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3V Benelux BV v Safecharge Card Services ltd. [2019] IEHC 675 (16 October 2019)
URL: http://www.bailii.org/ie/cases/IEHC/2019/2019_IEHC_675.html
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[2019] IEHC 675
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THE HIGH COURT
[2019] IEHC 675
[2017 No. 4639 P.]
BETWEEN
3V BENELUX BV
PLAINTIFF
AND
SAFECHARGE CARD SERVICES LIMITED
DEFENDANT
JUDGMENT of Mr. Justice Allen delivered on the 16th day of October, 2019
Introduction
1. This is an application on behalf of the defendant for an order directing the plaintiff to
provide security for the defendant’s costs of an action for damages for breach of contract.
2. It is resisted on the grounds (1) that the defendant has no prima facie defence, (2) that
the plaintiff will be able to pay the defendant’s costs in what is said to be the highly
unlikely event that the action should fail and, (3) that the cause of any risk, if any, that
the plaintiff might not be able to pay the costs is attributable to the defendant’s breach of
contract.
3. The case is quite complicated.
Overview
4. The defendant is an Irish registered company which carries on the business of developing
financial products that allow prepaid debit cards to be issued to customers. The plaintiff
is a company registered in the Netherlands which distributes prepaid cards in the Benelux
countries through its retail networks.
5. By a services agreement in writing dated 1st October, 2014, each of the plaintiff and the
defendant agreed to provide to the other the services therein defined for the term of the
agreement. In very broad terms, the defendant was to supply the cards and the plaintiff
to distribute them. The revenue generated by the sale and use of the cards was to be
shared as to 75% to the plaintiff and 25% to the defendant. The term of the services
agreement was five years from 1st October, 2014.
6. The operation of the agreement between the parties depended on the involvement of a
bank. The prepaid cards each had a credit card number, the first six digits of which
identified the issuing bank. Those six digits are called a Bank Identification Number
(“BIN”). The services to be provided by the issuing bank are referred to as BIN
sponsoring services.
7. The plaintiff and the defendant had been doing business together since 2009. Before the
agreement the subject of these proceedings, the relationship between the parties was
governed by a tripartite services agreement dated 28th January, 2010, between the
plaintiff and the defendant and ABN Amro Bank NV (“ABN Amro”), under which the BIN
sponsoring services were provided by ABN Amro. That earlier agreement was for a term
of three years and at the expiration of the term, ABN Amro gave notice of its intention to
discontinue providing BIN sponsoring services. While ABN Amro declined to be party to
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the 2014 agreement, it continued to provide BIN services while the plaintiff and the
defendant tried to find an alternative supplier.
8. Like everything else in this case, there is an issue as to who was responsible for securing
an alternative BIN service provider. Moreover, there is an issue as to whether an
alternative BIN services provider was available.
9. The services agreement provided that it would apply to an Initial Product called a Virtual
Visa Voucher, referred to in the agreement as Product A, and such additional products as
might be set out from time to time in additional Product Schedules, which were in turn
defined as schedules to be agreed and added describing a specific product and detailing
the process and terms and conditions for sale to and use by customers, and the services
to be provided by each of the plaintiff and the defendant in relation to the product, and
the charges applicable to that particular product.
10. A second product, Product B, was agreed and implemented. The plaintiff’s case is that a
third product, Product C, to be called Pay.com, was agreed and was to have been
launched in January, 2016 but never was. The plaintiff’s case is that this product would
not have required a BIN sponsor, but I understand it to be common case it would have
required payment processing services from a third-party provider.
11. The two products which were launched could be purchased more or less anonymously and
could be used to draw cash from ATMs, as well as to pay for goods and services. They
were subject to a variety of limits as to the frequency and amount by which the cards
could be topped up.
12. The evidence on this application does not disclose the reason, or the reason, if any, given,
as to why ABN Amro decided to cease providing BIN services but on 5th February, 2013,
the EU Commission had announced that it had adopted two proposals for reinforcing the
EU’s existing rules on anti-money laundering, specifically by lowering the threshold below
which cards could be used anonymously and strengthening the rules on customer due
diligence by requiring the collection and vouching of information.
13. On 20th May, 2015, the European Parliament and Council made Directive (EU) 2015/849,
the Fourth Anti-Money Laundering Directive. Article 67 of the Directive required Member
States to bring into force such laws, regulations and administrative provisions as were
required to give effect to it in national law by 26th June, 2017.
14. The Directive did what the Commission had two years previously said that it intended to
do, namely, lowered the threshold below which more or less anonymous cards could be
provided and increased the requirements of customer due diligence, specifically, the
verification of information provided to financial services providers.
15. It is common case (without necessarily being agreed) that the products as they stood at
the time of the services agreement were perfectly legal but that they would not meet the
requirements of the national legislation required to transpose the Directive.
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16. Similarly, it is common case that some modification of the products would be necessary in
advance of the implementation of the Directive in the law of the Netherlands, although
there is the difference of opinion between the parties’ experts as to when that would need
to be done: whether, as contended for by the defendant’s expert, well in advance of the
prescribed date for implementation of the Directive, or, as contended for by the plaintiff’s
expert, in advance of the date - which might be and in the event was, long after the date
prescribed by the Directive - on which it was actually transposed.
17. There is a dispute between the parties as to whether the services agreement required
them, more particularly the defendant, to modify the products to make or keep them
compliant with the new requirements. That, counsel are agreed, will be a matter for the
trial judge.
18. There is a dispute, also, as to whether such modification as was required would have
meant that the product would have changed. It is said on behalf of the plaintiff that such
modifications as were required were simple and straightforward, but what is not accepted
is that the work and expense of complying with the new requirements would have to be
done and met by the plaintiff. Before the implementation of the Fourth Anti-Money
Laundering Directive the maximum limit for the use of a card without customer
verification was €2,500 per annum. After implementation that limit was reduced to €250
per annum. If the limit of €2,500 per annum was to be continued, someone would have
to carry out customer due diligence on such of the cardholders or applicants as would be
willing to provide and vouch the required information.
19. Counsel are agreed that the issue as to whether the products after the necessary changes
had been made would nevertheless be precisely the same as it had been before the
changes were made is a matter for the trial judge. If it is, I am satisfied that the
defendant has advanced a credible argument based on sufficient facts that they would not
be.
20. It is common case that on 29th January, 2013, ABN Amro informed the parties of its
“intention to discontinue” providing services and that on 2nd July, 2013, ABN Amro
informed the parties of its “actual decision” to discontinue providing services. As of the
date of the services agreement on 1st October, 2014, the parties well knew that the
viability of the agreement depended on one or other or both of them identifying and
securing a new BIN sponsor beyond the time at which ABN Amro would withdraw its
services. What was not known was precisely when that would happen.
21. There is a dispute as to whether there was an alternative BIN sponsor available. The
plaintiff’s case is that long before the events complained of, the parties had secured an
alternative BIN sponsor, in the person of Raphaels Bank, and that soon after the events
complained of, the plaintiff secured the BIN sponsorship services of another alternative
sponsor in the person of Wirecard. The defendant accepts that Raphaels Bank was for a
time willing to provide BIN sponsorship services and that Wirecard later did provide such
services but argues that the products for which Raphaels Bank was willing to provide
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services and the products for which Wirecard is providing services are different to the
products the subject of the services agreement.
22. The evidence is that the parties signed a BIN transfer agreement with Raphaels Bank in
January, 2015 which expired at the end of June, 2015 but it seems to me that it is
perfectly clear that Raphael’s Bank was not prepared to provide services for the products
as they then stood. All the appearances are that Raphael’s Bank was prepared to
provide services if, but only if, the product was changed so that it could no longer be
anonymous.
23. The plaintiff’s case is that on 18th January, 2016, it signed a letter of intent with Wirecard
for the provision of BIN services, and that on 4th August, 2016 it signed a co-branding
agreement pursuant to which a number of prepaid debit cards were issued from October
2016 onwards under the brand pay2d. It is clear from the plaintiff’s evidence that that
was a product which anticipated the implementation of the Fourth Anti-Money Laundering
Directive and would be compliant with the requirements of the implementing domestic
legislation when it came into force.
24. While ABN Amro had in January 2013 given notice of intention to discontinue services and
in July 2013 of its “actual decision” to do so, in fact it continued to provide services while
the plaintiff and the defendant sought to secure an alternative supplier, to whom the card
customers could be migrated.
25. On 20th October, 2015, a television programme was broadcast on Dutch national
television called Opgelicht (which in English means scammed). This programme is said
to have suggested that the 3V cards were routinely being used fraudulently and to have
associated their use with terrorism.
26. On 23rd October, 2015, an e-mail from the plaintiff to the defendant reported that ABN
Amro was threatening to take immediate unilateral action to terminate the services if no
migration date was set.
27. On 30th November, 2015, Raphaels Bank pulled out. In an e-mail to the defendant, it
referenced the expiry at the end of June of the BIN transfer agreement that had been
made in January, 2013. The e-mail recalled that Raphaels Bank has initially declined to
become involved but had been persuaded to reconsider on the basis that the product
construct would be changed. According to Raphaels Bank, it was by then clear that the
product would not be changed, and Raphaels Bank would not support it.
28. In a letter dated 4th December, 2015, the defendant rehearsed the events of October
2015; asserted that several unsuccessful attempts had been made by the plaintiff to find
an alternative sponsor; suggested that the Opgelicht programme had “scuppered any
prospect of an appropriate financial institution providing BIN services”; and declared the
services agreement “frustrated and terminated with immediate effect”.
The pleadings
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29. A little unusually, this application for security for costs was issued after the pleadings had
closed. The defence was delivered on the basis that no point would be taken about
alleged delay.
30. The substance of the plaintiff’s claim is for damages for breach of contract. The focus of
the statement of claim is very much on the events leading up to the defendant’s letter of
4th December, 2015, and the effect of that letter, rather than what happened thereafter,
but it is pleaded that the plaintiff’s business was badly damaged by the refusal of the
defendant to perform the agreement and was interrupted for a significant period while the
plaintiff secured an alternative BIN services provider and an alternative supplier of cards.
A number of heads of special damage are set out in the statement of claim but there are
no figures or dates.
31. The statement of claim does not unambiguously make the case that the defendant was
obliged to secure a BIN sponsor, or an alternative BIN sponsor, or to modify the products
to whatever extent might be required to ensure that BIN sponsorship services could be
secured: but that appears to be a large part of the plaintiff’s case.
32. In replies to particulars dated 16th January, 2018 it was said that the plaintiff estimated
its special damages at in excess of €7 million. That loss was said to be “broken down”
under the headings in the statement of claim but whatever the breakdown may have
been, it was not set out. The plaintiff’s reply to a request for further and better
particulars of the alleged losses was (as had previously been stated) that the plaintiff had
engaged Grant Thornton to prepare a detailed financial analysis and to calculate the
losses. The answer to a request for particulars of precisely how the plaintiff’s business
had been badly damaged and of the precise reputational damage allegedly suffered was
that these were matters of evidence.
33. It is clear, then, on the pleadings and particulars, that the plaintiff claims that its business
was badly damaged by, and following, the letter of 4th December, 2015: but not how.
34. The defence, if I will be forgiven for saying so, is rather peculiar. By way of preliminary
objection, it is pleaded that the services agreement was frustrated prior to 4th December,
2015, alternatively on 31st January, 2017, alternatively on 26th June, 2017 (the date for
implementation of the Fourth Anti-Money Laundering Directive); alternatively, on some
other (unspecified) date.
35. The most interesting of the several alternative dates is 31st January, 2017. It will be
recalled that the basis of the defendant’s assertion in its letter of 4th December, 2015,
that the contract had been frustrated was that ABN Amro had threatened to withdraw its
services and that there was no alternative supplier. The defence, however, pleads - and
it does appear to be the case - that ABN Amro continued to provide BIN services for a
further fourteen months.
36. In the alternative to the plea that the contract was frustrated, the defence pleads that it
was discharged by the plaintiff’s participation in the Opgelicht programme, which is said
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to have been a breach of contract; and/or by the plaintiff’s inability to secure a
replacement BIN provider; and/or by the migration of the plaintiff’s customers to the new
product in September, 2016.
37. In the further alternative, the defence denies that the defendant was guilty of the alleged
or any breach of contract; or that the plaintiff suffered the alleged or any loss; or that any
loss (if any) was caused or contributed to by the defendant.
38. The defendant has counterclaimed for €104,489.84 for “services provided pursuant to the
terms of the services agreement” for which the plaintiff was invoiced between April, 2016
and October, 2016; for damages for breach of contract, specifically by reference to the
plaintiff’s participation in the Opgelicht programme; and for “certain funds and/or income
that may arise from … unused funds”.
39. The counterclaim in respect of “unused funds” requires some explanation. The terms
and conditions attached to the cards distributed by the plaintiff apparently allow a charge
to be applied in the event that the cards are inactive for a period of time. These charges
have been referred to as “inactivity charges”. After the elapse of the specified period of
time, the cards are debited with a charge of €1.50 per month until December, 2021 when
the plaintiff will become entitled to the entire remaining balance. The evidence does not
disclose the precise details as to how these charges are applied – not least the
significance of December, 2021 which by all accounts is a date which applies to all of the
cards, irrespective of when they were issued - but they are clearly a significant part of the
plaintiff’s revenue. As of the end of August, 2018 there was a “Maximum Inactivity
Balance” – which I understand to mean the total credit balances on all of the outstanding
cards – of €1,096,097. The plaintiff’s expectation is that in the years from 2018 to 2021
it will become entitled to nearly half of this money, and on 31st December, 2021 to the
entire balance which will then remain on the cards, of €556,856. The premise of the
counterclaim is that the defendant is entitled to 25% of this money.
40. These inactivity charges were also the subject of much exchange in the affidavits and
debate in the course of the hearing in relation to the plaintiff’s ability to meet an order for
costs: to which I shall come.
Legal principles applicable to an application for security for costs
41. Because the plaintiff is incorporated in the Netherlands, the defendant moves under O. 29
of the Rules of the Superior Courts, rather than s. 52 of the Companies Act, 2014. On
the authority of Comcast International Holdings Inc. v. Minister for Public Enterprise
is invited to take the same approach on this application as is taken to corporate plaintiffs
under the Companies Act. There is no issue as to the jurisdiction invoked.
42. It is accepted by Mr. Howard that the onus is on the defendant to show that it has a
prima facie defence and that there is reason to believe that the plaintiff will be unable to
pay the defendant’s costs if the action is unsuccessful. If those facts can be established,
then the court ought to order security for costs unless there are specific reasons to cause
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the court to exercise its discretion not to. Mr. McGrath accepts that the onus is on the
respondent to the motion to make out any such specific reasons. Both sides rely on the
restatement of the threefold test in Usk and District Residents Association v. Greenstar
43. One of the special circumstances that will justify the court in refusing to order security for
costs is where the plaintiff’s likely inability to pay the costs flows from the wrong allegedly
committed by the defendant.
44. In a comprehensive judgment in Quinn Insurance (Under Administration) v.
PricewaterhouseCoopers (A Firm) [2018] IEHC 16, Haughton J. drew together the legal
principles applicable to an application for security for costs, specifically, on the application
of the threefold test.
45. The first element of the test is whether the defendant has established a prima facie
defence. The prima facie defence relied on may be a defence on the facts or in law. It is
insufficient that the defendant should assert that he has a defence. A defendant relying
on a defence of fact must set out sufficient facts and must demonstrate the existence of
evidence on which he will rely to establish those facts, and a defendant relying on a
defence in law must articulate such defence by reference to the facts as asserted by the
plaintiff or which have been prima facie established by reference to the materials before
the court. At para 12 Haughton J. said:-
“If a prima facie defence is established, it is no function of the court to ‘forecast the
outcome of the litigation or to pre-judge the facts or express an interim view on the
questions of law involved … or .. to evaluate the prospects of success’ (Murphy J. in
Bula v. Tara Mines [1987] I.R. 494 at p. 501, approved by McCarthy J. in
Comhlucht Paipéar Ríomhaireachta Teo. V. Úadarás na Gaeltachta [1990] 1 I.R.
320, at 331 and 332, and by Clarke J. in Usk at paragraph 8.7).
46. The second element of the test is whether the defendant has adduced “credible evidence”
that the plaintiff would be unable to pay the costs. Again, the test is emphatically not a
matter of probability. As Clarke J. explained in IBB Internet Services Ltd. v. Motorola Ltd.
”The phrase ‘reason to believe’ should not be further defined., again for the
risk of changing the test. While it does not require the court to assess the matter
on the balance of probabilities, it does require the court to consider all the material
evidence and reach an assessment of the range of likely eventualities and thereby
determine whether there truly is ‘reason to believe’ that the company ‘will’ be
unable to pay the costs should it lose. That requires that the evidence satisfy the
court that there is something significantly greater than a mere risk of such an
eventuality occurring.”
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47. Mr. McGrath emphasised, quite rightly, that a mere risk of inability to pay is not enough.
There must be reason to believe, based on credible testimony. Mr. McGrath referred to
Coolbrook Developments v, Lington [2018] IEHC 634 in which Barniville J. applied the
test formulated by Clarke J. in IBB Internet Services Ltd. v. Motorola Ltd. [2013] IESC 53.
48. There is one issue between counsel as to the correct legal test. Mr. Howard, while
accepting that the court is not to address the merits of the case or who is likely to
succeed, nevertheless argues that the court is entitled to put into the balance a high
probability of success. He refers to the judgment of Barrington J. in Lismore Homes v.
Bank of Ireland Finance [1999] 1 I.R. 510 which, at page 506, set out a long passage
from the judgment of Sir Nicholas Browne-Wilkinson V.C. in Porzelack K.G. v.Porzelack
(U.K.) Ltd. [1987] 1 W.L.R. 423, part of which was that:-
“Undoubtedly, if it can clearly be demonstrated that the plaintiff is likely to succeed,
in the sense that there is a very high probability of success, then that is a matter
which can properly be weighed in the balance. Similarly, if it can be shown that
there is a very high probability that the defendant will succeed that is a matter
which can be weighed.”.
49. Mr. McGrath submits that the defendant’s reliance on this passage is misplaced. He
points out that the passage relied on is not a quotation from Barrington J. but from the
English case, and he argues that the proposition that account can be taken of the
prospects of success has been repeatedly rejected in this jurisdiction.
50. I am satisfied that Mr. McGrath is correct. In Bula v. Tara Mines [1987] I.R. 494, Murphy
J. was quite clear that it is no part of the function of the court on an application for
security for costs to evaluate the prospects of success, and this has repeatedly been
endorsed as the correct test. It is sufficient to refer to Usk.
51. What Barrington J. said in Lismore Homes was that:-
“It is dangerous to attempt to resolve [disputed questions of fact] on affidavit
unless there is objective evidence which points conclusively in one direction or the
other.” [Emphasis added.]
52. This statement, it seems to me, is perfectly consistent with the established principles that
the court must ask whether a prima facie defence has been made out but must not go
beyond that.
The alternative defences relied on
53. On this application, as in the pleadings, the defendant’s position on the one hand is that
the contract was frustrated in December 2015, and on the other, that it continued to
provide the services it was required to provide until 31st January, 2017, when ABN Amro
ceased providing BIN services. The defendant’s position is that while the contract was
discharged by frustration in December 2015, nevertheless it thereafter provided on an ad
hoc basis the services it otherwise would have provided pursuant to the contract.
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54. The proposition that the defendant provided services which were impossible to provide is
at first blush a bit surprising, but it is based on sound principle.
55. As was explained by Lord Roskill in Pioneer Shipping v. B.T.P Tioxide [1982] A.C. 724 at
752, while in the ultimate analysis whether a contract was frustrated is a question of law
“that conclusion is almost completely determined by what is ascertained as to mercantile
usage and the understanding of mercantile men.” The decision as to whether a contract
was frustrated will be a matter for the court and will necessarily be made long after the
event. However, the date by reference to which the judgment must be made is the date
at which the contract is alleged to have been frustrated, and the court must make an
assessment of the reasonable commercial probabilities as they would have been apparent
at that time, and not by reference to how things may ultimately have turned out. So,
for example, in a case in which the issue is whether a contract was frustrated by an
outbreak of war, the exclusive focus will be on the probable duration of the war at the
date of alleged frustration and not, with the benefit of hindsight, on how long it might in
fact have lasted.
56. The first issue, then, is whether the defendant had established a prima facie defence on
the basis that the contract was frustrated on any of the dates relied on.
The alleged frustration
57. There is some difference between the parties as to the circumstances in which a contract
will be frustrated.
58. Both sides rely on the judgment of McWilliam J. in McGuill v. Aer Lingus Teo. (Unreported,
High Court, McWilliam J., 3rd October, 1983) in which the court distilled from the
authorities to which it had been referred seven principles:-
“1. A party may bind himself by an absolute contract to perform something which
subsequently becomes impossible.
2. Frustration occurs when, without default of either party, a contractual obligation
has become incapable of being performed,
3. The circumstances alleged to occasion frustration should be strictly scrutinised and
the doctrine is not to be lightly applied.
4. Where the circumstances alleged to cause the frustration have arisen from the act
or default of one of the parties, that party cannot rely on the doctrine.
5. All the circumstances of the contract should also be strictly scrutinised.
6. The event must be an unexpected event.
7. If one party anticipated or should have anticipated the possibility of the event which
is alleged to cause the frustration and did not incorporate a clause in the contract to
deal with it, he should not be permitted to rely on the happening of the event as
causing frustration.”
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59. Reference was also made to Ringsend Property Ltd. v. Donatax Ltd. [2009] IEHC 568,
Zuphen v. Kelly Technical Services (Ireland) Ltd. (Unreported, High Court, Murphy J.,
25th May, 2000), William Neville and Sons Ltd. v. Guardian Builders Ltd. [1995] 1
60. The point of difference between the parties is whether it is necessary that the event
should be unforeseen or unexpected. Mr. Howard argues that it is not, and he points to
a decision of the Court of Appeal in England in Ocean Tramp Tankers Corporation v. V/O
Sovracht, The Eugenia [1964] 2 Q.B. 226.
61. The Eugenia was one of very many cases that arose out of the closure of the Suez Canal.
The canal had been nationalised by the Government of Egypt on 26th July, 1956 and
there was an immediate build-up of English and French military forces in Cyprus. In late
August and early September, the parties negotiated, and on 9th September, 1956 signed,
a time charterparty for a “trip out to India via Black sea.” At the time the contract was
concluded, both parties recognised that there was a risk that the canal might be closed
but failed to agree on what was to happen in such event, deciding instead to “leave it to
the lawyers to sort out.” The ship was brought into Suez on 31st October, 1956 and the
canal was blocked later that day.
62. Lord Denning contemplated the jurisprudential basis of the doctrine. It was not, he said,
as had once been thought, based on an implied term. Rather it was based on the
injustice of the parties being bound to perform something radically different to that which
was undertaken by the contract. He said:-
“We are thus left with the simple test that a situation must arise which renders
performance of the contract ‘a thing radically different from that which was
undertaken by the contract’ see Davis Contractors v. Farham U.D.C. [1956] A.C.
729 by Lord Radcliffe. “
63. In The Eugenia the charters argued that the contract had been frustrated by the fact that
the canal had been blocked. If the ship had never entered the canal – so the argument
went – the fact that she would have had to go around the Cape would have made the
venture fundamentally different. Lord Denning, by looking at the “venture” as the whole
trip from delivery to re-delivery of the ship rather than the voyage to carry iron and steel
from Odessa to Vizagapatam (which was the purpose for which the charterers required
the ship) concluded that it was not. But the premise of the examination of whether the
contract had been frustrated by the closure of the canal – a risk that was obvious to all
mercantile men - was that it might have been.
64. Mr. McGrath submits that the defendant’s reliance on The Eugenia is misplaced. In the
first place, he says, it is just not Irish law. In any event, he says, the case must be seen
to have been decided on its own facts.
65. I am mindful that I ought not, on an application such as this, to be tempted to weigh, still
less decide, disputed issues of law but it seems to me that the weight and consistency of
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the Irish authorities is such that the proposition that frustration can arise by reference to
an event which the parties have contemplated but against which they have made no
provision is not even arguable.
66. Incidentally, although the premise of The Eugenia was that the parties had failed to make
provision against the eventuality of the closure of the canal, I am unconvinced that this
was the case. The decision was that the contract was a time charter, and the that the
charterers had to pay the hire for the ship for so long as they had her.
67. The first argument advanced on behalf of the defendant is that it has a prima facie
defence that the contract was frustrated on 4th December, 2015. The supervening event
is said to have been the unavailability of an alternative BIN sponsor. The plaintiff
counters that there was or would have been no insuperable difficulty in obtaining an
alternative sponsor, and that the need for an alternative sponsor was obvious at the time
the contract was made because ABN Amro had already said that that it would be
withdrawing.
68. It seems to me that the key to resolving this issue is to identify the time at which the
alternative supplier would be required. In commercial terms, the need for an alternative
supplier could be said to have arisen on 29th January, 2013 when ABN Amro gave notice
of its intention to discontinue providing services. The parties must at that stage have
recognised that the business could not be carried on beyond the date – whenever that
might be - at which services would not be available from ABN Amro, unless an alternative
supplier could be found. In the meantime, cards could be issued and distributed. The
critical date was the date beyond which ABN Amro would cease providing services.
69. As of the date of the services agreement on 1st October, 2014 the parties knew that ABN
Amro would not commit to providing services for the duration of that agreement, but the
basis of that agreement was that it would continue to do so for some time. If the parties
had not by then begun to try to identify and secure an alternative supplier, they did so
very soon after and by January, 2015 had reached agreement with Raphaels Bank.
70. The triggering events for the termination notice of 4th December, 2015 were the
broadcast of (and the participation of the plaintiff in) the Opgelicht programme on 20th
October, 2015; the plaintiff’s e-mail of 23rd October, 2015; and the e-mail of 30th
November, 2015 from Raphaels Bank.
71. The e-mail of 23rd October, 2015 was a report by the plaintiff to the defendant of “a chat”
with ABN Amro, in the course of which ABN Amro was said to have threatened to notify all
of the plaintiff’s customers that it would terminate the programme in the Netherlands
unless it was given an announcement date. The plaintiff’s e-mail noted that the bank did
not have the contact information, so it was obviously an empty threat. In substance the
threat was that the bank, at an unspecified time, would or might do something which it
could not do unless, by an unspecified date, it was advised of a date, in the indeterminate
future, on which the plaintiff would announce a later date on which the plaintiff’s
customers would be migrated to an alternative BIN supplier. The e-mail certainly
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conveyed a growing impatience on the part of the bank, but I cannot see how it could
have immediately rendered impossible the continued performance of the contract
between the plaintiff and the defendant.
72. Mr. Howard argues that the authorities show that commercial men do not have to wait
and see: but the issue in this case is not how long a delay or war would continue but
whether, and if so when, ABN Amro would cease to provide services. It seems to me
that the bank’s declared position left open the possibility that an alternative provider
might be found within such time as ABN Amro might stipulate for an announcement of a
date for migration. If the defendant was not obliged to, or could not, secure an
alternative provider, it did not necessarily follow that the plaintiff would be unable to do
so.
73. Mr. McGrath argues that as of 4th December, 2015 the cards were perfectly lawful and
that the transposition date for the Fourth Anti-Money Laundering Directive was eighteen
months away. I am not persuaded that these matters are decisive. There is a difference
of opinion between the regulatory experts as to the time at which any products on the
market would require to be compliant with the proposed new rules, and in my view the
proposition that a commercial requirement would arise long before a strict legal
requirement is perfectly arguable. So, the impending requirement for change might
very well have been an obstacle, even an unsurmountable obstacle, to securing a
replacement provider for the products as they stood. But it seems to me that the
increasingly urgent need to identify a replacement for ABN Amro would only become
critical when ABN Amro ceased to provide services.
74. I observed earlier that the evidence does not disclose what, if any, reason was given by
ABN Amro for its decision not to continue providing services, but it was very shortly
before the EU Commission announcement of 5th February, 2013. As of 4th December,
2015 ABN Amro had said that it would cease to provide services but not when.
75. While in principle it is perfectly possible to look at alternative potential dates upon which a
contract might have been frustrated, I do not believe that this is such a case. The
defendant on 4th December, 2015 declared that the contract was frustrated and
purportedly terminated it. The plaintiff does not unambiguously make the case that the
termination notice was a repudiatory breach which was accepted, but it appears to be
common case that the contract was discharged.
76. The legal effect of frustration, argues Mr. McGrath, is that the contract is discharged.
That is correct. Once a contract has been otherwise discharged, it is said, no issue of
frustration can arise. I accept this argument and I cannot see how the defendant can
rely upon any later frustration.
77. I should say for completeness that the pleaded case that the defendant was entitled to
summarily terminate the services agreement by reason of the plaintiff’s participation in
the television programme was not seriously pursued in argument.
Page 13 ⇓
The argument that the services were provided
78. I turn then to the second leg of the defendant’s argument, which is that notwithstanding
the termination notice, it did not in fact cease providing the services required, so that
whatever downturn the plaintiff’s business may have experienced was not attributable to
anything done or not done by the defendant. That, it seems to me, is a plausible
argument so the issue is whether it is supported by credible evidence or the prospect of
credible evidence.
79. According to the statement of claim, which was delivered on 27th June, 2017, the
plaintiff’s losses were then being assessed by experts. In replies to particulars dated
16th January, 2018 the plaintiff’s “special damages” were estimated to be “in excess of
€7,000,000”. While that figure was said to be “broken down under the headings at
para. 24” of the statement of claim, there was no breakdown: so that what was really
meant was that the global figure encompassed the headings of special damage set out in
the statement of claim.
80. A report from Mr. Paul Jacobs of Grant Thornton dated 5th October, 2018 which was
primarily prepared to deal with the plaintiff’s ability to meet an order for costs, indicated
that the author’s “preliminary view identifies that a reasonable estimate of losses is, in
my opinion, in excess of €3.7 million.” That figure was made up of €2.4 million for loss
of profits on credit card agreement; €0.7 million for loss of profit on Pay.com; and €0.6
million for “costs of termination.” It was said that approximately €2.5 million of the €3.7
million related to the period up to and including 31st August, 2018 but not how the €2.5
million was made up. Significantly, I think, there was no date specified as the date from
which any of the losses had been calculated. It was said that work was continuing and
that the figure might increase or decrease. The Grant Thornton report of 5th October,
2018 does not disclose the basis for the preliminary view and the claim has not since
been further particularised.
81. In an affidavit Mr. Jacobs filed on 5th February, 2019 Mr. Jacobs set out a table of
projected EBITDA for the years 2018 to 2021. This table was based on projections
prepared by the plaintiff and provided to Mr. Jacobs shortly before. Mr. Jacobs then said
that while he had reviewed the plaintiff’s projections, he had not prepared his own.
From this it rather appears that whatever the basis of the preliminary view was, it was
not either the plaintiff’s projections or any independent projections.
82. From the outset the defendant’s solicitors have been complaining that the claim for
damages has not been properly or sufficiently particularised. It seems to me that there is
substance to this. The premise of the claim for damages must be that the defendant did
or failed to do something which it ought not to have done or to have done, which if it had
not been done or had been done would have left the plaintiff that much better off. The
statement of claim focusses on the notice of 4th December, 2015 but does not say what
happened thereafter. Logically, the claim for damages must be based on a number of
assumptions, but there is no indication as to what those assumptions are.
Page 14 ⇓
83. It is common case that the operation of the agreement between the parties was
dependant on BIN sponsoring services. Although the statement of claim might have
been clearer, a significant part of the plaintiff’s case appears to be that if and when ABN
Amro withdrew its services, the defendant was obliged to secure an alternative BIN
sponsor. The defendant contests that. The issue as to whether the defendant was
obliged to secure an alternative sponsor is an issue of law which will turn on the
construction of the services agreement. It seems to me that the defendant has an
arguable case to make that it was not bound to secure a BIN sponsor and so has
demonstrated a prima facie defence to that part of the claim.
84. The premise of the claim for damages appears to be that if the defendant had provided
the services it was required to provide, the plaintiff could and would have continued to
sell the same products as it previously had, or, perhaps, a modified version of products
which would have complied with the requirements of the Fourth Anti-Money Laundering
Directive, or the domestic Netherlands legislation implementing that Directive. It
appears to be accepted by the plaintiff that the requirements of the Directive meant that
the product would have to be modified. There is a dispute between the parties as to
whether the defendant was bound by the services agreement to modify the products, and
to bear any additional cost associated with any such modification. There is a dispute
between the parties, and the regulatory experts, as to when the new requirements would
have, or did, affect the availability of BIN sponsoring services for the plaintiff’s existing
products.
85. The issue as to whether the defendant was obliged to modify the products and/or to bear
the additional cost is an issue of law which will turn on the construction of the services
agreement. The services agreement certainly contemplates that the products might
need to be modified. It provides on the one hand that the agreement may only be varied
in writing signed by both parties, and on the other makes provision for “mandatory
variations”, which are to be the subject of written quotations. It seems to me that the
defendant has an arguable case to make that it was not bound to modify the products or
to bear the cost associated with any modifications and so has demonstrated a prima facie
defence to that part of the claim.
86. Insofar as the damages claim is based on an alleged failure on the part of the defendant
to provide services, it is necessary to examine the evidence as to what services were in
fact provided after the termination notice.
87. Mr. James Lillis, in the first of three affidavits which he swore to ground the application,
unambiguously deposed that the defendant continued to perform services until 31st
January, 2017, when ABN Amro ceased providing BIN sponsorship services, and by when
the plaintiff’s customers had been migrated to Wirecard.
88. Ms. Angelique Brussel van Grinsven, the managing director of the plaintiff, in her replying
affidavit, averred that for several months prior to December 2015, the defendant had
been increasingly slow to supply the plaintiff, but she did not deal with the position from
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January 2016 onwards. Specifically, Ms. van Grinsven did not contest the averment that
services continued to be provided.
89. In a second affidavit, filed on 5th February, 2019 Mr. Paul Jacobs deposed that it was his
understanding that from the date of termination in late 2015 the defendant did not supply
additional cards. As he thought had been confirmed by Ms. Van Grinsven in her affidavit
of 23rd October, 2018, he said that it was his understanding that there were no new
customers, nor were customer services provided from September, 2015. I am sure that
Mr. Jacobs correctly understands his instructions, but I am equally sure that he has
misunderstood Ms. Van Grinsven’s affidavit. It is true that Ms. Van Grisnven referred to
an inability to get supplies, but what she said was that from the time the defendant was
taken over by the Safecharge Group, which was in February, 2015, it had been difficult to
get cards and difficult to get calls returned.
90. What Ms. Van Grinsven said in her second affidavit, which was filed on 7th March, 2019,
was different to what she had previously said. In her later affidavit she deposed that
“there was no ongoing commercial business” after December, 2015. She said that the
only service provided by the plaintiff related to the wind-down of the existing client base
and that “essentially” no new cards could be ordered.
91. Mr. Lillis was quick to refute this. In a fifth affidavit, which was prepared by reference to
a final draft of Ms. Van Grinsven’s second affidavit, Mr. Lillis deposed that between
January and May, 2016 thousands of new cards were supplied and that the supply of new
cards did not cease until September, 2016. The defendant’s case is that during and after
this time it was working with the plaintiff to facilitate the migration of the plaintiff’s
customers to its new product, and that the plaintiff’s decision to develop a new product
was a business decision.
92. Mr. Lillis in his first affidavit, referred to the defendant’s counterclaim for €104,489.84
said to be owing on foot of invoices issued between April and October 2016, for services
said to have been provided pursuant to the services agreement. While the counterclaim
does not unambiguously say so, I understand the services the subject of the counterclaim
for €104,489.84 to have been allegedly provided more or less between those dates – that
is, long after the contract was allegedly frustrated.
93. I am not on this application to attempt to weigh the prospects of success by either party
on any issue but to identify whether there is a credible basis for the defendant’s case. In
my view the defendant has put forward credible evidence, which if accepted by the trial
judge, would lead to the conclusion that the services provided by the defendant after
termination were no less than it was, or would have been, obliged to provide under the
contract; that the looming regulatory changes would have a significant impact on the
viability of the products and the availability of an alternative BIN services provider for the
products as they stood; and that the plaintiff’s decision to create its new products was a
business decision based on market requirements rather than anything done or not done
by the defendant.
Page 16 ⇓
94. For these reasons I find that the defendant has met the first requirement of
demonstrating that it has a prima facie defence.
Whether there is reason to believe that the plaintiff will be unable to pay the costs
95. In assessing whether there is substance to the defendant’s apprehension that the plaintiff
would be unable to pay the costs if the action were to fail, the first logical step is to
assess what those costs would be likely to be.
96. There is quite a gap in the estimates. The defendant’s estimate is 157% of the plaintiff’s
estimate.
97. On 5th July, 2018 Behan & Associates, Legal Costs Accounts, on the instructions of the
solicitors for the defendant, estimated the defendant’s future costs of defending the
proceedings at €394,700.00. Behan & Associates estimated the solicitors’ fee at
€190,000; senior counsel’s brief fee at €60,000; junior counsel’s brief fee at €40,000;
and refresher fees at €4,000 and €2,650, respectively. The estimated duration of the
trial was six days. The estimate of counsels’ fees for the application for security for costs
was €9,000 for senior counsel and €6,000 for junior counsel, in each case expressed to be
a brief fee, including affidavits and submissions and so, inferentially, based on an
estimate that the application for security for costs could be disposed of in one day. Behan
& Associates estimated witness expenses for KPMG at €12,500 and for a regulatory expert
at €10,000. Provision was made for €12,000 for stenography services.
98. On 24th September, 2018, on the instructions of the solicitors for the plaintiff, Lowes,
Legal Costs Accountants, gave an estimate of the defendant’s costs, which came out at
€252,000. Lowes estimated the solicitors’ instruction fee at €140,000; senior counsel’s
brief fee at €45,000; junior counsel’s brief fee at €30,000; and the refreshers at €3,000
and €2,000. For the application for security for costs, Lowes allowed nothing for senior
counsel and a total of €2,000 for junior counsel. Attached to Lowes’ report is a summary
which showed a total for Behan & Associates’ estimate of €358,700, against Lowes’ total
of €252,000. The difference between the €394,700.00 and the €358,700 is accounted
for in the body of the report. Lowes made no provision for the fees estimated for KPMG
or the regulatory expert because, they said, they were not privy to the level of work
which had been, or was to be, carried out by them. Nor did Lowes make any provision
for stenography services, on the basis that the parties might agree to share that cost and
that the defendant’s share would not be recoverable on a party and party bass unless
certified by the court.
99. In my view, the estimate of Behan & Associates is more reliable.
100. By the time the legal costs accountants were engaged, the pleadings were closed. It was
quite clear from the statement of claim and replies to particulars that the plaintiff had
engaged accountants, specifically Grant Thornton, to formulate its claim. It seems to me
that it was inevitable that the defendant would engage an accountant to mark Grant
Thornton. If the fact that both sides would call expert regulatory evidence was not
spelled out in the pleadings, it was evident from the first affidavit of Mr. Lillis, which was
Page 17 ⇓
filed on 6th July, 2018, that the defendant had engaged a regulatory expert, who in all
likelihood would have to be marked by an expert on the plaintiff’s side. If Lowes did not
understand what work had been, or would be, done by the experts they could have
asked. No less to the point, if Lowes did not understand the issues which the experts
would be asked to address, I find it impossible to understand how they could have
accurately assessed the novelty, difficulty and complexity of the case or the skill,
knowledge or time which would be required to deal with it. I do not say that the
estimate given by Lowes was not the best that could be done on the available
information, but it seems to me that the apparent and acknowledged deficiency in the
information which Lowes had means that their estimate is not comparable with that of
Behan & Associates. It follows that the apparent differences between the allowances
made by Lowes for the solicitors’ instruction fee, brief fees and refreshers have not been
obviously justified.
101. As to the approach of Lowes to the estimated fees for the application for security for
costs, this appears to be based solely on O. 52, r. 17(12) of the Rules of the Superior
Courts. While the rule provides that only one counsel shall be allowed unless the court
otherwise orders, Lowes did not engage with the possibility that the court might otherwise
order. The legal costs accountants, on both sides, were engaged at an early stage in the
life of the motion for security for costs, and they were not to know that the motion papers
alone would balloon as they have. The estimate, on both sides, at that stage was that
the application could be disposed of in one day. That said, the defendant’s application
was for security for €394,700 and if it could not be defeated the plaintiff would have to
put up at least €252,000. It was implicit in the estimate of Behan & Associates that
senior counsel would be engaged to move the application. It is not evident that Lowes
were advised, or gave any consideration to, whether senior counsel would be engaged on
behalf of the plaintiff to defend the motion. It seems to me that it could confidently have
been expected that a significant factor (of course by no means a determinative factor) in
the consideration of the court as to whether it should order otherwise would be whether
senior counsel had been engaged on both sides. As to the allowance of a total of €2,000
for junior counsel’s fees for a motion for security for costs of €394,700, it seems to me
that this was on any analysis very skinny. If Behan & Associates’ estimate was high at
the time it was made, it has been abundantly justified with the benefit of hindsight.
102. In my view, the failure of Lowes to make any provision for stenography fees is similarly
flawed. The €12,000 provided for by Behan & Associates was clearly intended to cover
an overnight transcript. The premise of Lowes’ report was that both sides would want an
overnight transcript. I find it difficult to understand why it might have been contemplated
that the court would not certify for the cost of a shared overnight transcript which the
parties had agreed was necessary.
103. Left to my own devices I think that I might have pared back the nominal amounts
estimated by Behan & Associates for the lawyers’ fees, but I am satisfied that those
amounts are nearer the mark than the plaintiff’s figures and the allowances made for the
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expert witness fees strike me as very modest. I take into account also that the estimate
of six days for the trial of this action appears to be very optimistic.
104. By the way, the costs incurred by the plaintiff in relation to this litigation up to August,
2018 (by when the pleadings had closed but before work had begun in earnest on the
motion for security for costs) came to €178,822,
105. For those reasons, I will deal with this application on the basis that if the action were to
fail and the defendant to be awarded its costs, those costs would be likely to tax between
party and party at something in the order of €394,700.
106. It is common case that the onus is on the defendant to make out the case that there is
reason to believe that the plaintiff will be unable to pay to pay the costs if the action fails.
107. By letter dated 17th October, 2017 the defendants’ solicitors made a demand for security
for costs. The last published financial statements for the plaintiff, it was said, showed a
limited surplus. The costs of the litigation, it was said, would be substantial. And the
plaintiff, it was said, had failed to pay an outstanding debt to the defendant of
€104,489.84.
108. I pause here to observe that in the initial demand for security for costs and repeatedly
since, the defendants’ solicitors have been complaining that the plaintiff’s accounts are in
Dutch. Of course they are. It is a Netherlands corporation. I see no merit in this
criticism.
109. I will try not to dwell too much on the correspondence but for a long time the defendants’
solicitors’ request for security for costs or evidence of the plaintiff’s financial position was
met by demands for delivery of a defence.
110. Eventually, by letter dated 7th February, 2018 the request for security was declined on
the basis that any inability on the part of the plaintiff to provide security (sic.) was
principally due to the wrongful actions of the defendant in wrongfully terminating the
services agreement. The plaintiff’s solicitors explained that the plaintiff had been taken
over in 2015 and was not since obliged to publish individual accounts because its figures
were included in consolidated accounts published by its parent. When it was put to the
plaintiff’s solicitors in correspondence that the consolidated financial statements must
have been based on individual financial statements for each of the companies in the
group, they did not demur: but took the position that the defendant was not entitled to
them.
111. The explanation for the absence of published accounts was perfectly proper but the
refusal to provide the information, implicitly acknowledged to exist, which would have
allowed the defendant to make some assessment of the plaintiff’s current financial
position was calculated to, and inevitably did, fuel the defendant’s concern. I do not
believe that the refusal necessarily, in and of itself, demonstrated an inability on the part
Page 19 ⇓
of the plaintiff to meet an adverse costs order, but it was a proper basis for reasonable
concern.
112. In the first affidavit of Mr. James Lillis grounding this application, that concern was
expressed, and it was later supported by a report from Mr. Andrew O’Leary of KPMG
dated 26th July, 2018. KPMG addressed the issue by reference to the out of date
published information and some figures provided by the defendant.
113. In answer to the application, the plaintiff commissioned a report from Mr. Paul Jacobs of
Grant Thornton dated 5th October, 2018. Mr. Jacobs looked at the financial position of
the plaintiff as of 31st August, 2018 by reference to management accounts which had not
been (and were not for a long time after) provided to the defendant. He opined that the
plaintiff had a surplus of assets over liabilities of €533,521, of which €322,702 was cash,
and that it would be able to “fund” an adverse costs award of €252,000 and was “likely to
be able to fund” an award of €394,700. In the same report, Mr. Jacobs gave his
provisional view as to the amount of the plaintiff’s claims for loss of profits, and his
estimate that the losses up to 31st August, 2018 were €2.5 million. Mr. Jacobs identified
the inactivity fees as a substantial source of revenue to the plaintiff over the following
years which would culminate in what was variously described as a balloon or a bullet of
€556,856 at the end of 2021.
114. Mr. Jacob’s report was relied on by Ms. Angelique Brussel Van Grinsven in support of an
averment that the plaintiff (in the unlikely event that the action were to fail) had enough
assets to meet any potential costs order.
115. Now for two important reasons to which I will shortly come, the fact that the plaintiff had
the cash on 31st August, 2018 did not necessarily mean that the cash would be available
to meet an adverse costs order but, inferentially at least, that appeared to be the
plaintiff’s position. The defendant’s solicitors tested that position by suggesting that the
cash might be ring-fenced as security for the defendant’s costs. That suggestion was
declined.
116. The first of the two good reasons to which I have referred is that it is settled law that the
relevant date upon which the ability of the plaintiff to meet an order for costs is that date
on which such order would likely be made. The later affidavits showed that the cash was
otherwise needed for the conduct of the plaintiff’s business and that a good deal of it was
indeed used for that purpose.
117. The second reason was identified and developed in a second report of KPMG dated 12th
December, 2018. The figures relied on by the plaintiff, said Mr. O’Leary, had failed to
take account of the plaintiff’s costs. The estimates for the defendant’s party and party
costs were, at one end, €252,000 and at the other €394,700. The plaintiff’s costs, said
Mr. O’Leary (and this is one of the few issues which is not disputed) would be 150% of
whichever of those estimates was correct (or whatever the correct estimate was) partly
because party and party costs are routinely measured at significantly less than the costs
actually incurred, and partly because plaintiffs’ costs tend to be higher than defendants’
Page 20 ⇓
costs. That put the range of the plaintiff’s costs at between €378,000 and €592,050.
Mr. O’Leary estimated the range of future costs for both parties as between €463,828 and
€820,578.
118. Mr. O’Leary made a number of other points in relation to the available information and
Mr. Jacobs’ assumptions and analysis. He pointed in particular to the fact that the
calculation of the plaintiff’s assets included a figure of €97,599 for web development
which he thought was not a realisable figure, and to the absence of any projections as to
future income or profits. Mr. O’Leary appears to agree with Mr. Jacobs that the inactivity
income is crucial to the plaintiff’s financial stability. Mr. O’Leary also then suggested that
a question arose as to whether the cash of €322,702 had been “rested” in the plaintiff’s
account to facilitate the review but this was rejected by Ms. Van Grinsven in a later
affidavit and was never revisited. The cash was drawn against, but I proceed on the
basis that it was at all times properly held and used by the plaintiff. The immediate
availability of the cash to the plaintiff, however, could never have given the defendant
much comfort as to its ability to meet an adverse costs order after the trial of the action
eighteen months or two years later.
119. By reference to the available information, Mr. O’Leary expressed the view that the plaintiff
would be unlikely to be able to meet an award of €394,700 and would be unlikely to meet
an award of €252,000 without significant cashflow pressure.
120. Mr. O’Leary’s report was answered in an affidavit of Mr. Jacobs filed on 5th February,
2019. Mr. Jacobs carefully parsed Mr. O’Leary’s report, arguing that his colleague’s
findings as to possibilities did not support his conclusions. By then Mr. Jacobs has been
provided with his client’s projections by reference to which he showed, in a table, total
projected EBITDA for the years 2019 to 2021 of €888,132, with a big spike in 2021 of
€698,406, when the balance of the inactivity money was forecast to come in. Earlier in
his affidavit Mr. Jacobs had looked at Mr. O’Leary’s argument that the inactivity money
should be split 75:25 and had offered the view that even allowing for the disputed 25%
claim there would be profits of €822,073 between 2018 and 2021.
121. I am not on this application to make any assessment as to the likely ability of the plaintiff
to meet a costs order or to attempt to resolve any difference of opinion between the
experts. I do, however, observe that Mr. Jacobs mixes inactivity revenue over a four-
year period and estimated profits over a three-year period. He takes account of the
disputed 25% claim in his assessment of the inactivity revenue, but not in the projected
EBITDA. If that were done for the relevant three years, the total EBITDA would be
reduced by €264,651 to €623,480.
122. To prepare his affidavit, Mr. Jacobs asked for, and was given, up to date management
accounts for the year ended 31st December, 2018 and budgets for the years ending 31st
December, 2019 to 31st December, 2021. The budgets referred to and relied on by Mr.
Jacobs were not exhibited but were later provided, in Dutch, and translated and reviewed
by Mr. O’Leary. In a further affidavit filed on 8th March, 2019 Mr. O’Leary challenged the
reliability of some of the plaintiff’s previous projections by reference to outcomes and
Page 21 ⇓
expressed serious doubts whether the forecasts relied upon by the plaintiff, which had
been reviewed but not verified by Mr. Jacobs, were achievable.
123. It seems to me that the plaintiff’s projections are founded on a significant assumption
that is wrong. Mr. Jacobs’ table projects total EBIDTA for the years 2019 to 2021 of
€888,132, which, it is said will or should be sufficient to cover the total future costs of the
litigation, on both sides, of between €463,828 and €820,578. It follows, then, that the
projections on which the table is based do not take account of the plaintiff’s future costs.
The assumption, then, is that the plaintiff’s solicitors will stand out of their fees and will
carry the outlay until the action has been concluded. That in my view is not only highly
unlikely but inconsistent with the evidence that until August, 2018, at least, the plaintiff
was paying the costs on an ongoing basis. The object of Mr. Jacobs’ affidavit was to
counter Mr. O’Leary’s report of 12th December, 2018. But the figures used by Mr.
O’Leary were based on estimates of the defendant’s likely costs and an extrapolation from
those figures as to what the plaintiff’s likely future costs would be. It seems to me that
any reliable projections as to the plaintiff’s future profits would have to take account of
the fact that the plaintiff would be paying its own costs on an ongoing basis, by reference
to the plaintiff’s estimate of what those costs would likely be.
124. The last affidavit on this application was an affidavit of Ms. Van Grinsven. The declared
object of this affidavit was to update the evidence as to the financial position of the
company. In a table, Ms. Van Grinsven set out on a month by month basis a
reconciliation of the amounts collected for inactivity fees against a calculation of the
income due on the basis of a charge of €1.50 per month. She did not deal with Mr.
O’Leary’s challenge that the projected inactivity income and EBITDA in the previous
management accounts had not been met by the income.
125. Counsel are agreed that the relevant date on which the plaintiff’s ability to meet an
adverse costs order is the date on which such an order might be made, or, perhaps more
accurately, the date on which the liability would be quantified and final.
126. Mr. Howard voiced an apprehension that the defendant might have a taxed and
enforceable certificate of costs before the end of 2021 when the rump of the inactivity
income would be available. Mr. McGrath questioned the reality of that apprehension.
The motion for security for costs had taken nearly a year to be heard. He pointed to the
possibility of an appeal – by one side or the other – against the decision on the motion for
security for costs and foresaw the possibility of a further row about discovery. I do not
believe that I need to come down on one side or the other of this debate, but I am
satisfied that there is at the very least a real risk that litigation will drag on well beyond
the end of 2021. I am satisfied, also, that there is good and sufficient reason to
apprehend that there may be an appeal against this ruling, and a battle about discovery.
Any such further battles will be costly, eventually for the loser, but in the meantime will
have to be funded. The costs estimates which are now before the court are premised on
the action coming directly to trial.
Page 22 ⇓
127. If there is, as I believe there is, reason to believe that the costs will be greater than the
current estimates, it follows that there is reason to believe that the plaintiff, on its own
figures, will be unable to pay them if the action fails.
128. The experts are agreed that the inactivity income from the dormant cards is, at the very
least, an important source of income to the plaintiff. That will be gone after the end of
2021. If the litigation has not been disposed of by then, it will continue to be a
significant drain on the plaintiff’s resources and the prospect of an inability to pay costs
will increase.
129. There is a difference of opinion between the experts as to the likely ability of the plaintiff
to meet an order for costs against it should this action fail. The proposition that the
plaintiff would be able to pay the costs is predicated upon a disputed entitlement to 100%
of the inactivity income; the accuracy of projections for future income and profits which
have not been independently verified by Mr. Jacobs and which are doubted by Mr.
O’Leary; the reliability of extrapolations from an estimate of the defendant’s costs as to
what the plaintiff’s costs will be; and an assumption that the action will be disposed of
before the end of 2021, without any further interlocutory applications, and without an
appeal by the plaintiff should it lose.
130. In my view the defendant has made out its case that there is reason to believe that the
plaintiff would be unable to pay the costs should the action fail.
Whether the plaintiff’s impecuniosity is attributable to the defendant
131. It is submitted on behalf of the plaintiff that any risk that it would be unable to pay the
costs is attributable to the wrongful acts of the defendant. It is agreed that the onus of
proof on this issue is on the plaintiff. It is agreed, also, that the applicable principles are
set out in the judgment of Clarke J. (as he then was) in Connaughton Road Construction
132. The onus is on the plaintiff to show:-
“(i) that there was actionable wrongdoing on the part of the defendant (for example a
breach of contract or tort);
(ii) that there was a causal connection between the actionable wrongdoing and a
practical consequence or consequences for the plaintiff;
(iii) that the consequence(s) referred to in (ii) had given rise to some specific level of
loss in the hands of the plaintiff which loss was recoverable as a matter of law (for
example by not being too remote); and
(iv) that the loss concerned was sufficient to make the difference between the plaintiff
being in a position to meet the costs of the defendant in the event that the
defendant should succeed, and the plaintiff not being in such a position.”
Page 23 ⇓
133. Mr. McGrath reminds the court that the standard, again, is a prima facie standard and
refers to a passage from the decision of the Court of Appeal in Tír na n-Óg Projects
(Ireland) Ltd. v. P.J. O’Driscoll & Sons (A firm) [2019] IECA 154 where Peart J.
(McGovern and Costello JJ. concurring) said:-
“It seems to me that in order to satisfy the requirement that special circumstances
be established on a prima facie basis, as opposed to a balance of probabilities, the
plaintiff must do more than merely assert the proposition on affidavit but must
bring forth some evidence which is cogent and credible, which corroborates the
contention being made. Any affidavit filed in response by the defendant may
affect the trial judge’s view as to that cogency and credibility, but the trial judge’s
task remains to decide if prima facie evidence has been adduced, and not to
determine as a matter of probability whether the impecuniosity of the plaintiff has
or has not been brought about by the wrongdoing alleged against the defendant.
That seems to me to be what is intended by the requirement to establish the
matter and has been consistently stated to be the level of proof required by the
decided cases from Jack O’Toole Ltd. v MacEoin Kelly Associates in 1986 up to
Connaughton Road in 2009, which has been consistently followed in later cases.”
134. Mr. McGrath also reminds the court of the need for caution in assessing the issue of
causation, both as to evidence and inferences, and of the summary in the judgment of
Haughton J. in Quinn Insurance v. PricewaterhouseCoopers (A firm) [2018] IEHC 16 of
the correct approach to be taken in the application of the test:-
“In overall terms I am satisfied for the purposes of this application that the exercise
to be undertaken by the plaintiff is one of reasonable hypothesis which is supported
by known facts.”
135. The first stage is to examine the alleged actionable wrongdoing. The plaintiff sails over
the bar of establishing a cogent and credible case that the defendant was not entitled to
terminate, or purport to terminate, the services agreement on 4th December, 2015 but I
find a real difficulty in understanding what it is the defendant is alleged to have done, or
not done, thereafter.
136. It seems to me that the plaintiff’s evidence is inconsistent. The plaintiff makes the case
that from the time the defendant was taken over in late 2014 it (the plaintiff)
encountered problems, variously said to have been an inability to obtain supplies (without
any indication of what those supplies were) and a difficulty (which must have been
somewhere short of an inability) in getting cards. These difficulties are ascribed to the
change of management of the defendant. The plaintiff acknowledges that there was a
drop off in sales in the fourth quarter of 2015 which it attributes to an inability to get
supplies, but there is no claim for damages for breach of contract in respect of anything
allegedly done or not done before 4th December, 2015. It is said that in the months
prior to the termination of the agreement the defendant was “increasingly slow to supply
us and difficult to contact and deal with” but there is no evidence as to what happened
thereafter or how, if at all, the day to day dealings between the parties changed. It is
Page 24 ⇓
true that Ms. Van Grinsven says in her first affidavit that “the decrease in the plaintiff’s
profitability and any difficulty that the plaintiff might face in meeting an order for costs
are entirely and only attributable to the defendant’s breach of contract”, but that, it
seems to me, is mere assertion.
137. In her second affidavit, Ms. Van Grinsven deposed that following the termination in
December, 2015 no new cards could be ordered. Mr. Jacobs’ affidavit of 5th February,
2019 records his understanding that no additional cards were supplied. Mr. Lillis
countered that between January and May 2016 thousands of new cards were supplied,
and that cards continued to be supplied until September, 2016. Ms. Van Grinsven swore
a further affidavit but did not contest what Mr. Lillis had said about the supply of cards.
Mr. McGrath, in argument, conceded that what Mr. Jacobs had been told about new cards
appeared to be wrong but suggested that there was evidence that there were no new
customers, and that all that the plaintiff got post-termination were cards and services on
a wind-down basis. It seems to me that once it is acknowledged that Mr. Jacobs was
wrong about the issue of new cards, it follows that Ms. Van Grinsven’s evidence that no
new cards were provided must be wrong as well.
138. The second leg of the Connaughton Road analysis is to identify a causal connection
between the alleged wrongdoing and the alleged practical consequence. It seems to me
that to get to that, the plaintiff must identify, at least in general terms, the nature of the
wrongdoing. In the case, such as this, of a requirements contract, the assertion, or
proof, that goods were not supplied does not establish a breach of contract. A breach can
only arise if an order is placed within the parameters which the supplier is obliged to
meet. Leaving aside the inconsistency in the evidence, it is not said that orders for cards
were placed which were not met, or which were not met on time, or that particular
services were ordered or required which were not provided, or not provided in time.
139. Mr. McGrath argues that it is not necessary to get bogged down in questions of what
services were provided, what level of services was provided, what cards were supplied,
how many cards were supplied, whether the supply was to new customers or old
customers or whatever. It is sufficient, he says to look at the figures to see the
enormous impact that the termination had on the plaintiff company.
140. I cannot agree. The figures show a decline in sales in 2016 and 2017 against 2015 but it
simply does not follow that because the decline came after the termination notice that it
was caused by it. On the evidence, the defendant has a cogent argument to make that
the writing was on the wall for the cards, as they were, probably from the time of the EU
Commission announcement on 5th February, 2013 and certainly from the promulgation of
the Fourth Anti-Money Laundering Directive on 20th May, 2015. The cards, as they
were, were the subject of some debate and criticism in the media in the Netherlands.
There must have been competing products in the market. The evidence is that almost
immediately after the services agreement was terminated the plaintiff applied itself, in
partnership with Safecard, to developing a new or alternative product. It seems to me to
Page 25 ⇓
be perfectly arguable that any one or more of these factors could have caused or
contributed to the decline in sales.
141. I can easily contemplate that the plaintiff might have had a requirement for so and so
many cards for so and so many existing or new customers which it asked the defendant
to supply but which it did not supply: but that is not the case made. Even if that were
the case made, it seems to me that it would be necessary to look at what precisely cards
were required – whether it was for cards with an annual limit of €2,500 or €250 without
customer due diligence, or with a limit of €2,500 with a requirement for due diligence
which would be met by the plaintiff or the defendant. I think that a claim that the
defendant failed to meet a requirement for cards on precisely the terms set out in the
product schedules might very well be different to a claim that the defendant failed to
provide cards on modified terms.
142. In my view the evidence now before the court does not support on a prima facie basis the
argument that there was a practical consequence of the defendant’s termination of the
services agreement.
143. The third leg of the Connaughton Road analysis is to see whether the plaintiff has pointed
to some specific level of loss.
144. The plaintiff’s initial estimate of loss was in excess of €7 million. This estimate was
made, or conveyed to the defendant, on 16th January, 2018, upwards of two years after
the termination but I acknowledge that the reliable estimation of loss might have been a
complex task. The next, and last, estimate was made by Mr. Jacobs on 5th October,
2018 when he expressed a preliminary view that the losses might exceed €3.7 million: a
figure made up of €2.4 million for loss of profit on credit cards; €0.7 million for loss of
profit on Pay.com; and €0.6 million for “costs of termination”.
145. I cannot discern from Mr. Jacobs’ report what the basis is of this estimate. In the way of
these things, the estimate must be based on a number of assumptions as to what, but for
the matters complained of, the plaintiff’s position would have been over a particular
period. Mr. Jacobs’ later report tends to suggest that he did not when he wrote his
earlier report have any projections from the plaintiff and that he had not made up his own
projections. To the extent that Mr. Jacobs was working on instructions that no new cards
had been provided by the defendant after the date of termination, that is acknowledged
now to have been wrong. To the extent that the estimate may have been based upon
the failure of the defendant to secure an alternative BIN sponsor, the case is not made
that the plaintiff had a market for products requiring BIN services beyond those which
ABN Amro was providing, or willing to provide.
146. As to the estimate for loss of profit on Pay.com, it is common case that that product was
never launched. As I understand the evidence, it is accepted that Pay.com was, or was
to have been, an internet-based product that did not require a BIN sponsor, but it did
require payment processing services and it would not, without modification, have
complied with the requirements of the Fourth Anti-Money Laundering Directive. There is
Page 26 ⇓
no indication as to the dates from which or to which this estimate is made or the
assumptions – as to the availability of payment processing services, or the defendant’s
alleged obligation to provide those services, or sales, or level of profitability – on which
the estimate was made.
147. It is of some significance to note that the head of loss claimed for Pay.com is a claim for
losses arising out of the exclusion of the plaintiff from carrying on the new business. If
that is the basis of the claim, the basis of the estimate may be an estimate of the
profitability over a particular time of a product being sold by the defendant. There is no
evidence of any such estimate.
148. As to the estimate for “costs of termination” there is simply no indication of what these
costs were, or when they were incurred. The figure of €0.6 million may or may not
include something in respect of one or other of “refunds to 3V customers” or “Migration
costs of 3V customers to pay2d” which are heads of special damage in the statement of
claim but whatever, if any, costs were incurred by reason of the termination must have
been incurred and must have been readily ascertainable long before the exchange of
affidavits on this application was complete.
149. Mr. McGrath draws attention to two Court of Appeal decisions. In CMC Medical Operations
v. Voluntary Health Insurance [2015] IECA 68 the Court of Appeal took the view that the
trial judge had been too exacting in his application of the Connaughton Road test. That
was a case in which a private hospital which had opened in 2010 closed the following year
because the VHI refused to provide cover for patients in it. The court concluded that the
time between opening and closing was so short that the judge’s reliance on precise
figures in seeking to understand the reason for its demise was problematic. The Court of
Appeal cautioned that the High Court should be slow to take any step which has the effect
of curtailing litigation or unduly restricting the constitutional right of access to the courts.
150. I acknowledge the warning about unduly restricting the constitutional right of access to
the courts, but it seems to me that this case is the very antithesis of CMC Medical
Operations. The trial judge in that case delved too deeply. In this case, there is nothing
to delve into.
151. The second case is National Private Hire and Taxi Association Ltd. v. AXA Insurance
[2015] IECA 75. That was a case, as this is, in which the plaintiff had derived all or
substantially all of its income over many years from the defendant but there, I think, the
similarity ends. The plaintiff had a contract with the defendant, terminable by two years
notice, which entitled it to a bounty of €27.50 for each motor policy issued to each of its
taxi driver members. That payment was first reduced by the defendant to €15.00 per
policy, and then stopped altogether. The plaintiff’s case was that its inability to pay the
costs if the action should fail was attributable to the fact that the readily quantifiable
commission was not paid. This, in my firm view, is not such a case. In this case the
defendant gave notice that the contract was terminated but it, and ABN Amro, continued
providing services. The plaintiff has put up a number of figures for alleged losses but has
not, in my view, made a cogent case, supported by credible evidence, that those alleged
Page 27 ⇓
losses, or the decline in its income, was caused by any shortfall or deficiency in the
products or services which were available to it.
152. Mr. McGrath points to the drop in revenue and says that the defendant has not offered an
alternative explanation to that offered by the plaintiff, that it was attributable to the
termination. Mr. Howard counters that he has, and that in any event the onus is not on
him to show that any decline in income is not attributable to the termination. I think that
Mr. Howard is right. On this issue the onus is on the plaintiff to make the link.
153. I cannot find any basis for the estimated losses. It follows inexorably that I cannot find
any causal connection between the alleged wrong and the alleged consequences. That
being so, the fourth leg of the Connaughton Road test does not arise.
Summary and conclusions
154. I am not satisfied that the defendant has discharged the onus of establishing that it has a
prima facie defence on the basis of frustration.
155. In my view, the argument that the contract in this case was frustrated falls squarely into
the category of mere assertion. I find it difficult to contemplate that a contract might be
frustrated by the broadcast of a television programme or by an indication by a third party
that it would – at an unspecified time in the future – do something that it had previously
said that it was its intention to do, but had not done. What is relied on as the
unexpected supervening event in this case was something which had been presaged long
before, and it was a difficulty which was well known to the parties at the time of making
the contract. The supervening event relied on by the defendant’s latter of 4th December,
2015 was, variously, a threatened withdrawal of BIN services by ABN Amro, and the
inability to obtain an alternative BIN supplier. On the evidence, any threat to withdraw
services was not followed through. The parties’ need to identify and secure an
alternative supplier was a commercial necessity from before the conclusion of the services
agreement. In my view, the performance of the contract by reason of the unavailability
of BIN services could not conceivably have been frustrated until the time when ABN Amro
in fact declined to provide services.
156. The defendant’s letter of 4th December, 2015 not only declared the contract to have been
frustrated but purportedly terminated it. It is common case that the letter was effective
to determine the contract. If the contract was discharged on 4th December, 2015, the
defendant cannot rely on any later alleged frustrating event or events.
157. I am however satisfied that the defendant has established that it has a prima facie
defence on the grounds that it did not cease to provide the services it was obliged to
provide and was not obliged to secure an alternative BIN service provider. The
defendant’s case is that, albeit on an ad hoc basis, it provided the services it would
otherwise have been obliged to provide pursuant to the services agreement and I find
that there is a credible basis upon which the trial judge might so find.
Page 28 ⇓
158. For the reasons given, I am satisfied that the defendant has established that there is
reason to believe that the plaintiff will be unable to pay the costs of the action if it fails.
159. Again for the reasons given, I am satisfied that the plaintiff has established on a prima
facie basis that there was actionable wrongdoing on the part of the defendant in
terminating the services agreement but I am not satisfied that it has adduced evidence or
pointed to the availability of evidence that there was a causal connection between the
alleged wrongdoing and a practical consequence or consequences for the plaintiff, or that
the plaintiff has succeeded in identifying a specific level of loss which is recoverable as a
matter of law.
160. My conclusion is that the defendant is entitled to the order for security of costs which it
claims.
161. It was agreed that the amount of the security would be left over, and I will hear counsel
further on that issue.
Result: Application for order directing the plaintiff to provide security for the defendant's costs granted.