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You are here: BAILII >> Databases >> Supreme Court of Ireland Decisions >> Hidden Ireland Heritage Holidays -v- Indigo Services Ltd & ors [2005] IESC 38 (07 June 2005)
URL: http://www.bailii.org/ie/cases/IESC/2005/S38.html
Cite as: [2005] 2 IR 115, [2005] IESC 38
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Judgment Title: Hidden Ireland Heritage Holidays -v- Indigo Services Limited & ors Composition of Court: Geoghegan J., Fennelly J., Kearns J. Judgment by: Fennelly J. Status of Judgment: Approved |
Judgments by | Result | Concurring | Dissenting |
Fennelly J. | Appeal allowed - set aside High Court Order | Geoghegan J., Kearns J. |
Outcome: Allow And Set Aside
12
THE SUPREME COURT
Geoghegan J.
Fennelly J.
Kearns J.
BETWEEN
HIDDEN IRELAND HERITAGE HOLIDAYS LIMITED (Trading as THE HIDDEN IRELAND ASSOCIATION)
Plaintiff/Appellantand
INDIGO SERVICES LIMITED
First Named DefendantINDIGO SERVICES LIMITED
JOHN COLCLOUGH and ALEXANDRA GARDNER
Second and Third Named Defendants/RespondentsJUDGMENT of MR JUSTICE FENNELLY delivered on the 7th day of June, 2005.
This is an appeal from the order of Murphy J in the High Court that the Plaintiff/Appellant provide security for the costs of the second and third named Defendants/Respondents.
The application was made pursuant to section 390 of the Companies Act, 1963, which provides:
- “Where a limited 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 defence, require sufficient security to be given for those costs and may stay all proceedings until the security is given.”
The second-named Defendant acted as secretary to the plaintiff from 1986 to 1996. He set up the plaintiff’s web-site and e-mail addresses following negotiations with the first-named Defendant. There was a dispute between the plaintiff and the second-named Defendant, which led to the second-named Defendant leaving the service of the plaintiff. The plaintiff suspected him of operating a competing booking service. On 19th February 1997, these parties entered into an agreement in writing to compromise their differences. The second-named Defendant agreed not to use the name “hidden Ireland” or any similar name and to a number of similar terms. He also agreed “not to interfere with incoming HI enquiries on the Internet.” The parties mutually agreed not to “interfere with enquiries or business whether by word of mouth, post, telephone, fax or on the internet intended for the other party.”
The principal claim of the plaintiff in the present action is that the second and third named defendants, over a period, not yet clearly identified but generally between 1996 and 1998, diverted or caused to be diverted e-mails addressed to the plaintiff and that this was done with the assistance of the first-named Defendant.
In this respect, the plaintiff relies upon the contents of a letter dated 12th October 1999 from Arthur Cox, Solicitors, for the first-named Defendant. That letter refers to certain e-mail addresses, described as “aliases” containing different versions of the name “hidden Ireland.” The letter says that the Hidden Ireland account was established on 29th October 1996. It also says that at some unknown date between that date and 8th September 1997 an e-mail “forward” was set up. The effect of the “forward” was to send e-mails, which had been addressed to the underlying Hidden Ireland address, to the e-mail box cht@indigo.ie. The last-named address was, according to the Arthur Cox letter, set up and created on 30th October 1996 and held by “Tourism Resources” with an address at 71 Waterloo Road, Dublin 4. This is the address of the second-named Defendant and of the third named Defendant. It is apparent from the exhibits in the present case that the address, cht@indigo.ie, is used by the second-named Defendant. There is no express evidence that the second-named defendant asked that the “forward” be set up.
The plaintiff alleges that the information in these e-mails (the fact of potential customers of the members of the plaintiff wishing to make bookings) was used by the second and third named defendants for their own benefit. Some importance is attached to the fact that the third named Defendant was a shareholder and director of a company, since struck off the register, called Tourism Resources Limited, through which some of this business is alleged to have been carried on.
The plaintiff alleges breach by the second-named Defendant of the agreement of February 1997, the use of confidential information by both these defendants, and the commission of a number of economic torts. These include passing-off and interference with the contractual arrangements between the plaintiff and its members and with the first-named Defendant. Generally, the plaintiff claims damages for loss suffered by itself and its members.
All of the plaintiff’s claims are vigorously disputed.
A history of the proceedings to date is necessary for an appreciation of one of the arguments on this appeal: the suggestion that the second and third named Defendants delayed unduly in bringing their application for security for costs.
The Plenary Summons was issued and served on both these Defendants and they had entered appearances in the period June and July 2001. The Statement of Claim was delivered on 27th July 2001. The Defence was delivered on 20th November 2001. The solicitors for the second and third named Defendants served a very detailed notice seeking particulars on 6th November 2001. The plaintiff says that the requests for particulars necessarily required very extensive work, since the second and third named defendants had asked for details of every allegedly diverted e-mail. The reply to the notice for particulars was delivered on 1st March 2002.
Also on 1st March 2002, but obviously not with knowledge of the particulars supplied, the second-named Defendant wrote by fax to Mr John Madden, a member of the plaintiff in highly abusive terms. He alleged that both Mr Madden and Mr George Gossip, the director of the plaintiff principally involved in these proceedings were “out to shaft” him. He said that the litigation was “a complete waste of time and money” and that his solicitors had advised him that he had nothing to fear from it. He said that he believed the claim would fail and that “our combined costs [presumably meaning the costs of both sides] would be well over £100,000.” In the “unlikely event” that the plaintiff were to win, the plaintiff would have to bankrupt him and would “end up with 12.5c in the Euro.” The plaintiff alleges that this fax was circulated to eighteen of its members.
In that letter also, the second named Defendant said that he would “have no problem with any member of Hidden Ireland inspecting all [his] computer records, past files and bank accounts.”
When the plaintiff took the second named Defendant up on this apparent offer, it was suggested that an application be made for voluntary discovery. Such an application was initiated on 2nd July 2002.
On 26th June 2002, solicitors for the second and third named Defendants wrote formally seeking security for costs. The letter stated that the financial statements of the plaintiff for the year ended 31st December 2000 showed a deficit of IR£31,733 (€40,292.60). It expressed concern at the plaintiff’s ability to discharge any order for costs made in favour of the Defendants. The Notice of Motion was issued on 4th July 2002.
There was an extensive exchange of affidavits. Murphy J granted an order pursuant to section 390 of the Act requiring the plaintiff to provide security.
Counsel for the appellant, before this court, summarised the considerations for the court in dealing with an application such as the present as being whether the applicant had established that there was reason to believe that the plaintiff would not be in a position to meet the costs of the action if unsuccessful, whether the applicant had shown a prima facie defence and, assuming that both these criteria are met, whether there are special circumstances which would persuade the court, nonetheless, to refuse the order.
Counsel accepted that the first requirement had been met. The financial statements over several years show that the plaintiff, at best, made a very modest profit. In each year the auditor’s reports was qualified by a reference to the existence of an excess of liabilities over assets and the possible need for the company to hold an extraordinary general meeting as envisaged by section 40 of the Companies Act, 1983. Counsel indicated, however, that he would contend that the financial situation of the plaintiff had been caused or contributed to by the actions of the Defendants complained of in the action.
Counsel also argued that the Defendants had not sworn a sufficient affidavit to demonstrate a prima facie defence.
His principal argument, however, was that there are special circumstances in the present case which should persuade a court to exercise its discretion to refuse the order. Counsel focussed principally on the delay in making the application for approximately one year from the commencement of the proceedings, combined with the activities of the first-named Defendant in writing to pressurise the members of the plaintiff by denigrating their action. He also submitted, though less strongly, that the financial situation of the plaintiff was largely the result of the activities of the Defendants.
The principles governing an application such as the present have been well settled by a number of decisions of this Court over a considerable number of years.
One point should be addressed at once. Section 390 of the Companies Act, unlike Order 29, rule 3 of the Rules of the Superior Courts, dealing with a plaintiff residing outside the jurisdiction, does not make it a precondition of the grant of security that the applicant swear “a satisfactory affidavit that such defendant has a defence upon the merits.” Nonetheless, it is customary for defendants to produce evidence of at least a prima facie defence. It was not seriously contested on behalf of the second and third named Defendants in this case that the court should look for such evidence. I think that is obviously right. The order under section 390 is discretionary. I find it difficult to imagine circumstances where a court would grant an order pursuant to the section where the defendant failed in any way to address the merits. I am satisfied that an applicant for an order must show something of the nature of a prima facie defence.
Peppard and Company Limited v Bogoff [1962] I.R. 180 is commonly cited for the proposition that a court may refuse to make an order under section 390, even where a prima facie defence and the insolvency of the plaintiff are shown, if there are special circumstances justifying that exercise of judicial discretion. Moreover, the judgment of Kingsmill Moore J contains a useful review of a number of the earlier authorities, following which he said at page 187 of the judgment:
”Those cases seem to me to be strong authority for the proposition that, at all events where the plaintiff company is in liquidation, the order for security for costs should be made almost as of course, and I do not see any ground for distinguishing a case where inability to pay is shown by the fact of liquidation from one where the same inability can be shown by other evidence.”
- “I am of opinion that the section does not make it mandatory to order security for costs in every case where the plaintiff company appears to be unable to pay the costs of a successful defendant, but that there still remains a discretion in the Court which may be exercised in special circumstances. In this case I find two special circumstances. The financial position of the plaintiff may, if he substantiates his case, be due to the very actions of the defendants for which they are sued; and there is a co-plaintiff within the jurisdiction to whom the defendants may look for payment of their costs”
This decision was followed by this Court, per McCarthy J, in S.E.E. Co Ltd v Public Lighting Services and another [1987] I.L.R.M. 255. Finlay C.J. described the discretion of the Court in somewhat different terms in Jack O’Toole Ltd v MacEoin Associates [1986] I.R. 277, stating at 283:
- “It is clear that there is no presumption, either in favour of the making of an order for security for costs or against it, but I am satisfied that where it is established or conceded, as arises in this case, that a limited liability company which is a plaintiff would be unable to meet the costs of a successful defendant, that if the plaintiff company seeks to avoid an order for security for costs it must, as a matter of onus of proof, establish to the satisfaction of the judge the special circumstances which would justify the refusal of an order.”
The special circumstance most commonly advanced is, as in the Bogoff case, that the wrongs complained of in the action caused or contributed to the very impecuniosity of the company upon which the defendant relies. However, the discretion is not limited to that element. The Court may have regard to any relevant circumstance which, as a matter of justice, would cause it to conclude that the order should not be made.
The plaintiff, in the present case, puts delay by the defendants in seeking the order in the forefront. It is the principal special circumstance invoked. The rationale for this, according to counsel, is that the plaintiff may incur costs in going on with the preparation of the case. In the present case, counsel relies on the extensive work done in preparing the replies to the defendants very extensive and detailed notice for particulars and the pursuit of the defendants own implied invitation to seek discovery. He also points out that the second named Defendant, in his capacity of secretary of the plaintiff, had the particular advantage of knowledge of the plaintiff’s position as far back as 1995.
McCarthy J in S.E.E. Co Ltd v Public Lighting Services and another, already cited, identified delay as a relevant consideration. That case concerned security for the costs of an appeal. The relevant period of delay was nine months. Morris J in Re Blakeston Limited; Beauross Ltd v Kennedy (Unreported 18th October 1995) also identified delay as a relevant consideration, stating:
- “If the party seeking the security has delayed to such an extent as to commit the other party to an amount and a level of costs and thereby altered its position to its detriment, the court will not make the order.”
The defendants relied on certain English authorities to show that, depending on the circumstances, an application for security can be made successfully as late as the commencement of the trial. A material consideration in some cases has been whether it is premature to apply before the extent of the likely costs can be assessed. (see Croft Leisure Ltd v Gravestock & Owen [1993] BCLC 1273.) In an unreported decision of the Court of Appeal, Janred Properties Ltd v Ente Nazionale Italiono per il Turismo (8th October 1985) security was refused and the refusal upheld on appeal, where delay was relied upon. Nourse LJ had “no doubt that delay is a factor which can always be taken into account and can sometimes be treated as being of importance, particularly where it has, or may have, led the plaintiff to act to his detriment in the meantime….”
A review of the authorities shows that delay in applying for security may, depending on the circumstances, be a ground for refusing security. The court will look at the facts of the particular case, the impact of the delay, other surrounding circumstances, and, in the end, will seek to find a fair balance.
I would add that this Court will normally respect the discretionary character of a High Court decision under section 390. It will be slow to set aside a decision arrived by a judge who has considered the facts weighed all the arguments appropriately. In this case, however, the learned judge made no mention whatever, in his decision of the issue of delay upon which the plaintiff had specifically relied. Consequently, his discretion was exercised without advertence to a key element in the case and it falls to this Court to exercise its discretion de novo.
I would like to return, at this point, to the evidence put forward by the second and third named defendants regarding the existence of a prima facie defence. Firstly, I can state, without hesitation, that the third named Defendant has produced sufficient material on affidavit to satisfy this requirement. The effect of her evidence is that she was never actively involved in the business activities of her husband. Insofar as she is shown to have been a director and majority shareholder in the company, Tourism Resources Ltd, she was simply unaware of these matters. Given the deliberate character of the activities alleged by the plaintiff, I think this suffices to meet the needs of the situation.
I do not, however, take the same view of the affidavit evidence of the second named Defendant. It must be recalled that the essence of the allegation against him is that he was the knowing recipient of e-mail messages destined for the plaintiff, which had been diverted, as a result of an e-mail “forward” put into effect by the first named Defendant. The second named Defendant acknowledged on affidavit that the allegation is “that [he] was in receipt of e-mail inquiries which were intended for the plaintiff from prospective customers of the plaintiff, that I responded to those inquiries by sending to those alleged prospective customers copies of documents and advertising material produced on behalf of a business I was operating myself…”
The principal statement made by the second named Defendant on affidavit in answer to these allegations was:
- “I absolutely deny that I knowingly used any information which was the property of or intended solely for the use of the plaintiff and to the detriment of the plaintiff. I have never diverted inquiries which were intended for the Plaintiff to myself or for my benefit……………I have never been aware of receiving e-mail inquiries which I knew or believed to be intended for the Plaintiff solely.”
I regard this as an incomplete and equivocal denial. It is heavily qualified. It does not address or answer the question of whether it is true that a “hidden e-mail” underlying address was, as alleged in the Arthur Cox letter, diverted to his own e-mail address at his own residence. This is a crucial feature of the case, which needed to be addressed explicitly.
Of course, there may be a complete answer. The second-named defendant may produce a fuller account at the trial and I do not wish to prejudice the defence of the claim. I merely say that, in the exercise of the court’s discretion under section 390 the incompleteness of his response is a matter to be taken into account.
The financial condition of the plaintiff was claimed by counsel to be attributable to the actions for which the defendants are being sued. I am not convinced that the plaintiff has been able to produce any serious evidence to support this contention. The accounts of the company show that at al times, it showed, at best, a very modest profit and that it never had a sufficient capital base to meet the costs of an unsuccessful prosecution of the action. The second named Defendant’s knowledge of this fact is, however, material, as I will say below.
More importantly, I believe that the delay in seeking security, amounting to approximately one year is a material matter. Being fully aware of the financial weakness of the plaintiff, they allowed and even encouraged the action to proceed. In addition, on 1st March 2002, at a time when it was open to him to apply for security, the second named Defendant chose instead to address an entirely improper communication to one of the plaintiff’s members. If this letter by fax had any purpose other than being merely abusive, it can only have been to bring pressure to bear to have the litigation stopped, inter alia by threatening that the second named Defendant would be unable to meet the costs of the action himself.
It may appear unfair to tar the third named Defendant with this particular brush. Generally, she has distanced herself from the business activities of her husband. She did not write the letter of 1st March. However, she is equally responsible for the delay with her husband. It is, no doubt, understandable that she has not disavowed the fax letter. But she is represented by the same firm of solicitors as her husband. It is not feasible to distinguish between them from the practical point of view.
I am satisfied that, in the particular circumstances of the present case, the second and third named Defendants, particularly the former, have delayed to such an extent and have otherwise behaved in the conduct of the litigation so as to deprive themselves of the entitlement to ask the Court to exercise its discretion in their favour. I believe these matters qualify as special circumstances. I would allow the appeal and substitute an order dismissing the application.