in favour of a respondent as against an applicant for judicial review. Similarly, it seems to me that any person or body who is a necessary party to judicial review proceedings even though termed a 'notice party' rather than a 'respondent' comes within the scope of a 'defendant' for the purposes of section 390."

That judgment was delivered in the context of an application under section 390 of the Companies Act1963. It is clear that, in principle, the jurisdiction applies to any form of proceedings and I am satisfied that the jurisdiction, therefore, can apply in an appropriate case to a counterclaim for which purposes the counterclaimant is plaintiff and the plaintiff in the original the proceedings is defendant. I am also satisfied that a similar approach should be taken in respect of security sought from an individual counterclaimant.

Applying those general considerations to the facts of this case, it seems to me that no jurisdiction exists to order security for costs as against the first named defendant who, notwithstanding the fact that he is a counterclaimant, is an individual resident in the jurisdiction. In principle a jurisdiction exists under section 390 to order security as against the second and third named defendants.

In Leonard v Schofield (1936) IR715 a plaintiff resident outside of the jurisdiction sought a declaration with regard to a claimed prize in the sweepstakes. The defendant then applied for security for costs as the plaintiff was resident outside the jurisdiction. The plaintiff subsequently brought a cross motion for security for costs against the defendant. It was held by Johnston J. that the plaintiff's application was entirely unsustainable as the universal rule was that a plaintiff could not require a defendant to give security. Thus, in the circumstances, since both parties were out of the jurisdiction, the ordinary rule applied that the plaintiff must give security for the defendant's costs as it is the party who is responsible for the litigation, namely the plaintiff, who must give security for the costs of the other party who is outside the jurisdiction.

Johnston J. explained:

"That it would be almost a mockery of justice if a plaintiff, having brought a defendant before a court, could demand that he should be obliged to give security for costs of being allowed to defend himself against the proceedings. The rule extends to protect a defendant who has filed a counterclaim at any rate which arises out of the same transaction as the plaintiff's claim."

For the latter proposition Johnston J. relied onCompagnia Naviera Vascongada v R. & H. Hall Ltd40 I.L.T.R. 114. However, a consideration of that judgment makes clear that the application for security in that case was brought in the ordinary wayby the defendants against the plaintiff. The issue was as to whether the defendants had established, as they must, a prima facie defence. The substance of the defence put forward was a counterclaim. The decision is direct authority for the proposition that a prima facie defence sufficient for the purposes of a security for costs application may be found in a counterclaim where there is a sufficient connection between the claim and the counterclaim.

There will, however, as Johnson J. pointed out in Leonard be cases where the substance of the litigation will be a set of closely connected issues arising out of the same transaction whether in form partly a claim and partly a counterclaim. In those circumstances, the ordinary rule that a plaintiff cannot seek security for costs as against a defendant applies.

However, the situation is different here. In reality all that remains in this case is the counterclaim. It was not suggested at the hearing before me that any action would or could be taken to resurrect the defence. The only claim which remains likely to go to trial is therefore the counterclaim. In those circumstances I am satisfied that I should, in the unusual circumstances of this case, approach the issue on the ordinary basis applicable under section 390, but treating the defendants as plaintiffs in the counterclaim.

As noted in Usk at paragraph 6.2, the overall approach to security for costs to be applied under section 390 of the Companies Act 1963 was helpfully summarised by Morris P in Interfinance Group Limited –v- K.P.M.G. Pete Marwick, (unreported, 29^th June 1998, High Court, Morris P) in the following passage:

"In order to succeed in obtaining security for costs an initial onus rests upon the moving party to establish:

(a) that he has a prima facie defence to the plaintiff's claim, and.

(b) that the plaintiff will not be able to pay the moving party's costs if the moving party be successful.

(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 the 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."

In this case the affidavits make clear that there is a complete denial of the existence of the contract, which forms the basis of the counterclaim. In those circumstances a prima facie defence has been established. Furthermore, it is not seriously contested that the second and third named defendants would not be in a position to pay the plaintiff's costs if the plaintiff is successful in defending the counterclaims. That leads, therefore, to the question of the existence or otherwise of special circumstances.

As was pointed out by Morris P in Interfinance, the most common example of such special circumstances is a case where the inability to discharge costs flows from the wrong allegedly committed. Here no mention of that being the case was made in the initial affidavit filed in response by the defendants. That absence having been noted in a further affidavit filed by the moving party, the height of the defendant's case is to be found in a second replying affidavit, where he states that he first named plaintiff: "Is responsible in a large part for my current financial position as a result of his failure to honour his agreement. I say that this failure has caused massive financial loss." No figures are deposed to in support.

Given that bold assertion, the scale of the apparent liabilities of the defendants, and the absence of any sufficient detail, I am not satisfied that the defendants have met the test of establishing that their inability to pay costs, should they arise, flow from the alleged wrongdoing. There being no other special circumstances put forward, it seems to me that I should direct security for costs as against the second and third named defendants. As already indicated, I do not believe that there is any jurisdiction to make such an order as against the first named defendant.

(END OF JUDGMENT)

MR. BRADY:

May it please your Lordship. Since your judgment is a written judgment and obviously will be going into the record, there are just two clerical errors in it that occurred to me. About a third of the way down you referred to the fact that O'Leary J had reinstated the counterclaim on condition that monies were lodged. He reinstated the counterclaim unconditionally, it is about one-third of the way down.

MR. JUSTICE CLARKE:

I understand the point you make. He reinstated the defence.

MR. BRADY:

He reinstated the defence conditionally and thecondition was complied it.

MR. JUSTICE CLARKE:

Yes, that is fine.

MR. BRADY:

And a matter of wording towards the end of your judgment you said "It was not alleged that the defendants would not be in a position to pay costs", I think you used a double negative. I think it should be that 'It was not alleged that the defendants would be in a position to pay costs'.

MR. JUSTICE CLARKE:

Sorry, it would be?

MR. BRADY:

I think you use a double negative.

MR. JUSTICE CLARKE:

I did, but I think I was quoting the position adopted by the plaintiffs who didn't make any reference in their original replying affidavit, but I think you are correct in respect of the first matter and I will ensure when the corrected judgment comes out that it is in those words.

MR. BRADY:

I think you Lordship will reserve the costs.

MR. JUSTICE CLARKE:

I reserve the costs of this application.

COUNSEL FOR THE APPLICANT:

The basis that there is costs there is to some degree Mr. Brady has been successful and I suppose to some degree I have been.

MR. JUSTICE CLARKE:

Yes. I will reserve the costs to the trial judge and I will direct that the quantum of the costs that I have directed security to be given in respect of should be fixed by the Master in the ordinary way.

MR. BRADY:

I am obliged to your Lordship.

MR. JUSTICE CLARKE:

Thank you very much

THE HEARING THEN CONCLUDED

Approved: Clarke J.