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Druminiskin Developments Ltd & ors v O Gorman (Approved) [2020] IEHC 153 (27 March 2020)
URL: http://www.bailii.org/ie/cases/IEHC/2020/2020IEHC153.html
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[2020] IEHC 153
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Page 1 ⇓
THE HIGH COURT
[2020] IEHC 153
[2004 No. 3166 P]
BETWEEN
DRUMINISKIN DEVELOPMENTS LIMITED,
MATTHEW FARRELL, JAMES FARRELL AND EILEEN FARRELL
PLAINTIFFS
– AND –
KEVIN O’GORMAN A SOLICITOR PRACTISING UNDER THE STYLE OR TITLE OF KEVIN
O’GORMAN & COMPANY SOLICITORS
DEFENDANT
JUDGMENT of Ms. Justice Niamh Hyland delivered on 27th March 2020
Introduction
1. This is an application for security for costs pursuant to s.52 of the Companies Act 2014
(“Act of 2014”) and/or Order 29 of the Rules of the Superior Court (“RSC”), directing the
first named plaintiff, Druminiskin Developments Limited, to furnish security for costs. It is
brought by motion of 23 July 2018 grounded upon the affidavit of Mr. John O’Brien,
solicitor for the defendant. There is no question but that the first plaintiff will be unable
to pay the costs of these proceedings, given its very substantial liabilities. The abridged
accounts for the year ending on 31 December 2017 show that the first plaintiff had
liabilities in the amount of €3,814,998. Further, there is a prima facie defence in that the
defendant pleads a settlement agreement that prevents these proceedings being
continued. The real dispute between the parties is accordingly the first plaintiff’s claim
that there are special circumstances indicating security should not be ordered due to (a)
delay (b) the conduct of the defendant during the events which are the subject of these
proceedings and (c) the cause of impecuniosity being the defendant’s conduct.
2. The case arises in circumstances where the defendant, a solicitor, is alleged to have
acted, inter alia, negligently, in breach of contract, in breach of fiduciary duty,
fraudulently and in breach of the first plaintiff’s legitimate expectation when acting for the
plaintiffs in the context of the purchase and development of lands at Gortnakesh, Co.
Cavan.
3. I should explain that there were originally four plaintiffs, but the second to fourth named
plaintiffs settled their cases against the defendant two days into a hearing in June 2018.
The first plaintiff could not participate in that hearing since at the time it had been struck
off for failure to make returns to the Companies Registration Office (“CRO”). It sought an
adjournment of the proceedings so that all the plaintiffs’ cases could be heard together
but the defendant objected and proceeded against the extant plaintiffs. The second
named plaintiff gave evidence at that hearing, some of which is relevant to the matters I
am required to resolve. There is a transcript of his evidence and I am treating same as
prima facie evidence in deciding upon this application for security of costs, in the same
way as the affidavit evidence before the court, conscious of course that the case settled
before the defendant gave evidence and that his version of events was thus not before
the court by way of oral evidence.
Factual Background to the Application
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4. The facts of this case are involved and relate to events that happened many years ago. I
set out below a regrettably lengthy chronology but given my conclusions on special
circumstances, and particularly the defendant’s conduct, it is necessary to go into events
in some detail. There are many disagreements between the parties as to the precise
chain of events but the chronology of events appears to be as follows.
5. Mr. Patrick Russell, formerly a barrister, was introduced to Mr. James Farrell, the third
plaintiff (also known as Mr. Bobby Farrell) and the father of Mr. Matthew Farrell, the
second named plaintiff (“Mr. Farrell”), sometime in 2002. Mr. James Farrell indicated to
Mr. Russell that himself and his son Matthew were interested in doing a property deal to
obtain land to build houses. In turn Mr. Russell appears to have introduced Mr. Farrell
and Mr. James Farrell to a Mr. Thomas McFeely of 2 Ailesbury Road, Ballsbridge, Dublin 4.
On 10 September 2002, a company, Druminiskin Developments Limited (“the first
plaintiff”) was incorporated for the purpose of creating a vehicle for the construction and
sale of the houses on the lands at Gortnakesh, Co. Cavan.
6. In October 2002, the Farrells appear to have agreed in principle to buy a site in
Gortnakesh, Co. Cavan from Mr. McFeely for the purposes of house construction by the
Farrells. Mr. Farrell, a builder, went on to the site in what he describes as a “caretaker
capacity” and commenced building works in October 2002.
7. The first appearance of Mr. Kevin O’Gorman, defendant and solicitor, in the
documentation appears to be in a letter of 7 November 2002, where he is acting not for
the first plaintiff but rather for Mr. McFeely in connection with the purchase by Mr.
McFeely of the property at Gortnakesh. The letter refers to receipt of a contract for sale
for the lands at Gortnehask (sic) from Mr. Cathal O’Sullivan (joint owner of the lands
along with Mr. James McMorrow). Mr. O’Gorman notes that there is no purchase price or
closing date and he asks Mr. McFeely to contact him to discuss the contents of the
contract.
8. In a letter of 12 November 2002, Mr. O’Gorman writes to Mr. Russell asking whether the
Farrells are purchasing what is described as “lands at Co. Cavan” from Mr. McFeely, thus
suggesting that at this time, the Farrells were not clients of Mr. O’Gorman. However,
around this time Mr. Russell appears to have introduced the plaintiffs to Mr. O’Gorman.
Mr. O’Gorman had apparently acted for James and Eileen Farrell, the third plaintiff (also
known as Ann Farrell), Mr. Farrell’s mother, in respect of another property transaction. It
is not clear precisely when Mr. O’Gorman started acting for the Farrells but by 6
December 2002 he was writing on behalf of James and Matthew Farrell to AIB in respect
of a loan, inter alia, to purchase the lands at Gortnahask (sic).
9. On 20 November 2002, by which time Mr. Farrell had gone onto the lands at Gortnakesh,
Mr. Farrell received a letter from Martin P. Crilly, Solicitors acting on behalf of Mr.
McMorrow, who was stated to be the joint owner of the lands at Gortnakesh. That letter
said that Mr. Farrell had entered into possession of the property without permission, had
commenced work and had been told that he had no right of authority to enter onto the
client’s property and that, despite his client being assured by Mr. Farrell that he would
Page 3 ⇓
immediately leave, he had not done so and had continued to carry out work. The letter
threatened that an injunction would be issued unless he immediately ceased all work and
removed himself, his employees and his equipment from the property. In evidence given
before the High Court on 5 June 2018 in the proceedings by the second to fourth
plaintiffs, Mr. Farrell accepted that he had personally received that letter.
10. Correspondence then ensued between Mr. O’Gorman (acting on behalf of the plaintiffs)
and Mr. Martin Crilly. It is clear from the documentation before the court that Mr.
McFeely had no title to the lands in question at that point in time. Indeed, of critical
importance to the determination of this motion is the fact that he did not obtain title until
6 May 2005, when a transfer took place from Mr. McMorrow and Mr. O’Sullivan to Mr.
McFeely as original purchaser and, in the same transaction, from Mr. McFeely to the first
plaintiff as sub-purchaser.
11. On 16 December 2002, Mr. O’Gorman wrote to Mr. John O’Connor, now solicitors for Mr.
McFeely, stating that he had received a phone call from a man purporting to be Mr.
McMorrow telling them that Mr. McFeely was not in a position to sell the property. In that
letter, Mr. O’Gorman seeks a copy of the contract between Mr. McFeely and Mr. McMorrow
and Mr. O’Sullivan. At latest from this point, Mr. O’Gorman was put on notice of the
issues in respect of the title to the lands at Gortnakesh.
12. There appears to have been some type of agreement between the Farrells and Mr.
McFeely to buy the lands in December 2002 as a document entitled “Memorandum of
Agreement of the 20th December 2002” between Mr. McFeely and Mr. James Farrell and
Mr. Farrell in respect of the first plaintiff has been exhibited, reciting a purchase price of
€1.3 million and a deposit of €250,000 for the lands at Gortnakesh. This agreement was
never completed.
13. From mid-December 2002 to 4 February 2003, there are various letters from Mr.
O’Gorman to Mr. O’Connor, asking for an update on the position concerning the contract
between Mr. McFeely and Mr. McMorrow/Mr. O’Sullivan. Then, on 17 February 2003,
there is a letter from Martin P. Crilly, Solicitors to Mr. Farrell putting him on notice that he
had again gone onto the site without permission and that injunction proceedings would be
issued unless he left the site immediately.
14. Meanwhile, on 19 February 2003, a letter of sanction was issued by AIB (“the Bank”)
whereby the bank offered the first plaintiff two loan facilities, the first being in the amount
of €1.65 million in order to fund the purchase of an 11-acre site with planning permission
for 82 houses to be registered in the name of Druminiskin Developments Limited and the
second of €1.23 million to fund the development of the first 10 houses at Gortnakesh.
The security for the loan was stated to be a debenture over the assets of Druminiskin
Developments Limited, including the 11-acre site with planning permission for 82 houses
at Gortnakesh, Co. Cavan, letters of guarantee from James and Eileen Farrell to the value
of €2.9 million and assignment of life cover over the life of Mr. Farrell to the value of €1
million. The security was required to be in place before drawdown.
Page 4 ⇓
15. On 21 February 2003, Mr. O’Gorman wrote to AIB stating that, in consideration of it
releasing a sum of €450,000, Mr. O’Gorman undertook to register AIB’s debenture against
the property at Gortnakesh. On the same day, €450,000 of the first loan facility was
drawn down.
16. On 20 March 2003, Mr. O’Gorman wrote enclosing what he describes as “your undertaking
duly completed” and asking when he could expect to receive the loan cheque. A solicitor’s
undertaking of 10 March 2003 was provided by Mr. O’Gorman in his discovery (exhibited
as MF4 to the affidavit of Mr. Farrell of 31 October 2018), whereby in consideration of
present or future advances and/or in consideration of the Bank agreeing to the drawdown
of the facility and the payment through Mr. O’Gorman of the loan cheque, Mr. O’Gorman
undertook, inter alia, that the first plaintiff has, or will, acquire a good marketable title to
the property in the sole name of the company, to apply all sums received towards the
purchase of the property or the discharge of existing third party mortgages and not to
negotiate the loan cheque until the security has been duly executed and to execute the
bank’s standard form of mortgage, to register the mortgage and to lodge with the Bank
the original title deed/land certificate. A sum of €1.2 million was drawn down on the 21
March 2003, presumably on foot of this undertaking.
17. Those undertakings appear to have been replaced by an undertaking of 9 June 2003
given by Mr. O’Gorman. By the June undertaking, in consideration of present or future
advances and in consideration of the Bank agreeing to the drawdown of the facility and
the payment through Mr. O’Gorman of the loan cheque, Mr. O’Gorman undertook, inter
alia, that the first plaintiff has, or will, acquire a good marketable title to the property in
the sole name of the company, to apply all sums received towards the purchase of the
property or the discharge of existing third party mortgages and not to negotiate the loan
cheque until the security has been duly executed.
18. Early on in the hearing seeking security, counsel for the defendant informed the court
that Mr. O’Gorman accepted that he was in breach of his undertaking of 9 June 2003.
This position was also set out in a replying affidavit of Mr. O’Gorman sworn on 6
December 2018 in this motion, where he stated, at para. 25, that “[t]he Plaintiffs
correctly fault your deponent in relation to the undertaking given to AIB and while I
acknowledge that these monies should not have been dispersed, they were dispersed to
or on behalf of the plaintiffs and its directors and on their direction”. At para. 35, he
avers:
“Finally, insofar as it [is] said that the Court has an inherent supervisory
jurisdiction over your deponent, I fully accept this in relation to the issues
arising from the undertaking. The First Named Plaintiff and the co-Plaintiffs were
however the recipients or beneficiaries (direct or indirect) of the payments
which were wrongly made and while I fully accept that these payments should
not have been made to the Plaintiffs or on their direction, I respectfully suggest
that the inherent supervisory jurisdiction cannot be called in aid by the very
persons who benefitted from the breach and who were aware of the purpose of
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the advance. In saying this, I do not for one moment, seek to suggest that
there was proper compliance with the undertaking but, if it is a complaint – it is
a complaint by the Bank and not by the persons who instructed the
disbursement of those monies”.
19. I should observe at this point that, as noted above, there were in fact three undertakings
to AIB by the defendant, the first by way of letter of 21 February 2003, the second on 10
March 2003 and the third on 9 June 2003. The acceptance of breach of undertaking was
made in respect of the June undertaking but it seems likely that there was a similar
breach in relation to the February and March undertakings. By the start of June 2003, the
entirety of the sum of €1.65 million had been paid out by AIB and disbursed by Mr.
O’Gorman in circumstances where he was aware that the first plaintiff did not own the
lands at Gortnakesh, that he was not in a position to register the debenture against the
property at Gortnakesh, that the first plaintiff did not have a good marketable title to the
property, and that the security could not be duly executed.
20. By letter of 21 February 2003, Mr. O’Gorman wrote to Mr. McFeely enclosing what he
described as a booking deposit of €450,000 and noting that it would be paid by way of
three different cheques as per Mr. McFeely’s request.
21. On 27 February 2003, Mr. McMorrow and Mr. O’Sullivan issued proceedings against Mr.
Farrell in the High Court seeking an injunction restraining him from continuing
construction or interfering with their lands at Gortnakesh and restraining him from
continuing trespass and nuisance on those lands. An interim order was made on that
date.
22. On 5 March 2003, a summons server, Mr. Durkin, served a copy of the notice of motion,
grounding affidavit and exhibits, a copy of the Order made on 28 February 2003 and the
plenary summons on Mr. Farrell, who acknowledged in his oral evidence in the June 2018
proceedings that he had received those documents.
23. On 27 March 2003, an affidavit of Mr. Farrell sworn 21 March 2003 was filed and served
in the injunction proceedings. Mr. Farrell says that he was not told of the proceedings, he
had no knowledge of this affidavit whatsoever and did not assist in the preparation of it
and that the signature on the affidavit was not his (see para. 36 of his affidavit of 31
October 2018). I find the response of Mr. O’Gorman to this very serious allegation
difficult to understand. In his replying affidavit sworn 6 December 2018, he avers as
follows:
“26.
I instructed the deponent in his affidavit and at paragraph 36 is referring to his
affidavit of 21st March 2003. I note it is claimed he did not swear the contents
of the Affidavit but this was sworn before a currently unidentified Commissioner
for Oaths on the 21st March 2003.
27.
Nowhere in the affidavit is any explanation provided by the Plaintiffs as to why
works were commenced, having received originating letters of the type which
Page 6 ⇓
threatened an injunction, and which made clear that ownership of the land lay
elsewhere”.
24. I should add that in a motion to dismiss for want of prosecution brought by the
defendant, a replying affidavit was sworn by Mr. O’Gorman on 12 July 2008 and he refers
there to “untrue and disingenuous allegations” against him by Mr. Farrell which he says
he will not respond to by reason of the settlement of the proceedings (discussed further
below). However, he does aver at para. 4 that there is one allegation that cannot go
unanswered being that the signature of Mr. Farrell was forged in his affidavit of 27 March
2003, and that he, Mr. O’Gorman, had some role or involvement in same. He says this is
a “scurrilous allegation and [he] categorically reject[s] any suggestion that [he] was
involved in or aware of the alleged forging of the signature.”
25. It appears that the injunction proceedings were settled on 27 March 2003, and a
settlement agreement in respect of the proceedings is exhibited to Mr. Farrell’s affidavit of
31 October 2018.
26. Although Mr. Farrell had originally been the only defendant to these proceedings, by way
of the settlement the Coalport Building Company (“Coalport”) and Mr. McFeely were
joined as defendants and a settlement was agreed as between the plaintiffs and Mr.
McFeely and Coalport, which ultimately was ruled on 31 March 2003 by the High Court.
However, Mr. Farrell is not a signatory to the settlement agreement. Mr. O’Gorman
makes no reference to the agreement and there is no correspondence or minutes of
meetings between Mr. O’Gorman and Mr. Farrell exhibited in this regard. Mr. Farrell gave
evidence on Day 2 of the hearing in June 2018 that he had no knowledge of the High
Court Order of 31 March 2003 (page 78, line 18 of the transcript referred to at para. 3
above).
27. That settlement ultimately broke down and the injunction proceedings were re-entered on
28 July 2003 with notice of re-entry of the proceedings served on Mr. O’Gorman. By
letter of 9 August 2003, Mr. O’Gorman agreed to an adjournment of the injunction
proceedings with Mr. Crilly for Mr. McMorrow. There is no evidence of any
correspondence or notes of meeting between Mr. O’Gorman and any of the plaintiffs in
respect of this adjournment.
28. Prior to those events, as noted above, various disbursements on foot of the monies that
had been advanced by AIB of €1.2 million in March 2003 were made. The detail of those
disbursements is recorded by Mr. O’Gorman in a letter of 12 January 2004 (after the
relationship between the plaintiffs and Mr. O’Gorman had broken down). According to the
account given by Mr. O’Gorman in that letter, the amount paid out totalled approximately
€1.2 million and he asserts that all disbursements were done on Mr. Farrell’s instructions.
A sum of €330,000 was lodged to the account of a company called SCOSIM Limited in the
United Kingdom. The circumstances in which this money was lodged are very unclear and
Mr. Farrell says he knew nothing about it. There were other monies provided to Mr.
McFeely in the sum of €28,500. An amount of just under €100,000 was paid to Mr.
Russell. There was also a cheque for €62,500 in favour of Newgate Motors.
Page 7 ⇓
29. Payments of €234,128, €35,000, €125,000 and €237,500 were made to the first plaintiff.
In Mr. Farrell’s evidence in June 2018, he states that in respect of the cheque for
€237,500 he was instructed by Mr. O’Gorman to lodge it to Ulster Bank and to write a
cheque for €237,500 to Mr. McFeely. In respect of the payment of €234,128, Mr.
O’Gorman writes on 14 May 2003 to the first plaintiff as follows:
“Dear Mathew and James,
Further to our conversation of even date in the above matter please find
enclosed herewith my cheque for €234,128 in your favour. Please note that this
money is paid to you on the strict understanding that it will be immediately
forwarded by you to the Vendor (Tom McFeely) by way of part payment of the
purchase money in this instance.”
30. It is accompanied by a typed document to be completed by Mr. Farrell whereby he
acknowledges the cheque, confirms he will pay it to Mr. McFeely by way of part-payment
in the sale price of the lands at Gortnakesh and acknowledges that the payment of money
is made against the advice of his solicitor. That document is undated and unsigned.
31. On 15 April 2003, a memorandum of agreement for the lands in Gortnakesh was
concluded between Mr. McFeely and the first plaintiff in the amount of €1.9 million with a
deposit of €240,000 and a closing date of 2 May 2003. The contract was signed by Mr.
O’Gorman in trust for his client. In his evidence in June 2018, Mr. Farrell said that he
knew nothing about this contract. However, at para. 29 of the affidavit of Mr. O’Gorman
of 6 December 2018, sworn in the context of this motion, he avers he was instructed by
his client to execute the contract dated 15 April 2003 signed in trust. No transfer of the
lands took place pursuant to that agreement.
32. On 9 June 2003, the undertaking referred to above was given to AIB by Mr. O’Gorman in
respect of the site at Gortnakesh.
33. On 30 September 2003, there was a letter to AIB from Mr. O’Gorman (see Mr.
O’Gorman’s discovery, exhibited by Mr. Farrell) where it was confirmed that substantial
work had commenced on the first plaintiff’s site and that, although legally binding
contracts had not yet been implemented for the new houses, booking deposits had
already been paid with respect to 24 houses and at least 12 of the purchasers were
anxious to proceed as soon as possible.
34. An important letter in the context of this motion is sent on 28 November 2003 from Mr.
O’Gorman to AIB where he confirms they have now received back signed contracts from
purchasers in respect of 20 of the houses in the development. Mr. Farrell gave evidence
on Day 2 to the effect that the letter came about because “the bank gave us drawdown
for ten houses but we actually built the 20 houses. When we got close to finishing off the
20 houses we were short, I can’t remember whether it was 80 or 100,000, we looked for
the bank to give us an extra payment. The bank agreed to give us the extra payment on
foot of contracts being signed”.
Page 8 ⇓
35. On the first day of the hearing counsel for the defendant informed the court that this
letter was false and the representations in it were false. No explanation was offered for
same. I address this issue further below when considering the conduct of the defendant.
36. In the discovery from Mr. O’Gorman exhibited to the affidavit of Mr. Farrell, there is also a
letter of 3 October 2003 from Mr. O’Gorman to AIB stating that he can confirm they have
now received signed contracts from various purchasers of 12 of the new houses belonging
to the first plaintiff. It seems likely that the representations in that letter must also have
been false given the position of counsel for the defendant in respect of the later letter.
37. Much reliance has been placed by the defendant upon a letter of 31 July 2015, from G.A.
Byrnes and Associates, estate agents, furnished by the plaintiffs’ solicitors as part of the
replies to particulars where Mr. Byrnes says that he was heading up the sales and
marketing programme for the properties being sold, being 3 and 4 bedroomed semi-
detached properties in October 2003 and that after achieving sales in the first phase they
were advising prospective purchasers that the next phase was under construction and
would be released in January/February 2004. Mr. Byrnes states that there was a very
strong interest from purchasers for the next phase, but they made the decision not to
take any booking deposits to ensure they obtained the best possible sale price for their
clients. This letter has been interpreted by the defendant to assert that there had been a
deliberate decision by the plaintiffs to cease the sale of houses for pricing reasons and
that therefore the defendant was not causative of any loss. This does not appear to be a
correct interpretation of this letter. Whatever the reason given in that letter as to why
sales were being deferred, sales could not have been completed by the first plaintiff since
it had no title to the property, Mr. McFeely not achieving title until 2005 to the lands,
when he in turn sold them on to the first plaintiff. In those circumstances I cannot
conclude there was a deliberate decision of the first plaintiff not to sell the houses for
commercial reasons, given the impossibility of the first plaintiff closing any sales at the
end of 2003/2004 due to a lack of title over the land.
38. Meanwhile the proceedings between Mr. McMorrow and Mr. O’Sullivan and Mr.
Farrell/Coalport/McFeely were still going on, with an order being made on the 19
December 2003 restraining Mr. McFeely from dissipating a particular asset other than for
the purpose of complying with the Order of the High Court of 31 March 2003. No
evidence has been given by Mr. O’Gorman identifying that he was keeping Mr. Farrell
informed of the position in relation to the proceedings against him or in respect of Mr.
McFeely’s acquisition of interest in the property at Gortnakesh and no advice in that
respect has been exhibited.
39. In his evidence in June 2018, Mr. Farrell gave evidence to the effect that in December
2003 he had 20 houses ready for sale in Gortnakesh, that he rang Mr. O’Gorman to
finalise the contracts to get people into the houses and that he was told over the phone
that there was no money left and that Mr. Farrell did not own the land (Day 2, page 45,
line 14). Once this conversation occurred, there was an immediate discharge of Mr.
O’Gorman’s retainer by the plaintiffs and Mr. Thomas Colgan, solicitor, took over, with a
Page 9 ⇓
letter being sent on 6 January 2004 by Mr. Colgan to Mr. O’Gorman authorising him to
hand over all documentation in relation to the first plaintiff in Mr. O’Gorman’s possession.
Mr. Farrell gave evidence that after he was told by Mr. O’Gorman the money was gone
and the lands not in his possession, he never spoke to Mr. O’Gorman after that (Day 2,
page 101, line 17).
40. On 3 February 2004, AIB wrote to Mr. O’Gorman identifying that the bank had become
aware that there was a serious problem regarding the title of Druminiskin Developments
Limited, the property referred to in Mr. O’Gorman’s undertaking and that his undertaking
to the bank was to acquire good marketable title to the property with the money
advanced to his client and asking him to explain what the problem was with the title and
why good marketable title had not been obtained. He was also asked why no mortgage
debenture had been registered. A complaint was subsequently made by AIB to the Law
Society of Ireland in February 2004 in respect of Mr. O’Gorman.
41. The within proceedings were initiated by way of plenary summons on 12 March 2004 and
I address their progress below.
42. On 13 December 2004, a settlement agreement was concluded between Mr. Farrell, Mr.
James Farrell and the first plaintiff on the one hand (described in the agreement as
“parties of the first part”) and Mr. O’Gorman, Mr. McFeely and Mr. Russell (described as
“parties of the second part”) on the other hand. This settlement agreement was signed
by Mr. O’Gorman as well as by Mr. Farrell personally and on behalf of the first plaintiff.
The terms of the settlement agreement included the following:
“a)
Whereby a deal being done on the lands at Gortnakesh, Cavan Town, Co.
Cavan between Druminiskin Developments Ltd, Mathew Farrell, James “Bobby”
Farrell and Mr. Thomas McFeely.
b)
All parties of the first part agree to cease all legal proceedings against Mr. Kevin
O’Gorman and Kevin O’Gorman & Co. Solicitors… This to cover all extant
proceedings and further to undertake not to issue any proceedings either
individually or collectively at any time in the future.
c)
All parties of the first part agree that Mr. Russell does not owe any money to
any or all of any combination of the parties of the first part.”
43. It was further agreed, inter alia, between the parties of the first part that all issues
outstanding between them and Mr. Russell were resolved, that the parties of the second
part undertook not to issue proceedings against all or any of the parties of the first part
and that the parties of the first part instruct their lawyers to serve a notice of
discontinuance in respect of the proceedings issued against Mr. O’Gorman, with all parties
acknowledging they had received independent legal advice to enable them to enter this
agreement in an informed mind.
Page 10 ⇓
44. In relation to the settlement agreement, Mr. Farrell said on affidavit, sworn 29 May 2008
in the motion to dismiss for failure to disclose a cause of action (exhibited as MFI to his
replying affidavit of 31 October 2018), that he was coerced into signing the agreement,
that he had no legal advice in relation to same, that he only signed same to complete the
sale in respect of the lands at Gortnakesh and that the settlement agreement ought to be
set aside. He further averred that the agreement was concluded in Devitts public house
on Camden St., that Mr. O’Gorman was not at that meeting and the agreement was
produced by Mr. McFeely already signed by Mr. O’Gorman.
45. In the replying affidavit sworn in the motion to dismiss sworn on 12 July 2008, Mr.
O’Gorman avers that in respect of the majority of the allegations, he will not respond to
same as the case has been settled but does make various points, including that the
plaintiffs had legal advice, that they achieved a benefit from the agreement, that it was
not procured under duress, that they had not made an application to set aside the
agreement, and that they had delayed in the proceedings. Mr. O’Gorman does not
explain his involvement in the settlement agreement, or why Mr. McFeely or Mr. Russell
sought to ensure proceedings against him by the plaintiffs should be ended. It is difficult
to understand the defendant’s alignment with Mr. McFeely and Mr. Russell, given that Mr.
McFeely was on the other side of the transaction where Mr. O’Gorman was acting for the
first plaintiff.
46. On 30 March 2005, AIB issued a loan sanction letter for €4,683,948 to the first plaintiff,
the purpose being to take over the existing borrowings in the company’s name of
€3,498,948 inclusive of interest to date with the repayment to be reduced initially from
net sale of the proceeds of 20 houses. One of the conditions was that the bank would
appoint a quantity surveyor/project manager to oversee the completion of 20 houses
initially. The fifth condition was a written acknowledgment from the borrowers and
guarantors that the new facility was, inter alia, in full and final settlement of all or any
claims any of the parties may have against the bank.
47. On 6 May 2005, there is a transfer as between Mr. McMorrow and Mr. O’Sullivan (the first
and second vendors), Mr. McFeely (the original purchaser) and the first plaintiff (the sub-
purchaser), whereby the first and second vendor agree with the original purchaser for the
sale to him of the property at Gortnakesh and the original purchaser in turn agrees with
the sub-purchaser for the sale of the property for the price of €1.45 million.
48. It appears that the sale of the houses on the lands were completed sometime in 2007 and
that ultimately AIB was paid off in full. At no point in the evidence or the submissions
was it made clear when the houses were completed, how many houses were completed,
on what dates the houses were sold, or the price for which they sold.
Pleadings
49. The plenary summons was issued on 12 March 2004. This application for security for
costs was issued on 23 July 2018 and was heard on 14 January 2020. This is a
remarkable delay by any standards. Before addressing the chronology of pleadings, I
think it is useful to seek to summarise the contents of the (23 page) Statement of Claim
Page 11 ⇓
of 12 May 2004 filed by the plaintiffs (which presumably replaces that filed on 14 April
2004). At para. 14 it is pleaded that the defendant failed to have completed a proper and
enforceable contract for the purchase of the property by the first plaintiff which would
bind the owner and provide for an achievable closing date within a reasonable time. It is
further pleaded that the defendant knew or ought to have known that Mr. McFeely was
not the registered owner of the property (para. 15), wrongfully and deliberately concealed
this information from the plaintiffs and failed to advise the plaintiffs of the identity of the
true owners of the property (para. 16). At para. 18 particulars are given of the
defendant’s alleged failure to advise the plaintiffs of the legal implications of investing
money in and carrying out costly development works on land other than land on which
the plaintiffs had an interest or were in the process of acquiring interest. In relation to
the McMorrow proceedings, it is pleaded that an affidavit purporting to be that of the
second named plaintiff was sworn and filed by the defendant (para. 23), that the second
named plaintiff was not consulted and did not give instructions to the defendant in
relation to the content of same, that the signature on the affidavit was not that of the
second named plaintiff and that the defendant failed to protect the second named
plaintiff’s interest in the proceedings (paras. 23 to 25). It is further pleaded that the
defendant acted to the detriment of the plaintiffs by purporting to represent them in those
proceedings entirely without instructions (para. 26). It is pleaded that the defendant did
not advise the plaintiffs of the settlement of the McMorrow proceedings (para. 30). It is
further pleaded that the contract for sale in respect of the property from Mr. McFeely to
the first plaintiff came into existence on 15 April 2003 and was signed by the defendant in
trust as purchaser for a purchase price in respect of which the defendant had not sought
instructions from the plaintiffs (para. 31). It is pleaded by so doing the defendant
wrongfully jeopardised the plaintiffs’ position in relation to the acquisition of the property
(para. 36), inter alia, by the defendant agreeing a purchase price of €1.9 million, being in
excess of the purchase price previously agreed.
50. The plaintiffs identify the undertaking given by Mr. O’Gorman on 9 June 2003 (para. 37)
already referred to previously in this judgment, and it is further pleaded that in failing to
advise AIB or the plaintiffs that Mr. McFeely was not the vendor or registered owner of
the property and was not in possession of a transfer of the property, having failed to
meet the settlement agreement, the defendant jeopardised the plaintiffs’ standing and
reputation with AIB and AIB’s confidence in the plaintiffs (para. 43). It is pleaded that
contracts for end purchasers were negotiated by the second named plaintiff and the
second named plaintiff advised the end purchaser that their solicitor should contact the
defendant but that the defendant failed and neglected to procure that any such contracts
were entered into and failed to inform the plaintiffs as to the true reason for such lack of
progress (paras. 49 and 50). At para. 51 it is pleaded that the defendant wrongfully and
deliberately fraudulently misrepresented and misstated to the Bank that there existed
signed contracts in relation to 20 houses forming part of the plaintiffs’ development on
the property and wrongfully and deliberately led the plaintiffs to believe that such
contracts were being entered into on an ongoing basis. It is further pleaded that on at
least one occasion the defendant wrongfully and deliberately formally fraudulently
misrepresented and misstated to the Bank that there existed signed contracts in relation
Page 12 ⇓
to 20 houses forming part of the plaintiffs’ development on the property. At para. 52 it is
pleaded that the emergence of the truth of the position and the fact that such
representation was false has resulted in incalculable damage to the Bank’s confidence in
the plaintiffs and the plaintiffs’ standing and reputation. It is pleaded at para. 55 that the
plaintiffs, by reason of the defendant’s actions, invested substantial sums in excess of
€3.7 million in the construction of the residential development on the property. It is
further pleaded at para. 56 that the defendant has made disbursements from the monies
advanced of €1.65 million in breach of the undertaking other than in conformity with the
terms of the undertaking. It is pleaded that the Bank has ceased the provision of all
facilities to the plaintiffs and has called for the return of the advances. It has also called
for the return of the advance of €1.65 million (paras. 57 and 58).
51. A very different approach to pleading is taken by the defendant. The defence consists
largely of boilerplate denials with very few positive averments, save in respect of the
settlement agreement and a minor number of other matters. At paras. 1 to 4 a
preliminary matter is pleaded, whereby the defendant claims that by reason of a
settlement it was agreed to cease/discontinue the proceedings issued against Mr.
O’Gorman, that the agreement acknowledges that Mr. O’Gorman has no responsibility,
liability or exposure, inter alia, to the first plaintiff and that the proceedings have
therefore been compromised.
52. The only other positive averments are that the plaintiffs employed the defendant as their
solicitor in connection with pursuit of lands, that the lands consisted of the development
lands at Gortnakesh, that if the plaintiffs have a cause of action it is not against the
defendant but against Mr. Russell (para. 24), that the proceedings between Mr. McMorrow
and Mr. O’Sullivan and Mr. McFeely were compromised (para. 40), that the terms of the
settlement as pleaded are admitted (para. 41), that the contract referred to at para. 43 of
the Statement of Claim refers to a price of €1.9 million and deposit of €240,000 but it is
denied that this is less than the actual deposit paid (para. 44), that the defendant admits
he gave an undertaking to the bank on the 9 June 2003, and that on foot of the
undertaking the bank advanced to the defendant the sum of €1.65 million and that a
deposit of €265,000 was paid to Mr. McFeely (para. 54, 55 and 56), and that the second
named plaintiff was a party to the proceedings referred to in para. 59 of the Statement of
Claim, i.e. the McMorrow proceedings (para. 84). In respect of some other matters the
plaintiffs are put on full proof. It is fair to say that Mr. O’Gorman has chosen for the most
part not to reply to the detailed allegations made against him by the plaintiffs, despite the
plea, inter alia, of fraud against him by his former clients in the discharge of his role as a
solicitor.
Conduct of Proceedings
53. Following the delivery of the statement of claim, by notice of motion dated the 14 March
2008, prior to the delivery of the defence in 2009, the defendant brought an application
to strike out the first, second and third named plaintiff’s claim on the basis that it
disclosed no reasonable cause of action and was frivolous and vexatious. That application
was grounded upon the affidavit of Mr. Terry Leggett sworn 6 March 2008, and it was
Page 13 ⇓
based on (a) the existence of the settlement agreement and (b) delay due to the failure
to serve a notice of intention to proceed. The application in respect of the settlement
agreement was accepted not to be applicable to the fourth plaintiff, since she had not
been a party to same. As referred to above, in Mr. Farrell’s replying affidavit, he spent
some considerable time explaining why, on his case, the settlement agreement was not
valid and should not bar him from proceeding with his claim and he gives a full account of
the circumstances leading up to the settlement agreement. Following the hearing of the
motion, the reliefs sought by the defendant were refused.
54. On 19 February 2009, the plaintiffs motioned for a defence and this was delivered on the
22 June 2009. On 28 August 2009, a motion was issued seeking an order directing a trial
of a preliminary issue in relation to whether the first, second and third named plaintiffs
were bound by the settlement agreement on 13 December 2004. No replying affidavit to
that motion is included in the court’s book, but on 9 November 2009 McMenamin J.
directed the trial of a preliminary issue. Points of claim and points of defence were issued
but ultimately it was decided by the defendant not to pursue the motion.
55. There was also a motion by the plaintiffs’ solicitors (Sheridan & Co.) to come off record
and they were replaced by O’Rafferty Solicitors, who remain the first plaintiff’s solicitor.
56. On 26 November 2012, the defendant brought a motion seeking to strike out the first
plaintiff’s claim for want of prosecution as the first plaintiff was dissolved on 15 July 2011.
It is not clear what happened to that motion but I assume that the first plaintiff was
reinstated to the Register of Companies and the motion struck out. I should add at this
point that the first plaintiff has been struck off four times for failure to make returns to
the CRO, most recently in January 2016. It was reinstated on 25 June 2018 by Order of
McDonald J. There was a complaint by the defendant about the circumstances in which
the first plaintiff was reinstated and this Court was asked to take into account those
circumstances when determining this application. This seems to me to be a collateral
attack on the Order of McDonald J. If the defendant had a concern about same, he could
have sought to set aside that Order but no such action was taken. For those reasons, I
do not further consider the points raised by the defendant in this respect and have not
taken same into account in this decision.
57. A notice of intention to proceed was filed by the defendant on 10 February 2015 and four
sets of particulars and further and better particulars were delivered by the plaintiffs
between 6 August 2015 and 14 July 2016. There has been much focus by the defendant
on the fact that, in the particulars of loss delivered in July 2016, the plaintiffs’ claim is
much reduced, going from almost €7 million in the particulars delivered in April 2016 to
€2.2 million in the July particulars, but that, despite this, in the Expert Accountant’s
Report of Mr. Jim Stafford, forensic accountant, (exhibited to the affidavit of Mr. Farrell
sworn 22 January 2019), Mr. Stafford identifies losses of €6,896,005. The defendant says
this is impermissible where the plaintiff had moved away from the higher sum originally
sought and reduced its claim in the July 2016 particulars.
Page 14 ⇓
58. Because the precise amount sought by the first plaintiff is not relevant to my decision in
this motion, and because there is no application to deliver further particulars or amend
the particulars provided in July 2016, I am not required to determine the question of
whether it is permissible to adduce a report identifying losses substantially greater than
those sought in the most updated particulars of loss, or the status of that report. That
will be a matter for the trial judge and accordingly I do not consider it further.
59. By way of motion and Order of Gilligan J. on 11 March 2016, discovery was ordered as
against the plaintiffs. The affidavit of discovery of Mr. Farrell was sworn on the 18 April
2016. An affidavit of Mr. O’Gorman was sworn on 28 April 2017. A notice of trial was
issued on 12 September 2017 and a hearing date set for 5 June 2018.
60. As noted above, sometime in January 2016 the first plaintiff was again struck off the
Companies Register. The plaintiffs’ solicitor sought an adjournment of the hearing but no
consent was forthcoming from the defendant, the court refused the application for an
adjournment and the case went on as against the second, third and fourth named plaintiff
on 5 and 6 June 2018 before Barrett J. The first day consisted of opening submissions on
behalf of the plaintiffs and on the second day Mr. Farrell spent the day giving evidence.
On the third day the trial judge was told that the proceedings had been settled and the
settlement recorded that the proceedings were to be struck out as against the second,
third and fourth named plaintiffs with the money lodged in court to be returned to the
defendant, that there was to be no order as to costs and that the sum of €50,000 in total
was to be paid to the second, third and fourth plaintiffs as a contribution to their costs.
61. As noted above, this motion for security was issued on 23 July 2018, grounded upon the
affidavit of Mr. O’Brien, solicitor, on 10 July 2018. A replying affidavit was sworn by Mr.
Farrell on 31 October 2018. A replying affidavit was sworn to this by Mr. O’Gorman on 6
December 2018. That was replied to by a supplementary replying affidavit of Mr. Farrell
of 22 January 2019 to which a report of Mr. Stafford was exhibited. There was a
supplementary replying affidavit of Mr. O’Gorman on 13 February 2019. That was replied
to by Mr. Farrell on 7 March 2019 (not in the book of pleadings but provided to the court
at the hearing). An affidavit of Mr. John Harding, accountant, was filed on 28 March 2019
on behalf of the defendant in response to Mr. Stafford’s report. A replying affidavit of Mr.
Stafford was sworn on 10 April 2019, replied to by Mr. Harding in a second affidavit sworn
30 April 2019.
Law in Relation to Security for Costs
62. This application is brought pursuant to s.52 of the Act of 2014, which provides as follows:
“Where a company is plaintiff in any action or other legal proceeding, any judge
having jurisdiction in the matter may, if it appears by credible testimony that
there is reason to believe that the company will be unable to pay the costs of
the defendant if successful in his or her defence, require security to be given for
those costs and may stay all proceedings until the security is given”.
Page 15 ⇓
63. As observed in Inter Finance Group Ltd. v. KPMG Peat Marwick (Unreported, High Court,
29th June 1998), the overall approach to exercising the court’s discretion in an application
brought under s.390 of the Companies Act 1963 (the precursor to s.52) is that an order
for security should be made once a defendant has established he has a prima facie
defence to the plaintiff’s claim and that the plaintiff will not be able to pay the defendant’s
costs if successful in his defence, unless special circumstances exist that might cause the
court to exercise its discretion not to make the order sought. Those special
circumstances might be (a) the plaintiff’s inability to discharge the defendant’s costs of
successfully defending the action flowing from the wrong allegedly committed by the
party seeking security; or (b) delay in seeking the relief claimed. Morris J. observed that
the list of special circumstances identified was not exhaustive.
64. The legal principles applicable to security for costs are well-established and there is no
substantive dispute on same between the parties. Both parties, at the court’s request,
provided written submissions as to the requisite degree of proof of special circumstances.
The plaintiff makes the point that s.52 of the Act of 2014 requires credible testimony that
there is reason to believe that the company will be unable to pay the costs of the
defendant if successful in his defence. It notes that in respect of the existence of a prima
facie defence, case law requires that a defendant must objectively demonstrate the
existence of admissible evidence and relevant arguable submissions (Tribune Newspapers
(In Receivership) v. Associated Newspapers (Ireland) Ltd. (Unreported, High Court, 25th
March 2011)) and that a mere assertion in a grounding affidavit that the defendant has a
good defence will not establish a prima facie case to that effect (Usk and District
Residents Association Ltd. v. The Environmental Protection Agency [2007] IEHC 30). It
observes that there is an associated evidential threshold test when considering whether
special circumstances are established and refers to the decision of Peart J. in Tír na N-Óg
Projects (Ireland) Ltd. v. P.J. O’Driscoll & Sons (A Firm) & Ors. [2019] IECA 154, where
he observes, at para. 31:
“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…. [T]he trial judge’s task remains to
decide if prima facie evidence has been adduced, and not to determine as a
matter of probability whether or not the impecuniosity of the plaintiff has or has
not been brought about by the wrongdoing alleged against the defendant”.
65. The defendant, in his written submissions on this point (see para. 11), agrees that the
prima facie test applies when the court is deciding whether special circumstances apply to
justify a refusal to order security. The defendant also focuses, insofar as his conduct is
put forward as a cause of the first plaintiff’s impecuniosity, on the dicta of Clarke J., as he
then was, in Connaughton Road Construction Ltd. v. Laing O’Rourke Ireland Ltd.
[2009] IEHC 7 (discussed below). Finally, the defendant submits that delay per se is not so
much a reason to refuse security but rather that prejudice is the core issue and cites
Page 16 ⇓
Hidden Ireland Heritage Holidays Ltd. v. Indigo Services Ltd. [2005] 2 IR 115 and Werdna
Ltd. v. MD Insurance Services Ltd. t/a ‘Premier Guarantee’ [2018] IEHC 194.
66. Following the case law, it seems clear that the requisite standard of proof in considering
whether special circumstances apply is whether it has been shown, on a prima facie basis,
that a plaintiff’s inability to pay potential costs is due to the wrongdoing asserted. That
test is likely to be less relevant in a delay context. However, where a court considers
security should not be ordered due to the conduct of the defendant per se (as opposed to
as a cause of impecuniosity) I consider that the same test should be applicable, i.e. a
court should be satisfied at least on a prima facie basis that the defendant has behaved in
the manner identified.
67. In respect of the relevance of a defendant’s conduct as a special circumstance, there is a
line of case law identifying circumstances in which security may not be ordered due to the
defendant’s conduct in the proceedings, or the defendant’s bona fides more generally. In
West Donegal Land League Ltd. v. Udaras Na Gaeltachta & Ors. [2006] IESC 29, Denham
J., as she then was, in a dissenting judgment, considered a lack of bona fides of the
defendant in refusing an application for security, namely an attempt by the second
defendant to deny his ownership of the land in question to avoid paying tax. Denham J.
said it was appropriate to consider the justice of the case and the court’s duty to advance
the interests of justice and not to hinder them. The majority decision of the Supreme
Court was to order security, with Geoghegan J. observing that the categories of special
circumstances are not closed but that it did not mean that a court was wide open in its
discretion as to whether to grant or refuse the order.
68. In Tír na N-Óg Projects (Ireland) Ltd. v. P.J. O’Driscoll & Sons (A Firm) & Anor.
[2017] IEHC 640, Ní Raifeartaigh J. observed, at para. 48, that she did not understand
Geoghegan J.’s judgment as disagreeing with the suggestion that the bona fides of a
defendant may be taken into account by the court. In that case, Ní Raifeartaigh J.
refused to order security on the basis that two different special circumstances were made
out: first, that the plaintiff had established that its inability to meet the potential costs of
an unsuccessful negligence action were due to the defendant’s wrongdoing and second,
that she had serious concerns about the bona fides of the defendants. In that case, the
plaintiff applied for planning permission to Kerry County Council for 33 houses and a
leisure centre at Cappanacush, Kenmare, Co. Kerry. The Council failed to make a
decision within the statutory time period, thus entitling the plaintiff to a default
permission. On three occasions, the plaintiff requested his solicitors, the defendants, to
make an application for an order of mandamus. No advice was given to the plaintiff in
respect of the applicable time limits for judicial review and no judicial review proceedings
were ever brought. Proceedings for professional negligence were brought against the
defendants. In respect of the conduct of the defendants, Ní Raifeartaigh J. observed, at
para. 48 and 49, as follows:
“The specific matters relied upon by the plaintiff include that the defendant
pleads and asserts that the plaintiff never instructed them to bring judicial
Page 17 ⇓
review proceedings in circumstances where the correspondence clearly shows
that he did; and that the defendants, who are professional solicitors, wrongfully
continued to act for him after they became aware they had failed to institute
judicial review proceedings within the appropriate period, and failed to advise
him of their negligence/conflict of interest.
There is undoubtedly a danger in an application such as the present one of
reaching conclusions which are properly matters for determination at the trial, if
one is ultimately held. In this regard, I am mindful that no premature conclusion
should be reached regarding the ultimate issue of negligence, nor indeed a final
conclusion on the factual issue of whether the plaintiff company instructed the
defendants to institute judicial review proceedings prior to the expiry of the
relevant deadline. However, on the evidence currently available to the court, it
does seem that the documentary evidence presented by the plaintiff, described
in detail above, directly contradicts the defendants’ position that the plaintiff
company did not instruct the defendants to institute judicial review proceedings
prior to the expiry of the relevant deadline. Based on this evidence, I would
have serious concerns about the bona fides of the defendants and this is a
matter which I am also taking into account.”
69. That decision was appealed to the Court of Appeal (cited above) and Peart J. gave
judgment on 31 May 2019. He upheld Ní Raifeartaigh J.’s conclusion that the
impecuniosity had been caused by the conduct of the defendant and in those
circumstances held he did not need to address her decision to take into account the
question of the bona fides of the defendant, observing, at para. 35:
“In such circumstances it is unnecessary to address the ground of appeal in
relation to the finding of a lack of bona fides on the part of the appellants which
the trial judge also had regard to in reaching her overall conclusion. The
question whether a lack of bona fides on the part of an applicant for an order for
security for costs should debar a party from obtaining an order to which it would
otherwise have established an entitlement should await another case in which
the matter directly arises. In the present case, for the reasons stated, I am not
satisfied that the appellant has established that entitlement, and therefore the
question of bona fides does not need to be determined.”
70. The question of the conduct/bona fides of the defendant as a factor to be taken into
account when deciding whether to make an order for security, this time in the context of
the proceedings, arose again in the recent Court of Appeal decision of Hedgecroft Ltd. t/a
Beary Capital Partners v. HTREMFA Ltd. (Formerly Dolmen Securities Ltd.) [2018] IECA 364.
Having referred to West Donegal Land League, Costello J. held as follows:
“57
. Even where the trial judge finds that the plaintiff has established the existence
of special circumstances such as could justify withholding an order for security
for costs, it is for the trial judge separately and in addition to that finding, to
determine, in the appropriate exercise of his or her discretion whether to make
Page 18 ⇓
the order sought or not. It is for the court to determine if the order would be fair
or proportionate in all the circumstances.
58.
It was accepted, correctly in my view, that the trial judge was entitled to have
regard to the conduct of the appellant and in particular to the series of affidavits
sworn on its behalf by Mr Beary. The trial judge held as a fact, and this was not
disputed, that the evidence was inaccurate and misleading and no explanation
for the attempt to mislead the trial judge was offered to either the High Court or
this Court.
59.
it was argued that, but for the actions of Mr. Beary, the High Court
acknowledged that it would have refused to make an order for security for costs
and that reversing this intended decision and ordering the appellant to provide
security for costs in the circumstances was a disproportionate and an excessive
exercise of the court’s discretion pursuant to section 52.
60.
I am satisfied that this was a matter that fell within the discretion of the trial
judge. It was not so disproportionate an exercise of his discretion as would
warrant the intervention of this Court on appeal. …In my opinion he was entitled
to take a very grave view of the manner in which the appellant, through Mr
Beary, approached the application and repeatedly misled the court with either
incomplete or misleading information. I am not satisfied that any error of
principle has been demonstrated which would justify this court in reversing his
decision, in accordance with the principles established in Lismore Homes and
Collins v. The Minister for Justice, Equality and Law Reform.”
71. That line of case law indicates that a trial judge can, in the exercise of her or his
discretion in deciding upon security, take into account the conduct of the defendant,
either in the course of the proceedings or in respect of events the subject matter of the
proceedings. I propose to do so in this case, as discussed further below.
Inability of the First Plaintiff to Pay Costs
72. There is no dispute between the parties but that the first plaintiff would be unable to meet
an order for costs in the within proceedings. An unusual feature of this application is that
there has been no material put before this court identifying the level of costs at issue,
either those incurred to date by the defendant or those likely to be incurred in a trial.
However, I do not believe that this prevents the court from adjudicating on the
application. Given that the liabilities of the first plaintiff at present exceeds €3 million, it
will clearly be unable to meet any order for costs, irrespective of the level of same. The
first condition is therefore established.
Prima facie Defence
73. The next matter to be considered is whether a prima facie defence has been established.
I have set out above the law in relation to same and concluded that it must be shown by
way of credible evidence that the defendant has a prima facie defence. In this case, were
it not for the plea in relation to the settlement, I would not hold that the defendant has a
prima facie defence since, as identified above in my analysis of the defence, it consists
Page 19 ⇓
largely of denials with very few positive averments and more would have been required
given the seriousness of the allegations against Mr. O’Gorman.
74. However, again as analysed above, there is a very detailed plea in relation to the
settlement agreement. The first plaintiff’s response to this plea (described by counsel for
the plaintiff as a “slam dunk point”) is that the settlement agreement and the plea in
relation to the settlement agreement cannot be considered to be a prima facie defence
because there is no consideration on the face of the settlement agreement and because
there is no plea in the defence that the settlement agreement was made for valuable
consideration. I do not believe that either of these points prevent the settlement
agreement plea from constituting a prima facie defence. The settlement agreement has
been exhibited. Mr. Farrell does not deny the validity of the document entitled “settlement
agreement”. Nor does he deny that two meetings took place, which ultimately led to a
settlement. He does not deny that he signed the settlement agreement. Rather what he
says is that he was forced to enter into the settlement agreement under duress and did
so without the benefit of legal advice and therefore the settlement must be put aside.
The first plaintiff may be successful on the point that the settlement agreement is void for
a lack of consideration or for the other reasons identified above, but that is a matter for
the trial judge. What is clear is that there will be a substantive issue in relation to the
settlement at the trial of the action and the legal effect of same. If the defendant
succeeds in establishing there is a valid agreement in place, that will constitute a full
defence to the claim of the first plaintiff. The existence of the settlement agreement
therefore constitutes a prima facie defence. As for the point that the plea at paras. 1 to 4
of the defence cannot succeed because it does not refer to consideration for the
settlement, that is at best in my view a pleading point and not one which can be treated
as meaning that the defendant does not have a prima facie defence in relation to the
settlement.
75. In those circumstances I have no hesitation in concluding that the defendant has a prima
facie defence insofar as it pleads the settlement agreement.
76. Where I have concluded that the first plaintiff is prima facie unable to meet the costs of
the proceedings and that the defendant has a prima facie defence, the defendant is
entitled to an order for security for costs unless special circumstances can be established
by the first plaintiff.
Special Circumstances
77. The first plaintiff has pleaded the following special circumstances as set out in the
replying affidavit of Mr. Farrell sworn to this motion:
1) that the insolvent position of the first plaintiff is by reason of the acts and omissions
of the defendant the subject matter of these proceedings;
2) that by refusing to permit the hearing date to be adjourned to facilitate the
reinstatement of the first plaintiff, the defendant has ensured the necessity for two
trials and caused a duplication of costs;
Page 20 ⇓
3) that the defendant is guilty of inordinate and inexcusable delay in bringing the
within application given that it could have been brought by the defendant at any
time over the past 14 years before the accumulation of very significant costs. The
first plaintiff argues that the existence of the personal co-plaintiffs up to 2018
(when they settled their cases) was not in itself a bar to bringing this application
although he accepts it is a matter the court may have regard to; and
4) that the present case is an inappropriate one for relief in circumstances where the
court has an inherent supervisory jurisdiction as to the conduct of the defendant as
a solicitor and as an officer of the court.
Delay as a Special Circumstance
78. The defendant’s response to the invocation of delay by the first plaintiff is threefold. First,
he says that the question of delay is not being asserted (see defendant’s written
submission filed 23 January 2020). I can dispense with that argument swiftly. As
summarised above, delay is asserted in some detail at paras. 49 to 50 in the replying
affidavit of Mr. Farrell of 31 October 2018 and it was focused upon by counsel for the
plaintiff, particularly in his reply to counsel for the defendant.
79. Next, he says that given the presence of the three personal plaintiffs up to the settlement
of their cases in 2018, it would have been futile to bring any application for security for
costs before 2018, since the defendant would still have been forced to meet the case
brought against him by the personal plaintiffs even if he was successful in obtaining an
order for security for costs from the first plaintiff. He says it was reasonable for him to
wait until the personal co-plaintiffs were gone from the proceedings and that there was no
delay in bringing the motion once settlement had been achieved with the personal
plaintiffs. That latter statement is certainly true, the motion being brought a month after
the settlement. However, the same cannot be said for the period of time that elapsed
from the issuing of the plenary summons until the bringing of the motion.
80. I could see some merit in an argument that it was reasonable to wait 14 years to bring a
motion for security for costs if the cause of action of the corporate co-plaintiffs was
identical with the personal plaintiffs. That might dictate a decision not to seek security
from a corporate plaintiff as the defendant would still be forced to meet precisely the
same case even if the corporate plaintiff exited the proceedings (assuming an inability to
put up the requisite security). Even then, an argument might be made that an
application would still be of benefit in the event security was put up, as there would be a
level of comfort at least in respect of the costs incurred by defending the case brought by
the corporate plaintiff and same would be of value if the corporate plaintiff was
unsuccessful (even if it would not avail the defendant in respect of the costs incurred in
respect of the defence against the claims of the personal plaintiffs).
81. But here, the first plaintiff’s case has features that differentiate it quite significantly from
the cases made by the personal plaintiffs, particularly insofar as the quantum of damages
is concerned. If one looks at the particulars of loss delivered by the plaintiffs, whether
those delivered in July 2016 limiting the claim to €2.2 million or those in April 2016 which
Page 21 ⇓
put the claim at almost €7 million, it is clear that the vast majority of the loss alleged is
that of the first plaintiff. It is the solely the first plaintiff that is seeking recovery for the
alleged wrongful disbursement of payments by the defendant since that money was lent
by AIB exclusively to the first plaintiff. The letter of sanction from AIB makes that clear.
In relation to the alleged increased price of the purchase of the site, again that was a loss
that could only have been suffered by the first plaintiff since the contract for sale was
between the first plaintiff and Mr. McFeely. Similarly, the alleged lost profit on sales
would have been suffered by the first plaintiff exclusively, since it was the first plaintiff
who owned the land, owned the houses that were built on it and was the vendor of those
houses. Equally, the claim in respect of additional interest paid is that of the first
plaintiff. Similarly, professional fees are claimed as a head of loss exclusively by the first
plaintiff. Indeed, the only loss that appears to have been claimed by the other plaintiffs is
in relation to the guarantees put up by the third and fourth named plaintiffs. It was clear
by 2007 no such losses had in fact occurred as AIB had been repaid in full. This was
confirmed at the hearing in June 2018 where counsel for the plaintiff indicated this to be
the case and further indicated that in respect of the second plaintiff, Mr. Farrell, an open
letter had been sent prior to the trial date indicating that he would accept costs in his
favour and would have the proceedings struck out. That offer was not accepted and, in
those circumstances, counsel for Mr. Farrell indicated in his opening of the trial that Mr.
Farrell was seeking exemplary damages. None of those matters are relevant to this
decision except insofar as they demonstrate that the vast bulk of the damages sought in
this case are those of the first plaintiff. This is unsurprising since it was the first plaintiff
who was seeking to – and ultimately did – buy the land, who borrowed the money from
AIB, who built the houses and whom ultimately sold the houses.
82. In those circumstances, if the defendant had obtained an order of security for costs,
potentially preventing the first plaintiff from advancing its claim, the defendant’s potential
liability would have been vastly diminished. Indeed, by 2007, given that the loan was
paid back in that year, thus ensuring the guarantees were not being called, his only
liability might have been the claim for exemplary damages made by the second plaintiff.
Alternatively, if an order had been made and security provided by the first plaintiff, the
defendant would have had the benefit of this security.
83. There is some case law addressing the effect of the presence of personal plaintiffs in
proceedings where an order for security is sought from a corporate plaintiff (see Hilary
Biehler, Declan McGrath and Emily Egan McGrath, Delany and McGrath on Civil Procedure
(4th ed., Round Hall, 2018) at p. 593). In summary, the case law appears to suggest
that while the presence of individual co-plaintiffs is a factor to be considered in all cases,
it will only be relevant where the existence of an individual co-plaintiff was material i.e.
where that may prevent security from being granted on the basis that the individual
plaintiff would be a good mark (see para. 14.124). However, no argument was made to
this effect by the defendant.
84. Accordingly, it does not appear to the court that there was an objectively justifiable basis
for waiting to seek security until the other plaintiffs were no longer in the proceedings.
Page 22 ⇓
Indeed, the defendant had already differentiated between the plaintiffs in the context of
the strike out application where he had sought to strike out the proceedings on the basis
of the settlement agreement against the first, second and third named plaintiff while
knowing he would still be left with the proceedings by the fourth plaintiff as she was not a
party to the settlement agreement. A similar approach to an application for security
could have been taken. In the circumstances I find that the presence of the personal
plaintiffs up to 2018 does not justify the defendant’s decision to wait 14 years to bring
this motion.
85. Separately, the defendant submits that the case law is really about prejudice and it is
only if one can demonstrate prejudice due to delay that the court should make an order
that delay constitutes a special circumstance. In Werdna Ltd. v. MD Insurance Services
Ltd. [2018] IEHC 194, Baker J., summarising the case law, noted that in an application
for security, the focus is often whether the delay might have caused the other party to
take steps in the litigation which it would not have taken otherwise (para. 59) and,
quoting Dunne J. in Ferrotec Ltd. v. Myles Bramwell Executive Services Ltd. t/a Slimming
World [2009] IEHC 46, identified as a relevant factor whether significant costs were
incurred during the period of the alleged delay.
86. In this case, I find there was considerable prejudice to the first plaintiff in the defendant
waiting till 2018 to bring the application for security. The chronology of the life of the
case as between 2004 and 2018 demonstrates that the defendant brought four
substantive motions – a motion to strike out the proceedings as disclosing no cause of
action, a motion to have the question of the settlement agreement ruled a preliminary
issue (relief granted but preliminary issue not proceeded with by the defendant), a motion
to strike out for delay and a motion for discovery – all of which the plaintiffs had to meet.
The first plaintiff had to motion the defendant for a defence, make discovery and deliver
four sets of particulars. These time consuming and expensive steps could potentially
have been avoided had the defendant proceeded to bring a motion for security close in
time to the date on which the proceedings had been instituted.
87. The defendant further asserts that there was no particular prejudice to the first plaintiff in
the delay since even if a motion had been brought early on, the other plaintiffs would
have remained in the litigation and would have been obliged to engage with all the above
steps. Therefore, the argument goes, no additional expense or detriment was suffered by
the first plaintiff in remaining in the proceedings for so long. That argument fails to
recognise the principle of separate corporate personality, distinct from that of its
directors. It is in substance an argument that Mr. Farrell and Mrs. Farrell, the two
directors, are, in reality, the first plaintiff and that, because they would in any case have
been obliged to respond to all the defendant’s motions and take other steps in the
proceedings, there would have been no benefit in having the position as to security
clarified early on in the proceedings. I am not impressed with this argument. The first
plaintiff is a separate legal entity and its interests should not be treated as coterminous
with those of its directors (the second and fourth plaintiffs). It would have benefited from
Page 23 ⇓
an early resolution of the security question. The position of the other plaintiffs does not
alter that.
88. Further, even proceeding on the defendant’s flawed premise that the interests of the
other plaintiffs are identical to those of the first plaintiff, there was separate and distinct
prejudice to the first plaintiff in the delay. It had to spend 14 years pursuing the case
without being aware that the defendant intended to bring a security of costs application.
Because the majority of the case related to the actions of the first named defendant, this
necessitated instructions to be taken, affidavits sworn, materials exhibited, particulars
answered and submissions made specifically in relation to the position of the first plaintiff.
Had the action been stayed against the first plaintiff pending the provision of security, as
noted when discussing the relevance of the presence of the personal co-plaintiffs above,
the case would have significantly shrunk. In those circumstances it seems to the court
that there was a significant prejudice to the first plaintiff in the delay in bringing the
motion.
89. The first plaintiff asserts that there was prejudice to it in not having the presence of the
personal plaintiffs in this application for security and that the delay of the defendant in
bringing the case on caused this prejudice. No argument has been identified as to why
the presence of the personal plaintiffs would have been relevant as a matter of fact to the
application for security and therefore I think there is no additional prejudice in that
respect.
90. Having regard to the above, I find that the 14 year delay in bringing an application for
security is a special circumstance disentitling the defendant from obtaining an order for
security for costs.
Conduct of Defendant as a Special Circumstance
91. As noted above, the first plaintiff asserts no security should be granted where the court
has an inherent supervisory jurisdiction as to the conduct of the defendant as a solicitor
and as an officer of the court, and in this regard points to the following conduct of the
defendant:
•
conducting the McMorrow proceedings without authority;
•
admission of serious wrongdoing by a solicitor, involving breach of a solicitor’s
undertaking on 9 June 2003;
•
the manner in which the loan cheque from AIB was disbursed;
•
the letter to AIB of 28 November 2003 from the defendant stating that contracts
had been signed when this was not the case;
•
failure to respond to the detailed pleas of the plaintiffs, save in respect of the
settlement, in the defence filed;
•
failure to provide a narrative explanation of the events; and
Page 24 ⇓
•
failure to explain the circumstances in which the settlement agreement came about
where the defendant does not aver he signed the settlement agreement and was
not present when the settlement was agreed and signed by the second and third
plaintiff.
92. Counsel for the defendant submitted in response that there was no obligation to make a
positive plea in the defence and offer a narrative account, that the breach of undertaking
was a cause for complaint by AIB but was not relevant to security, that the plaintiff had
told the court very little about his case and in particular how the houses were ultimately
completed and the relationship with AIB, and that there were various wrongdoings on the
part of the first plaintiff that should also be taken into account in deciding whether
security should be ordered, including:
•
the bouncing of cheques against parties other than the defendant; the fact that the
first plaintiff was struck off on four occasions for failure to file returns with the CRO
and had to be reinstated each time, including in 2018 where such reinstatement
meant the first plaintiff’s cause of action was not heard at the same time as that of
the second, third and fourth plaintiffs;
•
the way in which the application for reinstatement was presented to the court;
•
the failure of the first plaintiff to identify how many houses were ultimately built by
it at Gortnakesh;
•
the fact that some of the evidence suggested that a payment may have been made
to Mr. McFeely in respect of the purchase of the Gortnakesh upon which no tax was
paid; and
•
the fact that there was a significant VAT liability to the Revenue Commissioners
without explanation as to the source of this liability.
93. No case law was cited to the court supporting the principle that the wrongdoings of a
plaintiff can constitute a special circumstance justifying security. Moreover, this case is
not about whether the first plaintiff committed any alleged wrongdoing but rather whether
the defendant committed the wrongdoings that have been pleaded in very considerable
detail by the plaintiffs qua clients of the defendant. There is no affidavit evidence in
respect of any of the above wrongdoings. No wrongdoing on the part of the first plaintiff
has been pleaded as part of the defence. As noted above, the defence is largely a bare
traverse of the very specific allegations against the defendant save in respect of the
settlement agreement. The defence does not in any way impugn the plaintiffs’ conduct or
plead contributory negligence or estoppel on the part of the plaintiffs because of
acquiescence or conduct or identify any of the matters above identified during the hearing
of this motion. The alleged wrongdoings of the first plaintiff identified above are not
issues in the case. I therefore conclude that they are not relevant to the question of
security in this case.
Page 25 ⇓
94. On the other hand, I am of the view that certain aspects of the matters identified by the
first plaintiff in respect of the defendant’s conduct give the court serious cause for concern
in respect of the defendant’s bona fides and dictate that I should exercise my discretion to
refuse security, as per the jurisdiction identified above in West Donegal Land League, Tír
na N-Óg and Hedgecroft. The conduct in question is central to the issues the trial judge
will have to determine and has been pleaded and/or averred to on affidavit, and/or there
is documentation exhibited to support same. I have only taken into account such conduct
as appears to me to have a prima facie basis, having regard to the evidence and
documents in the motion before the court. The conduct of concern is set out below. I
should add that I am very aware that my conclusions are being made in the course of an
interlocutory hearing and the trial judge may ultimately come to a different conclusion on
same following the substantive hearing. Equally, insofar as my findings on the causal
connection between the first plaintiff’s financial state and the defendant’s conduct are
concerned, the trial judge may ultimately come to a different conclusion having heard all
the evidence in the case.
95. First, there was an admission on the first day of the hearing by counsel for the defendant
that the letter of 28 November 2003 by Mr. O’Gorman to AIB was “false”. This was the
letter (referred to in the chronology of events above) where Mr. O’Gorman had identified
the existence of 20 signed contracts for the houses at Gortnakesh, apparently to
persuade AIB to advance further monies. I set out below the exchange between counsel
for the defendant and I in this respect as follows:
Counsel
Without prejudice to the foregoing please see the letter of the defendant to AIB Bank
Dundalk dated the 28th November 2003 a copy of which is furnished herewith. And, we
come to that.
Judge Hyland
I’m looking at that letter now. He simply says he’s received signed contracts and
purchases…
Counsel
That is false
Judge Hyland
I beg your pardon
Counsel
That is false
Judge Hyland
It is false
Counsel
I don’t think I can stand over that letter
Judge Hyland
Okay, just explain what you mean to me by that
Page 26 ⇓
Counsel
In that, I don’t believe there were 20 signed contracts or indeed any signed contracts.
There was one I think produced at the trial but I don’t think that effects the overall effect
of this letter.
Judge Hyland
And are you saying the letter was forged or that …
Counsel
No I don’t say it was forged
Judge Hyland
Then how do you say it came about?
Counsel
It should not have been sent
Judge Hyland
I see. Why was Mr O’Gorman sending that letter? What date was the money drawn down?
Counsel
That letter was sent, I’m speculating here Judge I have to admit I don’t have a direct
answer to the question. That letter was sent in November 2003 and at that time my, I’m
putting the facts together, yes the plaintiff says I think in the statement of claim that and
in an updated statement of claim which you’ll see in due course, exhibit MF3 that he
needed a hundred thousand of working capital in and about this time. And that this letter
was written the plaintiff says to assist in procuring that working capital from AIB.
96. This letter was identified in the Statement of Claim where it is pleaded that on at least
one occasion the defendant wrongfully and deliberately formally fraudulently
misrepresented to the Bank that there existed signed contracts in relation to 20 houses
forming part of the plaintiffs’ development on the property and that the effect of this
misrepresentation was to sustain a false confidence between AIB and the plaintiffs (see
para. 51).
97. As with the issue regarding the breach of undertaking (dealt with below), the defendant
presumably makes the case that any wrong on the part of Mr. O’Gorman in this respect
was an issue for AIB and not the plaintiffs. However, it is specifically pleaded in the
Statement of Claim that part of the damage caused to the first plaintiff was the effect on
its relationship with AIB. In those circumstances it seems to me that the sending of an
admittedly false letter by the defendant to AIB, whether with or without the authority of
the first plaintiff, is likely to negatively affect relations with AIB and therefore within the
scope of this case. It is of considerable concern to the court that the defendant sent an
admittedly false letter to AIB on behalf of the first plaintiff apparently to procure funds
from AIB without any explanation of same either on affidavit or even through counsel.
98. Second, the admission by Mr. O’Gorman through counsel and in his replying affidavit
(referred to above in the chronology of events) that he had breached the undertaking of 9
June 2003. The clear breach of the undertaking by the defendant is a cause for concern
Page 27 ⇓
where it goes to the heart of this case, being the failure to properly advise the plaintiffs of
the consequences of building on, and borrowing money in respect of, a site where neither
the first plaintiff nor the vendor had any title to the site. In those circumstances it seems
that the admitted breach of the undertaking, although an undertaking to AIB and not to
the plaintiffs, is a serious matter as it enabled the first plaintiff to obtain very significant
sums of money from AIB on a false basis. Further, the disbursement of the loan monies
in breach of that undertaking, including to Mr. McFeely, who at that stage had no title and
was not therefore the vendor, is of significant concern. As noted above, earlier
undertakings were also given to AIB in February and March 2003 by the defendant and
although no explicit concession was made in relation to those undertakings by counsel for
the defendant, it seems to me that there must be a question mark over the accuracy of
those undertakings also. Finally, although there is a frank concession that there was a
breach of undertaking, there is no explanation whatsoever either on affidavit or through
counsel as to the circumstances in which the breach occurred.
99. Third, in relation to the McMorrow proceedings and the claim by Mr. Farrell that his
signature had been forged and that an affidavit had been lodged in his defence without
him being aware of same, I have summarised above the conflict of evidence in this
respect. No affidavit was sworn in this motion to dispute the assertion of forgery.
However, Mr. O’Gorman, in the context of the motion to dismiss, did swear an affidavit of
12 July 2008 where he rejects any suggestion that he was involved in or aware of the
alleged forging of the signature. In those circumstances, I do not consider there is an
evidential basis to conclude that the first plaintiff has made out a prima facie case on this
issue relevant to special circumstances based on conduct.
100. Fourth, there are no letters of advice or notes of meetings or calls exhibited by Mr.
O’Gorman or discovered by him or pleadings in his defence relating to the fundamental
issue in this case, i.e. the actions of the first plaintiff in proceeding to borrow significant
sums of monies against a site it did not own and to construct houses on that site, without
any interest in, or permission to use the land, where the purported vendor, Mr. McFeeley,
had himself no title to that land. Nor is there any explanation from the defendant as to
why such advice was not clearly given to the first plaintiff. That is a significant and
surprising omission, given the duties of a solicitor to advise his client of legal risk
associated with any transaction. This duty arises irrespective of the conduct of, and level
of knowledge of, the plaintiffs, including the first plaintiff, in this respect.
101. Fifth, there is no explanation on affidavit how the proceedings brought against the second
plaintiff, Mr. Farrell, by Mr. McMorrow, could have been settled in March 2003 (which
settlement later broke down), without the participation of Mr. Farrell in the settlement, in
circumstances where the defendant was the solicitor on record for Mr. Farrell. The
defendant does not refer to this settlement in his defence or explain in any affidavit or
exhibit any documents in respect of how he discharged his professional duties to the
second plaintiff in those circumstances. The second plaintiff’s case has now been settled
and only the first plaintiff is resisting this application. Nonetheless, because of the
Page 28 ⇓
centrality of the second plaintiff’s occupation of the lands at Gortnakesh to the issues in
this case, the defendant’s conduct appears relevant in this context.
102. Sixth, as noted above in the chronology of events, it was a condition of the settlement of
the proceedings in December 2004 that Mr. O’Gorman would not be sued and that
proceedings against him would be discontinued. It is unclear to the court why the
defendant was included as a party to the settlement or why it was a term of the
settlement that proceedings would be discontinued against him. There is no explanation
proffered from the defendant as to his connection with Mr. McFeely and Mr. Russell, if
any, in this respect. As noted above, there is a document demonstrating that back in
2002 the defendant acted as Mr. McFeely’s solicitor. That retainer appears to have come
to an end after the defendant started acting for the plaintiffs and Mr. McFeely retained a
different solicitor, Mr. O’Connor. It is not clear whether that former retainer was relevant
to his participation in the settlement and if so, how. Given those circumstances, I
consider I am entitled to take into account the defendant’s failure to explain his
participation in the settlement in the exercise of my discretion in the context of this
motion.
103. Many, if not all, of the above matters will very likely be issues at the trial of the action
and my concern in respect of the above matters are not in any way determinative as to
the ultimate outcome of these proceedings, or decisions on any of these events. They are
identified solely to demonstrate the nature of the aspects of this case that concern this
Court and indicate why I consider they constitute special circumstances that dictate that
the first plaintiff should not be required to provide security despite its financial position
and that the case against the defendant should go ahead so that the matters of concern
identified above can be determined by the trial judge. In summary, I consider that the
above conduct constitutes special circumstances that warrant this Court refusing the
order for security for costs in the exercise of my discretion.
Conduct of Defendant as Cause of First Plaintiff’s Impecuniosity as Special
Circumstance
104. The first plaintiff asserts that it is the conduct of the defendant that has caused its
impecuniosity and that this constitutes a special circumstance leaning against security. In
this respect, the first plaintiff says that the sale of the lands to it only finally closed in
June 2007, although it was originally envisaged that the entire development at
Gortnakesh would be completed and sold by late 2005. It says this was not possible by
reason of the conduct of the defendant as there was no money available to the first
plaintiff to complete the construction of the houses, the first plaintiff could not secure
further finance, and the third and fourth named plaintiffs were obliged to sell assets and
place this money with AIB as security. It is asserted that all those difficulties flowed from
the defendant’s failure to ensure that the first plaintiff attained good marketable title to
the development lands at Gortnakesh, culminating in the insolvency of the first plaintiff.
It is further said that the defendant’s conduct resulted in a withdrawal of bank support
and that the first plaintiff was required by AIB to sell off a partially built development, on
a fire sale basis, as directed by AIB. Counsel for the plaintiff concluded that the only
candidate responsible for the first plaintiff’s financial position was the defendant.
Page 29 ⇓
105. In Connaughton Road Construction Ltd. v. Laing O’Rourke Ireland Ltd. (cited above),
Clarke J., as he then was, held, at para. 3.4, that:
“In order for a plaintiff to be correct in his assertion that his inability to pay
stems from the wrongdoing asserted, it seems to me that four propositions
must necessarily be true: -
“(1)
That there was actionable wrongdoing on the part of the defendant (for
example a breach of contract or tort);
(2) that there is a causal connection between that actionable wrongdoing and a
practical consequence or consequences for the plaintiff;
(3)
that the consequence(s) referred to in (2) have given rise to some specific level
of loss in the hands of the plaintiff which loss is recoverable as a matter of law
(for example by not being too remote); and
(4)
that the loss concerned is 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 proceed, and the plaintiff not being in such a position.”
106. Taking each of the steps in turn, when one looks at the pleas in this case and the
evidence that has been adduced in the motion, I am satisfied that the first condition is
met and prima facie that there is actionable wrongdoing on the part of the defendant.
107. The second condition, i.e. that there is a cause or connection between the actionable
wrongdoing and a practical consequence for the first plaintiff, is considerably more
difficult in this case. It is alleged by the first plaintiff that had the defendant not acted as
he did, the first plaintiff would have obtained a title to the lands within a short period of
time i.e. and that it could have sold the houses in a timely fashion. This approach is
encapsulated in the plea at para. 14 of the Statement of Claim, where it is pleaded that
the defendant failed to have completed a proper and enforceable contract for the
purchase of the property by the first plaintiff which would bind the owner of the property
and provide for an achievable closing date within a reasonable time. However, the core
reason that houses were not sold in the time scale envisaged by the first plaintiff was
because of a lack of title. That cannot be laid at the defendant’s doorstep. The obvious
cause of the first named plaintiff’s failure to obtain title when he expected to do so was
the fact that the vendor did not have title to sell on until mid-2005. That is not a matter
in my view that could have been altered or changed by the defendant.
108. In this case, the practical consequences for the defendant were that the houses could not
be sold between 2003-2005 and that the relationship with AIB was seriously impacted by
the events of 2003, thus affecting the funding for the project and the ultimate sale of the
houses in 2007. But those practical consequences were at heart caused by the fact that
the first plaintiff did not have title to the lands when he built, or partially built, the houses
in 2003 and borrowed money in the same year. All the other difficulties flowed from that
Page 30 ⇓
fact. The defendant’s conduct, while it facilitated the building of houses and borrowing of
money, did not cause the inability to sell the houses. At best, it exacerbated the loss of
the first plaintiff, as it permitted it to continue with the enterprise.
109. There is also a plea by the first plaintiff that, properly advised, they would have paid a
lesser amount to Mr. McFeely. There has been no evidence presented to the court
demonstrating that the defendant’s conduct was the cause of the revised amount.
110. There is another hypothesis by the first plaintiff in relation to causation, i.e. that had the
defendant acted properly, relations with AIB would not have been damaged in the way
they were and that the first plaintiff would have been in a position to continue to borrow
money from AIB and therefore to advance the development in the way it had hoped.
However, that hypothesis is problematic because the core of AIB’s complaint, when they
realised that the undertaking was false, was that the first plaintiff did not have title to the
land. There was a secondary complaint that they had not been told about the lack of
title. However, irrespective of the defendant’s conduct, the core problem would have
remained since title could not be delivered at that point in time.
111. Further, in respect of the argument made to the effect that the damaged relationship with
AIB resulted in a fire sale of partially completed houses at the behest of AIB, as pointed
out by counsel for the defendant, there is simply no evidence of this. I would have to be
satisfied at least on a prima facie basis that this was the case. Not only is this assertion
not pleaded, there is no evidence at all in relation to the final sale of the houses and the
circumstances in which they took place. The only evidence in this respect is the letter of
loan sanction from March 2005 where AIB advanced a loan of €4,683,948 to the first
plaintiff, an event arguably incompatible with the theory advanced by the first plaintiff.
112. In circumstances where the preponderance of the first plaintiff’s pleas are not that the
defendant ought to have advised it against continuing with the enterprise but rather that
the defendant should have ensured that the enterprise was carried out successfully, my
conclusions above end the Connaughton Road analysis at the second stage, since there is
no connection between the actionable wrongdoing and the consequences for the plaintiff.
Irrespective of the defendant’s conduct, the first plaintiff could not have sold the houses
at the relevant time.
113. However, the Statement of Claim also contains some pleas to the effect that the first
plaintiff was badly advised by the defendant. If one analyses the case by looking at the
outcome had the defendant properly advised the plaintiff, my conclusions on the cause of
the first plaintiff’s inability to pay costs is the same.
114. Properly advised, the defendant would have advised the first plaintiff to remove itself
from the lands to the extent it was already on them, not to continue construction and not
to borrow money from AIB. Whether the first plaintiff would have taken that advice is
another matter given that he had gone onto land and started building without any
contract for sale or permission from the then owner. On this analysis, had the defendant
performed his functions correctly, the first plaintiff would not have withdrawn from the
Page 31 ⇓
site and would not have further proceeded with the building of houses or purchase. But
this would not in fact have resulted in the first plaintiff being able to meet the costs of the
defendant.
115. Applying the third and fourth tests in Connaughton Road, had the defendant advised the
first plaintiff not to proceed with the borrowing and the building, and the advice had been
taken, the first plaintiff would have been in the position it started out as i.e. as a company
with no assets. The defendant’s pleaded conduct might have facilitated the first plaintiff
incurring significant losses but it did not result in a diminution of existing assets. Thus,
any loss caused by the defendant did not make the difference between the first plaintiff
being in a position to meet the costs or not. If the development at Gortnakesh had not
gone ahead, there is no evidence before me that the first plaintiff would have made any
money from any other business venture. In this respect the situation is somewhat like
the example given by Clarke J., as he then was, in Connaughton Road of a plaintiff
company with an excess of liabilities over assets of €200,000. If the high watermark for
that claim is only for €100,000 then it follows that the inability to pay costs has not been
caused by the defendant’s wrongdoing since even if the plaintiffs were to succeed there
would still be an excess of liabilities over assets of €100,000. In this case, appropriate
advice by the defendant, followed by the plaintiff, would have meant no development
would have gone ahead. The first plaintiff would still not have been able to meet the
defendant’s likely costs of a contested trial.
116. At heart, the first plaintiff’s losses do not appear to the court to have been caused by the
defendant’s wrongdoing. Rather the losses were caused by the fact that the first plaintiff
proceeded to build houses for sale, and borrow money for that purpose, on a site where it
had no title and no immediate prospect of obtaining same. The defendant’s conduct
simply meant the plaintiff was in a worse financial situation than it would otherwise have
been. But that would still, at best, have left the first plaintiff with no assets and no
liabilities and without an ability to pay the defendant’s costs.
117. As noted above, I have before me reports and affidavits from two accountants Mr.
Stafford and Mr. Harding. Given my conclusions above, I do not need to proceed to
consider those reports in detail. But for the sake of completeness, I should add that in
my view, the premise of the report of Mr. Stafford was misconceived. I understand that
he was instructed to prepare his reports on the basis of specified assumptions, identified
in the report. However, certain aspects of those conclusions are not borne out by the
evidence as discussed above. If one looks at the projected profit and loss account of the
report of Mr. Stafford at p. 1703 of his report, in the 26 months ending the 31 March
2005, he projects income from sale of the houses of some €10 million. The projected
cash flow statement up to March 2005 identifies monies coming in by way of house sales
from July 2003 up to the period of March 2005. However, for the reasons set out above
in relation to Mr. McFeely’s ownership of the site, the first plaintiff would not have been in
a position to sell houses until earliest May 2005 when the conveyance of the site took
place.
Page 32 ⇓
118. At para. 7.2 under the heading “Profit Lost on Sale of Houses”, Mr. Stafford states: ‘as a
result of Mr. O’Gorman’s negligence’ AIB was concerned about the ability of the company
to repay the bank loan and insisted that the company sold partially completed houses and
sites. Accordingly, the company lost the profit it should have earned from completing the
houses and selling them.”
119. As identified above, I can find no evidence for that statement. Mr. Stafford appears to
have been instructed that the cause of the company’s losses was Mr. O’Gorman’s
negligence (see para. 39 of his second report of 10 April 2019). At para. 23 he says that
the company moved onto the site in October/November 2002 and had 20 houses
completed by December 2003, the company at that stage had encountered no problems
on site and everything was going to plan. He said that no external events had impacted
on the company’s plans. No such evidence has been provided to this Court and I do not
know from where that statement comes. Mr. Stafford appears to be proceeding on the
basis that the impossibility of selling the houses in December 2003 was caused
exclusively by the negligence of Mr. O’Gorman and not by any other external factor. That
analysis ignores the issues with causation identified above.
120. In all the circumstances, it seems to the court that the plaintiffs have not established on a
prima facie basis that the acts and omissions of the defendant caused its inability to pay
costs within the meaning of the Connaughton Road test. Accordingly, I find no special
circumstances in that respect.
Hearing in 2018
121. The first plaintiff also sought to argue that the defendant’s decision to oppose its
application to adjourn the hearing of the entire case in 2018 until it was reinstated to the
Register of Companies was a special circumstance justifying a refusal to order security
since it had increased the costs incurred. I do not agree. The first plaintiff sought an
adjournment, the defendant contested it and the judge in charge of the list directed that
the case go on. The failure to make returns to the CRO, with the consequence that the
first plaintiff was struck off, was that of the first plaintiff. The defendant was entitled to
require the remaining plaintiffs to go on with their case even in the absence of the first
plaintiff. I do not consider these factual circumstances come near to constituting special
circumstances.
Conclusion
122. I refuse the application for an order for security for costs on the following basis:
i. Although costs have not been measured, I am satisfied that the defendant has
demonstrated that the first plaintiff would be unable to pay the costs of these
proceedings given that it has liabilities as of the year ending 31 December 2017 of
€3,814,998.
ii. The defendant has demonstrated that it has a prima facie defence to these
proceedings.
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iii. The first plaintiff has sought to avoid the obligation to provide security by pleading
special circumstances. I find that special circumstances exist disentitling the
defendant to an order for security insofar as there is:
a. a 14 year delay on the part of the defendant in bringing the motion for
security, causing the first plaintiff significant prejudice; and
b. conduct of significant concern of the part of the defendant qua solicitor in
respect of the events giving rise to these proceedings.
iv. The first plaintiff has not made out a prima facie case to the effect that the
defendant has caused its inability to pay costs and no special circumstances have
been established in that respect.
v. Nor has the first plaintiff succeeded in its claim that the defendant’s insistence on the
2018 proceedings going ahead constitutes special circumstances.
Result: Judgment in favour of the plaintiffs.