- 16 -
THE SUPREME COURT
No. 082/2004
Denham J.
Geoghegan J.
Macken J.BETWEEN/
THE WEST DONEGAL LAND
LEAGUE LIMITED
Plaintiff/Appellant
and
UDARAS NA GAELTACHTA
AND JOSEPH HAMILTON BOYD
AND DANIEL HARLEY, AND TOGAIL
DHUN NA NGALL TEORANTA AND
AERPHORT IDIRNAISIUNTA DHUN NA
NGALL TEORANTA
JUDGMENT of Mr. Justice Geoghegan delivered the 15th day of May 2006
INTRODUCTORY
This is an appeal brought by the above-named plaintiff/appellant against an order of the High Court (Smyth J.) directing, pursuant to section 390 of the Companies Act, 1963, that the appellant do furnish security for the second-named respondent’s costs in this action and that in default thereof proceedings herein be stayed as against that respondent.
Before I consider dealing with the substantive issues on the appeal there are two procedural issues raised in the grounds of appeal to which I must first refer.
It is part of the appellant’s case that this application came up for hearing before Smyth J. in an ordinary Monday motion list and that counsel for the plaintiff/appellant had indicated to the court that if the court took the view the company was not solvent, he would want the issue of whether there were special circumstances which might preclude an order for security for costs to be dealt with on another day, if necessary on oral evidence, but that the judge, although he did give a reserved judgment, did not refer to and still less did not accede to this request.
I am of opinion that the matter should not be remitted to the High Court on this account. It would be very unusual to send back a motion for rehearing. Without special permission of the court, oral evidence is not appropriate on such a motion. In exceptional circumstances, oral evidence may be permitted in a motion for security for costs as for instance where there are serious conflicts of fact relevant to security for costs arising from each party’s affidavits. But what the appellant and his legal advisers were not entitled to do was to avoid putting their full case in favour of the “special circumstances” argument on affidavit in advance of the motion coming on for hearing. What was impressive in this case was that the trial judge reserved judgment. If he had given judgment there and then at the motion list there might have been some legitimate grievance but in the event there was none in my view. The judgment indicates an understanding and careful consideration of the issues.
The appellant has also raised an issue of apparent bias in that it is stated that the learned trial judge as senior counsel signed High Court pleadings on or about the 4th July, 1988 in an action Cissie Houston v. Udaras na Gaeltachta and Others which action is connected with the claims in this action. I am quite certain that if this issue had been raised, which it was not, before the learned trial judge, he would have recused himself. I am equally certain that he had no recollection of the earlier case at all. No reasonable observer of the scene would have had any other view than that which I have expressed. The case has now been fully considered by three judges of the Supreme Court. What is at stake is not the action itself but a motion within the action. I am satisfied that there is no necessity to make an order directing a rehearing in the High Court. Indeed the written reserved judgment of Mr. Justice Smyth clearly indicates his careful attention to the salient points.
I turn now to deal with the substantive appeal.
Section 390 of the Companies Act, 1963 reads as follows:
“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 is successful in his defence, require sufficient security to be given for those costs and may stay all proceedings until the security is given.”
The appellant is a company limited by guarantee. It is clear beyond doubt, in my view, that the expression “limited company” in section 390 includes a company limited by guarantee. This seems obvious from the wording of all the earlier sections in Part II of the Act. The scheme of the Act (see section 16) is that there are four kinds of companies which may be formed, three of them limited and one of them unlimited. The limited companies are companies limited by shares, companies limited by guarantee and not having a share capital, and companies limited by guarantee and having a share capital.
The case law under section 390 establishes that notwithstanding the insertion of the word “may” the court in the absence of special circumstances and as a matter of appropriate exercise of its discretion will in a given case order security for costs in the circumstances provided for by the section. The “special circumstances” would seem to be limited and I will return to them in detail in due course.
Before doing so, I think it appropriate to signpost what could in this case give rise to a problem but for which I believe there is a solution. In Lismore Homes Limited v. Bank of Ireland Finance Limited (No. 3) [2001] 3 IR 536 this court, in a judgment delivered by Murphy J. and with which the four other members of the court concurred held, contrary to the views of the English Court of Appeal in interpreting an equivalent section in the relevant English Companies Act, that “sufficient security” was not open to any interpretation other than that involving making “a reasonable estimate or assessment of the actual costs which it is anticipated that the defendant will have to meet.” Paragraph 4 of the head note is misleading in as much as it baldly states “that any injustice caused by the operation of section 390 could be avoided by granting or withholding the order for security.” That is not a correct summary of what was stated in the judgment of Murphy J. What he said was somewhat different and it is worth quoting:
“The word ‘sufficient’, in its plain meaning, signifies adequate or enough and it is directly related in the section to the defendant’s costs. The section does not provide for – as it might have – a sufficient sum ‘to meet the justice of the case’ or some such phrase as would give a general discretion to the court. Harsh though it may be, I am convinced that ‘sufficient security’ involves making a reasonable estimate or assessment of the actual costs which it is anticipated that the defendant will have to meet. Much of the injustice which may be anticipated by the operation of the section can be avoided by the application of the established principles in granting or withholding the order for security. In so far as the quantum of the security may be oppressive in a case where security is in fact ordered, this must be seen in the context in which it arises. It applies only to limited liability companies who are shown to be insolvent. Legislation has conferred many benefits on limited liability companies including, in particular, that very limitation and it is not surprising to find that some burdens are likewise cast by the legislature on companies which enjoy those advantages.”
That passage from the judgment of Murphy J. must, I think, be read in the context of an assumption that as a matter of probability the defendant, if successful in the action, would enjoy the benefit of the ordinary rule that costs follow the event. I have very little doubt that, Murphy J. was thinking in terms of commercial litigation and in particular, of money claims. This action is very different for reasons which will emerge when I outline its factual background and the nature of the reliefs sought. I would take the view that, without tying the hands of the trial judge in any way as to how he or she should ultimately exercise his or her discretion in relation to costs, the court at the stage of the application for security for costs may, nevertheless, on the evidence which is before it, consider whether even if the defendant is successful, a full costs order would necessarily or probably be made against him. Vain attempts were made to have this action remitted to the Circuit Court, which would be its natural habitat. It has long been the case that for all sorts of reasons, title actions in the Circuit Court do not necessarily result in a full indemnity order for costs in favour of the successful party against the unsuccessful party. I see no reason why the types of circumstances and motives which have influenced so many Circuit Court judges over time immemorial should not equally influence, in an appropriate case, a judge of the High Court dealing with similar litigation. I will return to this question in due course when it arises.
Before going into the facts and circumstances of the case it is desirable also at this stage to consider in the words of Murphy J. “the established principles in granting or withholding the order for security.” It is not seriously in dispute as will be clear from the later part of this judgment that the appellant company prima facie falls within section 390. It is clear from the evidence before the court that in the event of an order for costs being made in favour of the defendant the appellant company would have little or no assets to meet it. The onus is on a defendant to establish that state of affairs but that onus has clearly been discharged in this case. The only remaining question is whether there are special circumstances which might justify refusal of the order. The onus of establishing such special circumstances is on the plaintiff company. I would agree with the view expressed by Denham J. in her judgment that the categories of special circumstances are not closed. Although in the second edition of Delany and McGrath on Civil Procedure in the Superior Courts four categories of special circumstances are helpfully summarised, these are simply sets of circumstances which have in fact influenced courts in particular cases to refuse the order. I am satisfied, however, that this does not mean that a court is wide open in its discretion as to whether to grant or refuse the order. That approach would defeat a clear and, as Murphy J. pointed out, reasonable aim of the Oireachtas as enacted in section 390. The validity of the view which I have just expressed would appear to be well illustrated by the four sets of circumstances set out in and elaborated upon in Delany and McGrath. These are:
(a) Where inability of the plaintiff to provide security attributable to the actions of the defendant.
(b) Delay.
(c) Point of law of exceptional public importance.
(d) Existence of individual co-plaintiff.
The first of these categories speaks for itself and is well known to the courts. It is not suggested by the appellant that it arises in this case.
As to the issue of delay, in Hidden Ireland Heritage Homes Limited v. Indigo Services Limited [2005] 2 ILRM 498 the Supreme Court refused an order for security for costs. Fennelly J. in the judgment delivered held that on the facts of the case before him, the defendants had delayed to such an extent and had otherwise behaved in the conduct of the litigation in such a manner as to deprive themselves of the entitlement to ask the court to exercise its discretion in their favour. That issue would not seem to arise in this case.
The same is true of the third category. Although as I will be explaining, the appellant company was given charitable status and purports to have some public environment objectives, this particular litigation is private litigation and there is no public element in it. Furthermore it is not suggested that a point of law of public importance arises.
Finally, there is no individual co-plaintiff. That is all I will state at this stage but I will return to this point later.
Denham J., in her judgment, has suggested other relevant “special circumstances”. I will express my own views on these in a later part of the judgment.
The proceedings
In legal language this action consists of a claim by a company limited by guarantee as alleged successor in title to some 28 individuals to an unregistered right in the property comprised in each of two Folios i.e. Folio No. 33573 and Folio No. 33574 of the Register County Donegal, that unregistered right being a right to the beneficial interest in twenty eight undivided thirtieth shares in each property.
The property comprised in Folio 33573 comprises an undivided moiety in more than 213 acres of land.
The property comprised in Folio 33574 is the remaining undivided moiety in the same land.
The registered owner on Folio 33573 is the second-named defendant/respondent, Joseph Hamilton Boyd.
The registered owner on Folio 33574 is Cissie Houston now deceased and of whom the third-named defendant/respondent is the personal representative.
It is alleged in the statement of claim that the land in question was originally land gained by the sea receding and that it first became viable in the early 1900s. It would, of course, have become the property of the owner of the land contiguous to it who apparently was the Marquis of Conyingham. It is pleaded in the statement of claim that the land attracted a rent which was small but which became divided between a large number of graziers. The statement of claim goes on to plead that two of the graziers collected the rent from all the others and paid it over to the landlord. The present registered owners are as far as the registered title is concerned successors in title of the two collecting graziers. The land became vested in the Land Commission under the Land Acts. I should mention here that irrespective of whether originally there was a tenancy in the strict sense i.e. relationship of landlord and tenant or whether there were merely grazing lettings not involving legal possession the land would have vested in the Land Commission under the Land Acts, Donegal being a congested districts county. The statement of claim pleads that the original individual graziers (by which is presumably included their successors in title) continue to occupy the land and to graze their cattle thereon and to take “bent” therefrom “in the traditional manner on an unbroken basis since at least 1910”. It is then pleaded that the registered owners were regarded as trustees for the graziers. As to whether any of that is true or untrue will obviously be a matter for the trial and I can form no opinion on it at this stage. It is obvious, however, that the root cause of this litigation is that the land certainly became valuable and that part of it was and now more of it is required for the operation of Donegal Airport. A twenty year lease was granted in 1978 by the two registered owners for this purpose. At that stage the rent was very small being a nominal £10 per annum. The statement of claim then alleges that in 1984 or thereabouts another lease was purported to be entered into by the registered owners for fifty years and it is alleged that this lease was null and void as its validity allegedly would have required the concurrence of the other graziers. It appears, however, from paragraph 2 of the affidavit of Michael Gillespie, solicitor for the plaintiff, sworn on the 22nd July, 2003 that £25,000 paid in consideration of the second lease was not handed over to the registered owners but was given to a committee representing all the graziers. In that connection, it is alleged that there was an admission by the second-named respondent of trusteeship in that when capital gains tax was sought from him in respect of £12,500 being half of the £25,000, he made the case that he had no personal interest in the land and had never received the monies. I will return, in due course, to the significance or lack of it of this bit of evidence.
Returning to the statement of claim, paragraph 9 alleges that the airport lands were subsequently transferred from the two respective Folios to the first-named defendant. If those transfers were transfers for value then the first-named defendant would have an indefeasible title to that property if it has now become registered owner. There is no inhibition entered on either Folio requiring notice in order to protect the claimed unregistered rights. Such protection, of course, is not necessary as against Joseph Hamilton Boyd and Daniel Harley as they do not derive their title from a purchase for value.
It is pleaded in paragraph 9(h) of the statement of claim that the alleged “land ownership rights” of the so called graziers “have been transferred to the plaintiff by the graziers”. It is a curious and unsatisfactory feature of the evidence that no such alleged transfer to the plaintiff company is exhibited in any affidavit or is in any way before the court. In a reply to a notice of particulars “the graziers of local farmers who formed the plaintiff company” are listed. It is by no means clear, however, who exactly is claiming ownership rights and under what title. Even the figure of thirty is clearly only an approximate figure.
The second-named defendant/respondent has delivered a defence and counterclaim. The first plea is a plea of the Statute of Limitations. This is a very relevant plea because the result of this case may well in the end hang on the history of the actual possession of the land. The defence goes on to deny any of the alleged ownership rights and in particular to deny the existence of any trusteeship. At this stage of the case, I have no idea whether these defences will be successful or not but they are clearly stateable defences. The mere fact that the second-named defendant is a registered owner is not of itself a defence because as I have already pointed out he does not derive his title under purchase for value.
It is important at this stage to draw attention to some features of the Folios and the Land Commission Inspectors’ reports which are before the court. First of all, it seems clear that the vesting order made by the Land Commission was made as late as the 30th April, 1954. As was usual practice and in accordance with the Land Acts, the vesting in each case was made “subject to the equities arising” from the previous interest of the intended registered owner and was deemed to be a graft on his or her previous interest. In this regard see entry 3 in Folio 33573 and entry No. 3 in Folio 33574. In each case, however, an examination of the respective Folios shows that the equity note became discharged and cancelled, in the case of Folio 33573 on the 1st November, 1983 and in the case of Folio 33574 on the 19th August, 1991. That cancellation would not have been effected by the Land Registry without the appropriate affidavit under Land Registration Rules being filed which would have testified that there was no on else claiming an interest in the property. It seems clear, therefore, that at the stage of the discharge of equities, claims to beneficial ownership by the registered owners were made. In one of the Folios there is also entered a right of residence something which a trustee would have had no right to create.
The Land Commission documentation which is before the court is also interesting. In the inspector’s report of the 10th October, 1953, the inspector refers to an earlier inspector’s report of the 25th February, 1933. The latter inspector had stated that the lands now comprised in the two Folios covered an area of 214 acres “of sand-banks” and “that there were a large number of sub-tenants scattered over a wide area and some outside the estate using the holdings for grazing and the bent grass thereon for thatching.” The same inspector had also reported that the tenant shown on the official form under the 1923 Act had really no more right to the holding than the sub-tenants and that he acted for the others in paying the rent for the holding. He went on to observe that the sub-tenants were constantly changing. Apparently, a fresh report was obtained in June, 1952, which stated that the so called sub-tenants were still continually changing and sub-division and consolidation would not improve the position and he recommended that John Houston be accepted as a trustee. It is clear from the report that the view was taken that it would be very difficult to determine the names and addresses of claimants to the property and that there was the possibility of protracted objections to a vesting order due to the non-inclusion of some of the interested parties whose interest might not come to light during the Land Commission investigation. It was decided, therefore, to treat John Houston and William Alcorn who are predecessors in title of the current registered owners as the tenants. That report undoubtedly favours the plaintiff in as much as it suggests that originally at least there was some kind of trusteeship.
However, a note sent by a superior officer to the Commissioners dated the 9th July, 1952 is much more helpful to the second-named respondent. It is worth quoting in full:
“Commissioners
The position here is most peculiar. In reality there are neither tenants nor sub-tenants. William Alcorn who has been returned as tenant is apparently the only one of the persons who use the holding who is permanently in occupation of portion thereof. Alcorn pays the annuity and collects small grazing rents from the parties who use the sparse bent grass which is all the land grows. All through the information we have gleaned runs the inference that he must let but the parties who take the lettings are continually changing and the undivided shares returned must have been an attempt to regularise the position on paper.
As the persons who take the lettings are not continuously in occupation there are no firm sub-tenants and it is recommended that no action be taken under section 15 1931 Act – question of amending LVH to show any other than Alcorn entitled to the tenancy interest to be gone into later.”
There is then an indecipherable signature. What that note suggests was that the graziers over the years were not necessarily successors in title to others at all. They simply paid rent for the grazing. A strong point in favour of the defendants is the continual use even by the plaintiff of the expression “grazier”. That expression does not normally imply any kind of ownership interest. Its most common meaning in Ireland would be a person holding under an 11 month letting but then of course it can also mean a person entitled to a profit à prendre. The 1933 inspector’s report made the further following observation:
“These two holdings cover an area of 214 acres of sand-bank growing practically nothing but ‘bent’ but even the bent then only grew in tufts here and there over the greater part of it. The ‘bent’ was used for thatching but very little was available. The indiscriminate cutting of ‘bent’ and the fact that the sea covered the greater part of the area at very high tide had rendered the holdings of little value. There were a large number of sub-tenants of both holdings, scattered over a wide area and some outside the estate.”
It is a matter for the trial judge to determine the origin of these rights, if any. On one view the graziers as such may well have had no estate or interest in the land but simply paid a rent for the bent. There is no evidence before the court what animals were ever put on the land even though the word “graziers” is used. The actual use to which the lands has been put at any given period over the years and by whom is obviously a hugely controversial area and I cannot see how the plaintiff can possibly argue that it is bound to win. On one scenario it is perfectly possible that the plaintiff will win. But it is also perfectly possible that the plaintiff will lose.
It defies all credibility to deny that at least part of the motive of the promoters of the plaintiff in forming the company was precisely for the purpose of avoiding having to pay costs out of their own pockets if they brought the action in their own names and lost. From the point of view of the second-named defendant/respondent this is unfair litigation unless he is given security for costs. I have already pointed out that the plaintiff is unable in this case to invoke any of the so called “special circumstances” that have been found in previous cases to entitle a court to refuse security for costs under section 390. Denham J. in her judgment however has identified as a special circumstance the “cannot have his cake and eat it” argument. What the learned judge is referring to there is a proven admission at one stage of trusteeship. That was in the context of avoiding/evading paying tax. While that whole episode may be useful ammunition in favour of the plaintiff at the ultimate hearing of the action, I do not think that it is relevant to the question of whether there should be security for costs. As I have already shown, there is other evidence which will indicate that both of these registered owners and their predecessors in title regarded themselves as beneficial owners. The trustee admission was made without legal advice and with a view to avoiding tax. Whereas it may have been disingenuous and even inaccurate legally, there was another aspect to it. Mr. Boyd was being asked to pay Capital Gains Tax on a sum which he never received. Unless the admission was of such a kind as to put the position beyond doubt that the plaintiff company was beneficially entitled to the 28/30th interest, it is not in my view relevant to the issue of whether there should be security for costs. The kinds of circumstances which have been held by the courts to be “special circumstances” are totally different in their nature. Fairness in the litigation in this case would dictate that that factor of the admission in connection with tax should not be regarded as a special circumstance depriving the second-named respondent of his prima facie entitlement to security for costs. If there were some individual co-plaintiffs with a reasonable amount of assets between them the necessary “special circumstances” might be held to exist. Indeed if that were to happen as a consequence of some reconstruction of the proceedings, the issue of security for costs could be reopened.
The references to “commonage” does not impress me. That is not a legal expression, or if it could be regarded as such, it is a legal expression which can have quite different meanings. An unfenced area of land owned jointly or in undivided shares by fifty people might legitimately be called “commonage” but equally and indeed more correctly fifty people who each had a common of pasture or in other words a profit à prendre in the nature of a grazing right in a particular area of land can also be described as enjoying commonage. In other words “commonage” does not necessarily imply ownership. The subject receives an excellent treatment in Peter Bland’s “The Law of Easements and Profits à Prendre” at p. 156 ff.
There is another point which is also relevant to mention. If in fact a number of farmers have enjoyed grazing rights on these lands even on foot of annual 11 month lettings the reality is that they would be expecting compensation if the land was given over for an airport. The fact that the money was paid over to a committee of the graziers may well be neutral evidence in relation to any ownership rights. But that is entirely a matter for the trial judge. On the existing evidence it would be absolutely impossible to form any view nor would it be proper to do so.
It has been suggested in the affidavit of the plaintiff’s solicitor that the case could last two weeks in the High Court. I would not dispute that possibility but I think that with good case management, which this case will certainly need, the issues of Mr. Boyd’s and Mr. Harley’s ownership and the extent (if any) of their ownership could be determined in four days, if say, the case began on a Tuesday and ended on a Friday. Even if that did not prove possible, I think it probable for the reasons which I indicated earlier on in the judgment that this would not be a simple case of costs following the event. It would be legitimate in my view to take that factor into account in determining how “sufficient” security for costs is to be assessed. I would dismiss the appeal and affirm the order of the High Court but I would direct that the security to be given should be on the basis of a maximum of a four day hearing, such costs to be assessed by the Master of the High Court. Future applications (if any) relating to the order should be made to the High Court.
Judgment delivered on the 15th day of May 2006 by Denham J.
1. This appeal raises issues as to the ‘special circumstances’ which may be relevant to a claim for security for costs. It is an appeal by the West Donegal Land League Limited, the plaintiff/appellant, hereinafter referred to as the plaintiff, from a judgment of the High Court delivered on the 26th November, 2003, whereby it was ordered, pursuant to s. 390 of the Companies Act, 1963, that the plaintiff do furnish security for Joseph Hamilton Boyd, the second named defendant/respondent, (hereinafter referred to as the second named defendant) for the second named defendant’s costs in this action, and that in default thereof further proceedings be stayed as against the second named defendant.
2. The learned trial judge held, referring to s. 390 of the Companies Act, 1963: “In my judgment the section is as applicable to a company limited by guarantee as to a company of limited liability by shares. Charitable status does not exempt a company from all compliance with company law. There is no averment on the part of the plaintiff that it will be able to pay the costs of the second defendant if he is successful in his defence. The assets of the plaintiff if put into the hands of its solicitor to prosecute and pursue the case and instruct counsel for the plaintiff, would in today’s terms, unless such services were freely given or charged at less than normal charges be wholly unlikely to be sufficient to meet the costs of the plaintiff on the case as disclosed on the papers. I make no assessment as to the likely outcome of the case.
. . . I am satisfied and find as a fact . . . that the second defendant has a prima facia defence to the plaintiff's claim that the plaintiff will not be able to pay the second defendant’s costs. I am not at all convinced that the plaintiff's inability to discharge the second defendant’s costs of successfully defending the action flow from any wrong allegedly committed by the party seeking the security. In my judgment the plaintiff has not established “special circumstances” which would justify the refusal of the order. In this case there is no averment or assertion that the fund accumulated is designed and intended for no other purpose than to meet a potential liability to the second defendant or any defendant, rather it is clear that it is a fighting fund which if exhausted or exceeded in application to the plaintiff's own case will leave a successful defendant with a paper company with no assets of any kind. There is no evidence that the plaintiff has suffered any impecuniosity as a result of any wrongful act of the second defendant – it simply does not exist.
While mindful of the remarks of Fitzgibbon J. in Perry -v- Stratham [1928] I.R. 580 that “security is not intended as an indemnity against all costs which may be incurred or as an encouragement to luxurious litigation”, the context of the present application cannot be ignored. While the facts in Fallon -v- An Bord Pleanála [1992] 2 I.R. 380 are clearly distinguishable from those of the instant case, the thirty or so individuals whose interests are broadly similar are entitled to organise themselves under the aegis of a limited liability company. They are not thereby entitled under such guise entitled to wage litigation essentially to protect their own private interests and leave the empty shell behind to a successful defendant. The use or abuse of the devise of a company cannot be ignored by the law (see Lynch J. in Malahide Community Council Limited -v-Fingal County Council & Ors [1997] 3 I.R. 383 at p.399/400. While making no such finding of abuse as such in this case on this motion, such may be a matter of inquiry on the hearing of the action.
As to the amount of security - I have no evidence of figures, the evidence of costs drawers for the respective parties could be put before the appropriate court to determine such sum.
In my judgment this is a matter which would be much more conveniently and much less costly to conduct in the Circuit Court in Donegal where the majority of the witnesses are resident and where it would appear that the defendants may very well have their offices or the personnel most likely to be involved in the case.”
3. On behalf of the plaintiff six grounds of appeal were filed, as follows:
(i) The learned trial judge erred in law or on the facts or on the mixed question of law and fact or in the exercise of his discretion to order security for the second named defendant’s costs.
(ii) Counsel for the plaintiff in the High Court on 28th July, 2003, had stated that there was a two part test to any application for security for costs; (a) whether the company was solvent, and (b) even if a court was so minded to grant security, whether or not there existed special circumstances that might preclude same. In his submission on 28th July, 2003, counsel indicated to the learned trial judge that his submission on that date only dealt [with] the first test, holding that the second was a matter for a hearing with oral evidence, if necessary, in the then Chancery No. 2 list.
Notwithstanding these arguments the learned trial judge in his judgement of 26th November, 2003, dealt with all issues and thus deprived the plaintiff of a fair hearing, and the right to adduce additional evidence. Further the learned trial judge failed to make clear to counsel for the plaintiff during submissions that he wished to have all matters dealt with and/or he did not intend to have a second hearing on the merits.
(iii) The failure of the learned trial judge to make clear that he wanted all matters dealt with in the submissions heard on 28th July, 2003, meant that counsel for the plaintiff did not feel it necessary to go into detail on the facts of the case which had they been put fully before the Court, would have shown those special circumstances that would have justified refusing an order for security for costs, even if the first test had been met. Further, that decision of the learned trial judge meant that counsel for the plaintiff did not adduce the credible evidence in possession of the plaintiff that the present litigation arose from the action of the second named defendant in selling land for which he was a trustee, for his own personal benefit, and that the loss of the plaintiff was directly due to the actions of the second named defendant, either alone or with others.
(iv) The failure of the learned trial judge to make clear on 28th July, 2003, that all issues were to be addressed and/or his failure to correct the repeatedly stated view of counsel for the plaintiff that he was only dealing with a preliminary issue prevented the introduction of credible evidence of special reasons not to grant an order for security for costs on the merits.
(v) That in any event, the learned trial judge erred in law in holding that the company would be unable to pay the costs of the defendant. At the present time the company is solvent and no evidence was produced before the learned Judge by the defendant that the company was insolvent or would become so.
(vi) That the learned trial judge as senior counsel signed High Court pleadings on or about 4th July, 1988, in an action Cissie Houston -v- Udaras na Gaeltachta and others (6395P/1988) which action is closely connected with the claims here (it is stated that the plaintiff accepts that the matter was not raised before the learned judge since same was only discovered on 5th February, 2004).
4. At the hearing of this appeal counsel for the plaintiff indicated that the sixth ground of appeal was withdrawn.
5. This case raises several issues for determination, which I shall consider in turn.
5.1 Counsel for the plaintiff submitted that there were two key issues for the High Court, the first being the solvency of the plaintiff and the second being the ‘special circumstances’. An important submission on behalf of the plaintiff was that he did not have an opportunity in the High Court to address the second part of the test, the ‘special circumstances’.
This case was heard in the High Court on a Monday motion list. Counsel indicated that it was before the Court for approximately 10 minutes in total and that he had no opportunity to open the issue of ‘special circumstances’, or the documents which, he submitted, were relevant to this aspect of the case. He also indicated that he might seek to give oral evidence on this issue. While the learned trial judge reserved judgment and in that reserved judgment referred to some documents, counsel submitted that he had not had the opportunity to address the Court on the relevant documents and that the learned trial judge did not refer to important documents relevant to the ‘special circumstances.
I understand that there are motion lists before the High Court on Mondays to which longer motions may be moved. Unfortunately this motion did not have the benefit of such a list. Practice and procedures, and case management, should not be such so as to undermine the access to court of any person. This case raises issues not just of a lack of appropriate time but also of the consequent perception of the justice system, both of which are matters of considerable concern.
It appears to me that the situation which occurred in the High Court is not cured by this Court considering the matter fully, in effect, de novo. I am satisfied that counsel for the plaintiff has made out a reasonable case that this matter should be remitted to the High Court to be reheard in one of the lists designated for longer motions where all aspects of the case, including the issue of ‘special circumstances’, may be opened.
5.2 If, however, the case is not to be remitted to the High Court, the core of the motion is the ‘special circumstances’. Counsel for the plaintiff submitted that a relevant ‘special circumstance’ was that the second named defendant had effectively admitted the allegation of the action. On the otherhand, counsel for the second named defendant argued that if this is a ‘special circumstance’ the court is then being invited to embark on an investigation into the merits of the case.
5.3 It is not the jurisprudence of the law on security for costs that on an application for security for costs there should be an investigation into the merits of the case. All the circumstances have to be considered, to see if ‘special circumstances’ exist.
5.4. Facts submitted
Land is at issue in this case. The land, it is common case, was held as commonage. However, while counsel on behalf of the plaintiff maintains that that remains the situation, the second named defendant defends the case on the basis that he is now the beneficial owner.
5.4.i The plaintiff is a company, and thus it is a separate legal entity from its members, the graziers. Michael Gillespie deposed that he was solicitor for the plaintiff and he set out facts within his own knowledge on behalf of the plaintiff. He stated that the case was about the ownership of a large portion of land in or beside and including the airport at Braade and Carrickfin, County Donegal. He deposed that the land is of immense ecological significance. He accepted that the second named defendant appears to be the lawful owner on paper, on Folio 33573, since 25th October, 1983, but that both the history of this land and contemporary documents reveal that he is not the true beneficial owner. The land in dispute was reclaimed from the sea in the early 1900s and was farmed in common by around 30 local landowners who paid rent to the Marquis of Coyningham. They nominated two persons to collect the rent, William Alcorn of Carrickfin and Doney Harley of Braade. The Land Commission vested the land in the two rent collectors to save official time, the Alcorn interest passed to the second named defendant. Mr. Gillespie deposed that the second named defendant held himself out as a trustee for the said local landowners. The land in question has never been fenced by the second named defendant and has been treated as common land down to the present time. It is still used by the local community for walking. He maintained that members of the plaintiff have continued to control grazing lets for cattle and the taking of bent grass, with no objection from the second named defendant. Moreover, he deposed that the second named defendant has expressly admitted that he is a trustee. On or about 28th January, 1987, one Cissie Houston made a complaint to the Law Society about the firm of O’Donnell & Sweeney, solicitors, and their handling of various transactions in regard to folios connected to this land. In his reply of 17th February, 1987, the senior partner, Michael Fogarty, stated clearly that the land in Folio 33573 was treated as commonage. When a lease had been signed with Udaras Na Gaeltachta and £25,000.00 handed over it was not paid to the registered owners, namely the said Cissie Houston and the second named defendant, but was given to a committee representing all the graziers. When capital gains tax was sought from the second named defendant he was happy to have it waived on the basis that he had no personal interest in the land and had never received the monies. The letter concluded with a repetition of a statement by the second named defendant where he admitted that he was never the beneficial owner of the land registered in his name on Folio 33573 and that all the acts carried out by him were as a trustee. Mr. Fogarty stated that he held the original signed statement. Michael Gillespie deposed that he had asked the second named defendant on 5th November, 1999, to confirm said statement which he did by acknowledging same as true and by signing his copy. Mr. Gillespie stated that the second named defendant had freely acknowledged that he had previously in 1987 signed the said statement as true and that he appeared to fully understand the said statement when he signed it again in his presence on 5th November, 1999. The second named defendant also signed an instruction to his own solicitors, MacBride & Co., on 5th November, 1999, to provide the deponent with a copy of the documentation regarding his purported sale of part of the said land to the fourth named defendant. The documentation sent to the deponent, on 12th November, 1999, and signed by the second named defendant, contained special conditions acknowledging that there may be grazing or other rights. However, on or about 7th April, 2000, through his solicitor, the second named defendant insisted that he was the lawful owner. Neither he nor his solicitor appear to have written to Mr. Fogarty before or since that letter. Accordingly, it was submitted that it would appear that the central factual basis for the second named defendant’s claim as set out in paragraph 5 of his affidavit is unfounded and that the community has formed itself into a company to assert traditional grazing rights, not least because of the second named defendant’s conduct. Having held himself out as a trustee down the years, and having given away his half-share of £25,000.00 in 1984, he now asserts that he is the owner. It was submitted that his conduct factually precludes a successful application for costs and that the claim against him arises from his own misconduct. Mr. Gillespie deposed that this land has always been held by at least 30 persons and not by 2 individuals. He submitted that there was nothing sinister in forming a company, which has charitable status. He deposed: “It is an expression of popular and practical litigation and will protect the rights now vested in this company against abuse by individuals such as the second Defendant and will ensure the future protection of the lands against destructive and insensitive development.”
5.4.ii Eamonn MacBride, solicitor on behalf of the second named defendant, has also deposed as to facts. He referred to the statement of claim in which the plaintiff is claiming a variety of reliefs relating to the lands situate at Braade and Carrickfin in County Donegal. Reference was made to the statement that the plaintiff company was formed by graziers and local farmers to protect their interests in these lands. In his affidavit Mr. MacBride deposed that the plaintiff has no assets and does not trade. I shall return to this issue later. Mr. MacBride deposed that the plaintiff has numerous members and that grazing rights are being claimed. Mr. MacBride deposed that: “a case of this nature would take at least two weeks in the High Court. This will place an enormous strain on the second named defendant who is a farmer. The Second Named Defendant is the registered owner of lands comprised in folio 33573 the register of Freeholders for County Donegal. The plaintiff company is in effect trying to take away this Defendants interest in these lands.”
The folio is exhibited. As to the formation of the plaintiff company it was deposed:
“There would not appear to be any reason why a limited company would have to be formed to protect the property rights of the members therein. If the members of this company had property rights these can be asserted by the individuals themselves.”
It is stated that if this is the case the second named defendant could have no recourse in relation to costs should he succeed in the action. It was deposed that the second named defendant is going to be penalised even if he should succeed in the action as, it was deposed, the plaintiff had no assets.
5.4.iii Thus, it is the second named defendant’s case that he is the full owner, the registered owner, of the lands as exhibited. He refutes his earlier statement that he was a trustee. He submits that previous denials as to ownership by him were made for another purpose, and may not be taken to mean that he is not the owner. Yet those statements were to achieve a benefit - to avoid paying tax. Without deciding on the merits of the case, or the credibility of the evidence, it appears to me that the second named defendant cannot have his cake and eat it. If he made statements to achieve tax benefits on the basis that he did not own the land, then those statements may not be ignored in relation to an application for security for costs in proceedings relating to the land.
6. Law
This application for security for costs is based on s. 390 of the Companies Act, 1963. Section 390 of the Companies Act, 1963 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 credible testimony that there is a 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 such security if given.”
Thus a discretion is given to the court as to whether to require security for costs. The first step is to determine whether such an order should be made, and the second step relates to the amount of security. The first step is in issue on this appeal.
There is a difference between the exercise of the discretion under s. 390 of the Companies Act, 1963 and under the Rules of the Superior Courts. In Thalle v. Soares [1957] I.R. 182, delivering the unanimous judgment of this Court, Kingsmill Moore J. contrasted the principles to be applied in the exercise of the discretion whether or not to grant security for costs pursuant to s. 278 of the Companies Act, 1908 (now s. 390 of the Companies Act, 1963) and an application under the Supreme Court Rules. Kingsmill More stated, at p. 192:-"The deciding factor, to my mind, is the wording of the section when contrasted with the rule. The statute lays down reasonably precise instructions as to the measure of security while the rule makers and the judges seem studiously to have avoided any such approach to definiteness, leaving each case to be decided by an uncontrolled discretion. Those judges who have considered the matter appear to have realised that different considerations applied to cases under the statute from the considerations relevant to cases under the inherent jurisdiction"
In other words, the precision referred to is as to the measure of the security.
Kingsmill Moore J. referred to the fact that the rules do not indicate a measure of the costs. He stated at p. 193: "Security for costs must be so fixed as to advance the ends of justice and not to hinder them. If the amount is too small a plaintiff with a speculative or even dishonest case may be able to force a defendant into an unfavourable settlement by the threat of expensive litigation whose costs may be irrecoverable; if too large a defendant may be able to defeat an honest and substantial claim because the plaintiff cannot find the necessary security. Somewhere between Scylla and Charybdis, a way has to be found but there can be no Admiralty chart, no succinct sailing directions."
This analysis was in contrast to s.390 which provides for ‘sufficient security’ for the costs of the proceedings. Murray J. (as he then was) pointed out in Framus Ltd. & Ors. v. CRH Plc. & Ors. [2004] IESC 25 - now reported at [2004] 2 IR 20 at p.56:“The current statutory jurisdiction of the court is expressly granted by s.390 of the Companies Act 1963. Pursuant to that section the court may require security for costs for the full amount of the estimated costs of the proceedings although it has a residual discretion as to the order which it should make. (S.E.E. Co. –v- Public Lighting Service Ltd and Anor [1987] I.L.R.M. 255 and Lismore Holmes Ltd (in receivership) –v- Bank of Ireland Finance Ltd [1992] 2.I.R. 57)”.
Special circumstances
In S.E.E. Co. v. Public Lighting Services [1987] I.L.R.M. 255 this Court refused to make an order for security for costs. It held that s. 390 of the Companies Act, 1963 is not mandatory, that the court has a discretion which may be exercised in special circumstances. In that case it was stated that, among the circumstances to be considered in the exercise of the court’s discretion, delay of an applicant was of particular significance. This, coupled with the fact that the inability of the plaintiff to pay costs stemmed from the subject matter of the action, was sufficient to justify the court refusing to order security for the costs of the appeal in that case. McCarthy J. (with whom Finlay C.J. and Hederman J. agreed) referred to English case law but held: “I would prefer to point to the discretionary nature of the court’s jurisdiction, a discretion which the court will exercise having regard to all the circumstances of the case to that purpose; see the cases referred to in Wylie’s Judicature Acts at 46 and 798 - 800 as well as those referred to in The Supreme Court Practice 1985, 23/1 - 3/14 and 59/10/16”.
In considering the circumstances McCarthy J. held, at p. 258:
“Without attempting to make an exhaustive list, it would seem relevant to consider such matters as:
(i) Has a prima facie case been made to the effect that the inability identified by the section flows from the wrong allegedly committed by the party seeking security?
(ii) Is there an arguable case stated in the motion of appeal?
(iii) Has there been undue delay by the moving party?”
McCarthy J. pointed out that countervailing circumstances would include the very fact that the insolvent company has lost the case in the High Court and is now an plaintiff.
The analysis of ‘special circumstances’ is not closed. No exhaustive list or definition has been made. In considering the concept of ‘special circumstances’ it should be remembered that the essence of the order for security for costs (or not) is ‘to advance the ends of justice and not to hinder them’ per Kingsmill Moore J. above. It is for a court on such an application to consider, and to balance, the interests of the plaintiff company and those of the second named defendant in a fair and proportionate manner.
In the application, inter alia, there is an onus on the second named defendant to establish by credible evidence an inability on behalf of the plaintiff to discharge the second named defendant’s costs. There is also an onus on the second named defendant to satisfy the court that he has a prima facie defence. There was evidence before the High Court on both these issues, on which the High Court found in favour of the second named defendant.
However, that is not necessarily the end of the matter. The order to require security for costs is discretionary. Even if the second named defendant discharges all the proofs required by law there remains a discretion in the court to decline to make an order for security for costs if the plaintiff satisfies the court that ‘special circumstances’ exist. It is for the court to consider the ‘special circumstances’ and exercise a genuine discretion on the facts of the case. In S.E.E. Co. Ltd v. Public Lighting Services Ltd. [1987] I.L.R.M. 255 at 258 McCarthy J. said that the ‘discretionary nature of the order is emphasised when read in the light of the constitutional right of access to the courts’. In Irish Press Plc v. EM Warburg Pincus & Co. International Ltd. [1997] 2 ILRM 263 McGuinness J. stated at p. 274: “While I accept, as was submitted by Counsel for the defendants in this case, that the constitutional right of access to the courts is primarily available to natural persons and that the courts must be careful not to render s. 390 nugatory, it seems to me that in his judgment the learned McCarthy J is expressing the general tenor of judgments in this Court and in the Supreme Court in regard to security for costs under s. 390 of the Companies Act, 1963.”
While it may be that this is an analysis of the height of the discretion, it does illustrate that the court is exercising a genuine discretion. Thus the plaintiff may prove ‘special circumstances’, and if this is done then, even thought the second named defendant may be prima facie entitled to an order for security for costs, in view of the ‘special circumstances’ the order may not be made.
In this case the second named defendant filed an affidavit and documents making the case that the plaintiff will probably not be able to pay the costs of this action in the High Court and that he has a prima facia defence, which was accepted by the learned High Court judge.
The onus then shifted to the plaintiff to satisfy the Court that ‘special circumstances’ existed. It was at this stage that the first issue on this appeal arose - that counsel for the plaintiff made the argument that he was not given the opportunity to make the case as to ‘special circumstances’ in the High Court. Leaving that aside for the purpose of this aspect of the judgment, I have considered the documents before the learned High Court judge. As the case was decided on documents I am in as good a position as the High Court to make determinations of fact. I have thus considered the documents to determine if there are ‘special circumstances’.
The Law of Private Companies, Courtney, 2nd Edition, p. 281 paragraph 6.042, notes that reported judgments have held the following matters to be ‘special circumstances’, i.e.
(i) Lack of bona fides by the applicant,
(ii) The company’s insolvency having been caused by the applicant,
(iii) The company seeking to vindicate the public interest,
(iv) The existence of a natural co-plaintiff,
(v) The applicant’s delay in applying for an order for security for costs. These ‘special circumstances’ have been recognised even though an applicant has met the proofs required under s. 390 of the Companies Act, 1963. In those circumstances the Court has exercised its discretion and has not made an order requiring security for costs.
8. Decision
The issue before the Court at this time is the question of security for costs. This decision relates solely to that issue. The merits of the case are not before the court and I express no view on them.
First of all I will deal with a few specific matters which were not the primary issues. No issue was raised on this appeal as to the application of s. 390 of the Companies Act, 1963 to the plaintiff’s type of company, i.e. a guarantee company without share capital. Thus I have treated the plaintiff as a company to which s. 390 applies.
Counsel for the plaintiff did not argue that the plaintiff could not access the courts if security for costs were awarded. Nor were there any broad submissions as to the use of a company in litigation. There was no indication of any intent to bring litigation and leave an empty shell. There was no evidence of use and abuse of a company. As to the issue of ability to pay costs, the plaintiff has funds, and, while they are not very considerable, it is not insolvent.
Finally, on these preliminary points, counsel informed the Court that this matter may not proceed in the Circuit Court because of the valuation of the lands.
My decision is in two parts.
8.1 In all the circumstances of the case I am satisfied that the plaintiff has made out a case that this motion should be reheard by the High Court, where the issues may be raised fully, including the ‘special circumstances’. While I make no decision as to the use or not of oral evidence, it appears to me that there are grounds to remit the matter to the High Court for a rehearing of the application for security for costs. Such a decision is unusual, but that does not preclude it. I would suggest that it be placed in a list which hears ‘long’ motions.
8.2 Should this matter not be remitted to the High Court, I address the issues. I am satisfied that the learned High Court judge erred in law in holding that the plaintiff had not established the existence of ‘special circumstances’ which would justify the refusal of the order. I am satisfied that ‘special circumstances’ exist, and I would not order security for costs to be given by the plaintiff to the second named defendant.
There is no exhaustive list of the ‘special circumstances’ applicable. The court has a discretion in all the circumstances of each case. Thus it is necessary to consider the circumstances of this case to determine if there are 'special circumstances'.
I am satisfied that the ‘special circumstances’ of this case include the following factors:- The individuals involved in the plaintiff company have worked together previously as a group of graziers of commonage with two trustees, one being the second named defendant. The group has now formed themselves into a company because, to a significant degree, of the conduct of the second named defendant. (ii) Fiduciary nature of trustee
It is common case that the lands in issue were held originally in commonage, the plaintiff maintains this is still the case while the second named defendant submits he is now the owner. It is common case that the second named defendant was a trustee in relation to the said lands, the plaintiff maintains that is still so, the second named defendant maintains he is now the owner. Thus this case raises the factor of the fiduciary nature of a trustee. The duties of trustees are well recognised in law and are a significant responsibility. (iii) Bona fides of second named defendant
The fact that the second named defendant did, at a previous time, claim a benefit (to avoid paying tax) on the basis that he was acting as a trustee, raises issues of his bona fides. Thus, the bona fides of the second named defendant is a further important factor in the assessment of the special circumstances.
(iv) Actions of second named defendant
The fact that the second named defendant expressly admits that he has acted as trustee in the past in relation to the lands is (as I have pointed out previously) relevant to the special circumstances, raising as it does, not only fiduciary duties and the second named defendant’s bona fides, but also his actions. I am satisfied that a prima facia case has been made out that the situation (and consequence to the members of the plaintiff) flows from the actions allegedly committed by the second named defendant. In these special circumstances it is appropriate to consider the justice of the case and the court’s duty to advance the ends of justice and not hinder them. I am satisfied that the justice of the case requires that no order as to security for costs be made.
These factors are considered without determining the merits of the case, or the beneficial ownership of the lands. Applying these factors I am satisfied that the plaintiff has raised ‘special circumstances’ so as to defeat a claim for security for costs.
9. Conclusion Accordingly, for the reasons given, I would allow the appeal.
West Donegal Land League
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