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Judgment Title: IBB Internet Services Limited -v- Motorola Limited Neutral Citation: [2013] IESC 53 Supreme Court Record Number: 63/2013 High Court Record Number: 2010 11862 P & 2011 36 COM Date of Delivery: 27/11/2013 Court: Supreme Court Composition of Court: McKechnie J., Clarke J., MacMenamin J. Judgment by: Clarke J. Status of Judgment: Approved
Outcome: Dismiss | |||||||||||||||||||||||||||||||||||||
THE SUPREME COURT [Appeal No: 63/2013] McKechnie J. Clarke J. MacMenamin J.
IBB Internet Services Limited, Irish Broadband Internet Services Limited (both trading as Imagine Networks)
and Imagine Communications Group Limited Plaintiffs/Respondents and
Motorola Limited Defendants/Appellants Judgment of Mr. Justice Clarke delivered the 27th November, 2013. 1. Introduction 1.2 The proceedings before the High Court have had a difficult procedural history and are already the subject of a number of written judgments. The first such written judgment (IBB Internet Services Ltd & Ors -v- Imagine Communications Group Ltd [2011] IEHC 253), was delivered by Kelly J. on the 6th July, 2011. That judgment addressed issues arising from Imagine’s first amended Statement of Claim which had been amended following a threatened motion to strike out the original Statement of Claim for the shortcomings allegedly contained therein. However, this amended Statement of Claim gave rise to criticisms from Motorola to the effect that it was still not possible to properly understand the case being made against it. This contention was accepted by Kelly J. He stated that, “it is not possible to ascertain with the degree of certainty that is required the precise case which the plaintiffs wish to make in respect of this claim for a large sum of damages” and granted leave for the delivery of a “re-amended Statement of Claim”. 1.3 A third attempt at a Statement of Claim was delivered on the 29th July, 2011. Motorola contended that this version was not in accordance with the terms of the order made by Kelly J. on the 6th July, 2011, that it contained amendments which were not authorised by that order and that it was such that it would delay or prejudice a fair trial or the action. As a result of these complaints, Motorola brought a motion seeking to strike out this “re-amended Statement of Claim”. Having examined this version against the order of Kelly J., I concluded, at para. 6.1 of my judgment on that application, that “The re-amended statement of claim has failed to meet the standard imposed by that order and it seems to me that I am left with no option but to make the order sought on behalf of Motorola which is to strike out the statement of claim.” I then went on to identify a number of areas which needed rectification in any further Statement of Claim to be delivered by Imagine (see IBB Internet Services Ltd & Ors -v- Motorola Ltd [2011] IEHC 504, delivered on the 9th November, 2011). 1.4 The issue of the compliance of the then fourth Statement of Claim, delivered on the 30th November, 2011, with my order of the 9th November, 2011, was the subject of a judgment by McGovern J. on the 2nd October, 2012, (IBB Internet Services Ltd & Ors -v- Motorola Ltd [2012] IEHC 567). On this occasion, Motorola claimed that Imagine had failed to properly address difficulties previously identified relating to the loss claimed, and separately sought an order dismissing the proceedings for being an abuse of process or for being bound to fail. Despite describing the fourth Statement of Claim as evidence of “a scattergun approach by the plaintiffs in connection with their claim”, McGovern J. held that it did meet the requirements as set out in my earlier order. McGovern J. also refused to strike out the claim as being bound to fail holding that the issues raised were properly to be tested at a full hearing. 1.5 However, the application which gives rise to this appeal was an application brought by Motorola seeking an order for security for costs under s. 390 of the Companies Act, 1963 (as amended) (“s. 390”). While it will be necessary to turn to the jurisprudence in respect of such applications in early course, it is well established and not contested on this appeal that an initial onus rests on a party seeking security for costs under s. 390 to establish a prima facie defence to the claim and to establish an inability on the part of the relevant plaintiff to pay costs in the event that the proceedings are unsuccessful and costs awarded. Thereafter, of course, the question of special circumstances arises. There is no longer any issue but that Motorola has established a prima facie defence. That leg of the test is accepted, therefore, as having been met. However, there was a serious contest before the High Court as to whether Motorola had met the second leg which places the onus on the moving party to show inability to pay costs. The High Court (McGovern J.) was not satisfied, on the evidence, that Motorola had discharged the onus on it in that regard. On that basis security was refused. Motorola appeals against that finding to this Court. 1.6 It should, however, in addition be noted that Imagine had also, as a fallback position, sought to place reliance on special circumstances (being a contention that, even if contrary to its primary case, it could be shown that there would be an inability to pay costs if Imagine were to lose, that situation was, it was said, due to the wrongdoing of Motorola in respect of which Imagine seeks redress in these proceedings). McGovern J., of course, did not, strictly speaking, have to go on to consider whether there were special circumstances having regard to the view which he formed as to the failure of Motorola to establish inability to pay costs. However, McGovern J. indicated that, were he to be wrong in that primary conclusion, he would have determined that special circumstances under the relevant heading existed. 1.7 It, therefore, follows that the primary issue on this appeal is as to whether McGovern J. was correct in concluding that Motorola had failed to establish an inability to pay costs. However, if Motorola were to succeed on that point it would be necessary to go on to consider whether McGovern J. was correct in concluding that special circumstances would, in any event, have led to the application being dismissed. I propose to deal first with the primary argument to which I now turn. 2. Inability to Pay Costs
(a) that he has a prima facie defence to the plaintiff's claim, and (b) that the plaintiff will not be able to pay the moving party's costs if the moving party be successful;
2.3 However, there was significant debate both as to the detail of the legal principles to be applied in considering whether the inability to pay costs element of the test had been made out and, also, on the facts. In the context of the legal argument it is important to turn to the terms of s. 390 itself. 2.4 That section provides as follows:-
3. The Decision of the Trial Judge 3.2 McGovern J. rejected the approach advocated by Motorola at para. 18 of the judgment in the following terms:-
3.4 The trial judge’s reasons for refusing the application are succinctly expressed at paras. 32-34 of his judgment:
33. But, in case this matter proceeds further, I wish to state that there is cogent evidence to show that the requirement for the plaintiffs to write down the value of the Group assets is a direct consequence of the alleged breaches by the defendant that are the subject matter of the within proceedings, and insofar as that would affect the ability of the plaintiffs to meet the larger figure for costs which has been postulated by the defendants, it would seem to come within the ambit of Peppard v. Bogoff, and would be a sufficient ground for exercising the court’s discretion not to grant security. 34. Finally, on the issue of delay in bringing this application, I am satisfied that the defendant moved with reasonable speed, having regard to all the circumstances. In any event, I am satisfied that the delay complained of would not, in itself, have been sufficient to cause me to exercise my discretion in denying the relief sought.” 4.1 At the hearing of the appeal, counsel for Motorola identified three core areas where the trial judge was said to be incorrect, namely: (1) the test for assessing whether an applicant has discharged the onus on it of establishing inability to pay costs, (2) the treatment of Note 1 in the 2011 Group Accounts (“Note 1”), and (3) the effect of the valuation of the “spectrum assets”. 4.2 In respect of the first alleged error, it was submitted on behalf of Motorola that the trial judge misconstrued their argument as to the test to be applied. Motorola says that it was not their argument that a court should be confined to an analysis of the credibility of only the evidence proffered by an applicant concerning the respondent’s ability to pay, but rather that it accepted that a court had an obligation to review the evidence on both sides. However, in circumstances where the evidence was not all one way, as in this case, it was said that a court was required to decide whether an applicant’s evidence was credible (in the light of all of the evidence) before moving on to assess whether there were any special circumstances justifying a trial judge refusing to exercise his discretion in favour of an applicant. Motorola contended that their evidence was credible, as it had not been challenged by cross-examination, and that the trial judge should, as a result, have proceeded to examine the special circumstances limb of the test. 4.3 Counsel for Motorola additionally argued, in the alternative, if he was wrong and the trial judge correct that the appropriate test to be applied was “the balance of probabilities” test set out in para. 18 of the judgment, that the trial judge erred in weighing the evidence, particularly as to the import of Note 1 and the valuation of the “spectrum assets”. 4.4 Motorola asserted that a fundamental flaw in the analysis of McGovern J. was a failure to deal with Note 1 which was said to arise from a confusion between this note and the “Emphasis of Matter” paragraph in the relevant accounts. Counsel pointed to the fact that there is no express reference to Note 1 at any point in the judgment. It is contended that this evidence should have been given much greater emphasis by the trial judge as Motorola contend that Note 1 amounts in substance to an admission on the part of Imagine of their inability to pay the costs of the action. 4.5 Motorola claims that the trial judge also fell into error in giving unwarranted credit to the valuation of the “spectrum assets”. It is said that Imagine’s directors and auditor were both aware of the value of these assets at the time of the publication of 2011 accounts and, notwithstanding this, still felt it necessary to include Note 1 in their annual accounts. As a result, it is said that it was not necessary for Motorola to challenge the evidence of value or provide an alternative valuation. In essence, Motorola says that rather than supporting Imagine’s ability to pay, the valuation in fact supports the argument to the contrary. 4.6 The final submission of Motorola concerned the special circumstances limb of the test, which, of course, only arises if the appeal succeeds on the first limb. This submission is concerned with whether Imagine had discharged the onus on it to show that there were special circumstances which would allow the Court to exercise its discretion not to award security for costs. Although McGovern J. refused the s. 390 application on the basis of the failure of Motorola to discharge the first limb, he did go on, as earlier noted, at para. 33, to say that the evidence indicated that any inability to pay on the part of Imagine was a “direct consequence” of the alleged wrongdoing by Motorola. This, in the trial judge’s view, would have been sufficient to amount to a special circumstance, justifying a refusal to exercise his discretion in favour of Motorola. 4.7 Motorola contended that the trial judge did not carry out a sufficiently detailed analysis to come to the above conclusion. In particular, Motorola referred to the report of their expert which states that 87% of the losses of Imagine are not related to the “WiMax project” which is at the centre of the dispute between the parties. Motorola says that this evidence was not contradicted by Imagine. 4.8 In response, Imagine argued that the trial judge correctly identified and applied the appropriate test in deciding whether or not Motorola had discharged the onus on it to prove that there was reason to believe that Imagine would be unable to pay the costs if unsuccessful in its action. This, it is argued, necessitated the trial judge assessing the evidence of both sides as to the ability to pay and then coming to a conclusion whether Motorola, on the balance of probabilities, had proved this aspect of its case. 4.9 In respect of the argument in relation to Note 1, it is said that Motorola has “misstated and exaggerated” its content and that the note does not have the significance ascribed to it by counsel for Motorola. It is the submission of Imagine that the note simply points out the fact that failure of the action would have obvious detrimental financial consequences for Imagine in the longer term. Imagine also say that the trial judge, notwithstanding its non-inclusion of the judgment, was aware of Note 1 as the “emphasis of matter” paragraph refers to that note. 4.10 Imagine also argued that its accounts were prepared in compliance with Irish Generally Accepted Accounting Practice ("Irish GAAP"), and, as a result, that it was prohibited from including the full value of the “spectrum assets” in its accounts. If the full value had been included, it is said there would have been no doubt whatsoever as to Imagine’s ability to pay as the valuation of these assets is a multiple of even Motorola’s largest estimate of costs. 4.11 Finally, Imagine relied on the finding of the trial judge that there was “cogent evidence” for the Court to conclude that the alleged impecuniosity of the Imagine was caused by the wrongdoing of Motorola. Even if the vast majority of losses were now non-WiMax related, Imagine argued that this takes no account of the current and historical adjustments that have had to be made to the accounts as a result of the alleged wrongdoing. Against the background of those arguments I now turn to the proper interpretation of s. 390. 5. Discussion 5.2 In any event, the real question is as to what must appear to the court to be the case as a result of that credible testimony. There are two elements to that requirement. The court must consider whether there is "reason to believe" that the company concerned "will be" unable to pay costs. 5.3 It is instructive that the Court of Appeal for England and Wales has recently had to consider almost identical wording in relevant English provisions in Jirehouse Capital and anor v. Beller and anor [2009] 1 WLR 751. The relevant provision in that jurisdiction is Rule 25.13(2)(c) of the Civil Procedure Rules. That Rule provides that a court may make an order for security for costs when:
5.4 Jirehouse concerned an appeal from a decision of Briggs J. in the High Court of England and Wales, where, in dealing with an application under Rule 25.13(2)(c), the judge applied a test of significant danger that the company would be unable to pay costs ordered against it, rather than a “probability test”. It was said that the “significant danger” test was too low a threshold and that it was not in accordance with the terms of the Rule. However, counsel in that case did not argue that there was any difference between “significant danger” and “reason to believe”, and Arden L.J. proceeded on the assumption that it was not contended that there was a material difference between these two concepts. 5.5 At para. 26, the judge concluded:
5.8 It must, of course, be taken into account that the court, in considering inability to pay costs, is, in a sense, predicting a future uncertain event. The question which must be considered concerns the ability of the corporate plaintiff to pay costs at the time when the proceedings have failed. That involves not only a consideration of the relevant plaintiff's current ability to meet an order for costs but also any likely change in that ability brought about by the passage of time and, of course, predicated on the failure of the proceedings. 5.9 The balance of probabilities test used to assess evidence in all civil proceedings is, of course, principally concerned with the standard by reference to which a decision-maker (judge or jury) must assess that evidence in order to make findings as to events which actually occurred. Historical facts relevant to the determination of the legal rights and obligations of the parties are frequently, of course, disputed to a greater or lesser extent. When there is conflicting or, indeed, arguably insufficient, evidence in respect of such material facts then the court assesses the matter on the balance of probabilities. If, by reference to that test, the court is satisfied that it is more probable that the facts are as asserted by one party then the court will, for the purposes of the case, take the facts as being so. The fact that the court might have entertained some doubt about the material facts is, thereafter, irrelevant for the court will assess the case, provided it is satisfied on the balance of probabilities, on the basis that the facts are so. 5.10 It does need to be noted that the same regime does not necessarily apply in respect of the assessment by the court either of the course of future uncertain events or, indeed, in determining what might have happened in hypothetical circumstances. As pointed out by this Court in Philip v. Ryan [2004] 4 IR 241, in some such cases it is appropriate for the court to assess the range of possibilities and take each of those possibilities into account, weighting them, if appropriate, for the likelihood of them occurring. An injured plaintiff who has a 20% risk of developing arthritis as a result of a bony injury near a joint might, on one view, be said not to have established, on the balance of probabilities, that he will suffer any future adverse consequences. But that is not the way the court approaches the matter. The court awards damages on the basis of the risk. 5.11 Likewise, when a court is required to assess what decisions might have been made had wrongdoing (such as, for example, professional negligence in tendering advice) not occurred, the court will assess the likelihood of whether different decisions with different consequences might have been made had the wrongdoing not occurred (for example had non-negligent advice been tendered). The court will then proceed to assess the case on the basis of the likelihood of such different decisions being made (on the hypothesis of no negligence) in the light of whatever consequences might be likely to have followed a different decision. 5.12 All of that goes to show that the balance of probabilities test is not, strictly speaking, in any event particularly apposite for the assessment of future uncertain or hypothetical events. The precise position that any company will find itself in at a time when it might, hypothetically, be called on to pay the costs of unsuccessful proceedings is necessarily uncertain. This is so for many reasons. First, it would be necessary, in any event, to make some assessment as to whether, over the likely period which might be expected to elapse before the proceedings come to a conclusion, there may be a material change in the company's financial position. A company which is losing significant money in circumstances where there is no particular reason to believe that that situation may change in the short term may well require to be assessed on the basis that its financial position would, in any event, be worse by the time the proceedings concluded. 5.13 Even on the basis of assuming no material change in a company's financial standing, it is often the case, as the issues in this case demonstrate, that the accounts of a company (although properly prepared in accordance with relevant standards such as Irish GAAP) do not necessarily give a definitive picture as to what funds might actually be available to meet an order for costs. There are many circumstances where the book value of assets does not necessarily correspond with the amount of monies which might be realised by the sale of the asset concerned. 5.14 That can, of course, as this case again demonstrates, cut both ways. Proper accounting practice can require that an asset be included in the balance sheet at a particular value even though there may be cogent evidence to the effect that the market value of the asset concerned is higher, or even much higher. In the other direction many assets, such as plant and machinery, are depreciated over the likely lifetime of the asset concerned. In the event that the company continues as a going concern, such accounting treatment is, of course, wholly appropriate. The costs of the relevant plant and machinery and, indeed, the anticipation of its necessary replacement, is appropriately dealt with by spreading that cost over the depreciation period. But it is the universal experience of judges dealing with insolvent companies that the estimate given for the likely sale price of such assets, in the event that the company ceases to trade, falls, in many cases, far below the book value. Likewise, at least in some cases, there is anticipated to be likely to be difficulties in recovering all of the debts due to a company should it cease to trade. For these, and many other, reasons there will necessarily be a certain amount of estimation and hypothesis even in the task of assessing whether a company could, as of today, or as of the day of its most recent accounts, be able to pay any specified sum in costs should it be called on to do so. I should, of course, add that there are sound reasons why accounts are required to be prepared in the way that relevant standards require. However, it is important that courts, and indeed experts giving evidence to courts, keep in mind that the question that the court may have to address is not, necessarily, the same as the question that the accounts are designed to answer. 5.15 To those points must be added the fact that the range of costs likely to be ordered will, itself, be something of an estimate and can, as this case again demonstrates, lead to wildly differing sums being suggested on both sides. Furthermore, questions concerning the effect of a loss of the proceedings on the company's financial standing including questions as to whether it would, in those circumstances, be able to continue as a going concern can also arise. 5.16 All of this goes to show that an assessment of the ability of a company to pay costs after a loss of proceedings occurring at some future date involves a whole range of estimates and hypotheses which, in my view, would render attempting to reach an assessment on the balance of probabilities inappropriate in any event. For that reason, it seems to me that use of the term "reason to believe" is appropriate. It is for that reason that I agree with the analysis in Jirehouse which suggests that "reason to believe" differs from a matter being established on the "balance of probabilities". Indeed I would go further and suggest that a test of "balance of probabilities" would be inherently inappropriate to an assessment of a hypothetical future event redolent with estimates. As was pointed out in Jirehouse the fact that there must be reason to believe that the company "will" be unable to pay necessarily implies that what must be established is something a lot stronger than a mere risk. The phrase "reason to believe" should not be further defined, again for the reasons set out in Jirehouse, to avoid the risk of changing the test. While it does not require the court to assess the matter on the balance of probabilities, it does require the court to consider all material evidence and reach an assessment of the range of likely eventualities and thereby determine whether there truly is "reason to believe" that the company "will" be unable to pay costs should it lose. That requires that the evidence satisfy the court that there is something significantly greater than a mere risk of such an eventuality occurring. Against the background of that analysis I now turn to the facts of this case. 6. The Facts
The company and group have incurred significant losses since the commencement of trade. Notwithstanding this, the company and group balance sheets show a net assets position at year end. This position is the result of the directors securing the necessary funding (in the form of share capital) from its investors. Since the year end, as set out in note 33 to the financial statements, the directors have secured funding from shareholders for working capital purposes. Additionally, the directors have renegotiated and are about to formalise an arrangement such that certain financing facilities will not become payable within 12 months of the date of approval of the financial statements. The directors are satisfied that; due to the availability of this additional investment, the renegotiated facilities and the fact the group is currently EBITDA positive, the company and group will be in a position to discharge its liabilities as and when they fall due and thus continue in operational existence for a period of at least 12 months from the date of approval of these financial statements. The company and certain of its subsidiary entities have made a substantial claim for damages against a major supplier of technology, equipment and ancillary services. The claim for damages relates to material technical failures and under-performance on contractual arrangements. The claim is being heard in the Commercial court. The outcome of the case is likely to have a significant impact on the long term future of the company and group and on its ability to discharge its liabilities. While the directors are confident of a settlement in their favour, there is an inevitable uncertainty with respect to same. The financial statements do not include any adjustments that may be necessary if the going concern basis of preparation was no longer appropriate or if the aforementioned court case was not settled in the company’s favour.”
In forming our opinion, which is not qualified, we have considered the adequacy of the disclosures made in the financial statements concerning the Company’s and the Group’s ability to continue as a going concern. The Group incurred a loss for the period of €18,494,110 and has accumulated losses at 31st December, 2011, of €73,573,601. Primarily due to the uncertainty surrounding the court case, along with the other matters explained in note1 to the financial statements, indicate the existence of a material uncertainty which may cast significant doubt about the Company’s and the Group’s ability to continue as a going concern. The financial statements do not include the adjustments that would result if the Company and the Group was unable to continue as a going concern.” 6.3 At this point it is important to note that, subsequent to the oral hearing in this case but while the Court was considering its judgment, an application was made on behalf of Imagine to admit in evidence its 2012 accounts. Indeed, there had been criticism of Imagine at the original hearing for what was said to be the somewhat outdated nature of the accounts which were before the Court. Be that as it may no objection was raised to the admission of the more up-to-date accounts although both parties submitted brief submissions on what, if anything, might be gleaned from those accounts in relation to the issues which arise on this appeal. I will turn, in due course, to what the 2012 accounts say. However, for present purposes, and because the argument at the oral hearing proceeded on the 2011 accounts, I will confine my comments to those accounts. Finally, before leaving this point it should be noted that the Court accepted the 2012 accounts in evidence in this case because there was no objection to that course of action being adopted. It should not be taken that the Court will, necessarily, be prepared in any other case to accept additional evidence after the oral argument has concluded. 6.4 The starting point for a consideration of the evidence has, therefore, to be the accounts which contained Note 1, which are for the year ending 31st December, 2011. The balance sheet of the group as of that time was as follows:-
6.5 As pointed out earlier, Motorola's estimate of the costs of the proceedings was €4.5 million. While Imagine had a strikingly smaller estimate, taking that figure, for the purposes of argument, it is clear that, looking at the balance sheet alone, the group is in a net asset position (being €19.235m) more than sufficient to discharge those costs. However, Motorola makes the point, through expert testimony tendered on its behalf, that there is reason to believe that the company would not be able to pay that sum in costs in cash, either because it did not have ready cash available or because there would be other cash requirements which could not be deferred so as to confer a preference on paying any costs which might be awarded in favour of Motorola. If, in those circumstances, the company was unable to continue to trade it was suggested that it would follow that much of the assets might need to be significantly written down in value so that the net asset position would not be at all as appears in the current accounts and would, it was said, be likely to be disimproved to the extent that the costs could not be paid. It is said that the note itself gives credence to that analysis for, the argument goes, if that analysis were not correct, it is difficult to see how there could be a problem with paying all of the creditors even if the company could no longer trade. 6.6 However, Imagine countered that argument by making reference to the value of its broadband spectrum. In that context two pieces of evidence are relevant. The first is a valuation report of Imagine’s spectrum assets prepared for Imagine by Dr. Mike Jeremy, an experienced telecoms and technology analyst, in October 2012. At paras. 4.11 - 4.14 of his report, he expresses his conclusions as follows:
4.12 This valuation is based on the combination of underlying demand and growth forecasts for broadband services, European spectrum pricing precedents, and the goals of the Irish broadband update process. In this particular context the applicability of Imagine Communication Group’s spectrum for fixed-line access substitution and augmented access additional potential value. 4.13 The breadth of valuation range is partly-determined by the ongoing Irish spectrum auction process, which is still underway. 4.14 The strategic positioning of Imagine Communication Group’s wireless offering provides the opportunity for additional value due to the lack of fixed-line broadband infrastructure highlighted by the Irish Government and the applicability of a wireless –based alternative.”
… I also reiterate the fact that the inherent value in the spectrum controlled by the group is not a relevant consideration when forming an opinion on whether the financial statements are prepared on a going concern basis. This does not mean that the spectrum itself is not a valuable asset of the company; merely that it cannot be recognised for the purpose of preparing the financial statement in accordance with Irish GAAP or considered in the context of assessing whether the company can continue as a going concern.” 6.9 As appears from the expert evidence to which reference has been made the minimum value of the broadband spectrum is €50 million. There is, indeed, reason to believe that it is even more valuable than that but for present purposes I propose to use that minimum value. Taking the company's balance sheet as of December 2011, its entire liabilities, whether under the heading of debts falling due within or outside a one year period, total just over €39.5m. That leaves a surplus of a sum in excess of €10 million even if entirely disregarding all assets other than the broadband spectrum. Such an approach would, in any event, not be justified. For the reasons already analysed it is, of course, the case that it might well be, on a winding up, that those assets would not achieve anything like the book value attributed to them in the balance sheet. However, to regard them as having no value (when they appear on the accounts at €27.8m) would be unrealistic. It follows that, even in the doomsday scenario of a winding up, on the basis of the current accounts, Imagine would have a sum well in excess of €10 million by way of surplus to meet any costs that might be awarded against it. Even if one were to factor in further possible losses between the end of December 2011 and a likely time of trial (perhaps early 2014), together with Imagine's own costs of the trial, it still seems highly likely that there would be more than enough funds available to meet an award of costs even of the order of €4.5 million. 6.10 On the basis of that analysis, I am satisfied that the trial judge was correct to conclude that it had not been established that there is reason to believe that Imagine will be unable to pay costs if it loses its case. 6.11 The content of Note 1 is undoubtedly a factor which has to be taken into account and to which significant weight would necessarily have to be attached. However, the sequence of events leading to an understanding by Imagine of the true value of the broadband spectrum also needs to be noted. 6.12 In a presentation to the Imagine Group in May 2012, which preceded but only by a short period the signing-off of the 2011 Accounts, AIB put an indicative value of between €55m and €108m on 120MHz of spectrum which Imagine then held. Imagine now holds additional spectrum licences. This valuation was reinforced by the October 2012 valuation provided by Dr. Jeremy, of between €50m and €120m. The report of Dr. Jeremy also notes indicative minimum auction prices for further bandwidth which was to be sold by the Commission for Communications Regulation. These estimates, “€2m per MHz under 1 GHz and €1m per MHz for 1800MHz”, were said to support the valuation estimate provided by Dr. Jeremy. The results of this spectrum auction were referred to in the second replying affidavit of Sean Bolger, the Chief Executive of the Imagine Group, dated the 7th December, 2012. At para. 60 of that affidavit, he states:
6.14 Finally, I should touch on the argument made on behalf of Motorola, which really arose on the question of whether special circumstances had been made out, which suggested that, if it were really true that the spectrum had such value, Imagine should have no difficulty in raising funds (whether by borrowing or raising additional capital) to meet any order for security for costs and that the justice of the case would, therefore, be met by requiring security to be put up. Whatever might be the merits of such an argument if there was a real dispute between experts as to the value of an important asset of a company such that, on one view, the company would not be able to meet a costs order, but, on the view of the other expert, it would, such an analysis could, in my view, play no part in a case such as this where there is no contest on expert evidence. 6.15 Because the issue was raised I will turn to the question of the potential role of cross-examination in an application such as this. 7. The role of cross-examination
7.3 A number of points should be made. First, the cases relied on were all cases where the court was required to make a final order and where, therefore, the substantive rights and obligations of all interested parties were to be finally determined. Insofar as the making of a final order requires a court to take a view on the facts, and insofar as material facts may be the subject of conflicting evidence placed before the court on affidavit and where the contested facts have a bearing on the order which the court will have to make, then the comments made in those cases clearly apply. 7.4 However, there are sound reasons of principle and policy as to why, save in exceptional circumstances, courts should not contemplate cross-examination in interlocutory matters. It is important, in that context, to note that the wording of s. 390, which has already been analysed in some detail, is designed to meet a situation which is, in any event, at least partly hypothetical and subject to estimate. While not ruling out the possibility that, in an exceptional case, some level of limited cross-examination might be necessary, nonetheless it seems to me to be important to emphasise that, ordinarily, a court hearing an application under s. 390 should simply do the best it can on the basis of all of the affidavit evidence which the parties choose to put before it. The court is not making a final decision determining rights and obligations. Rather the court is making an, admittedly important, interlocutory order which, while it of course may have an effect on the run of the proceedings (including, in some cases, perhaps, stifling the proceedings) nonetheless is just that, an interlocutory order. A court should, in those circumstances, in my view, be very slow to entertain an application for cross-examination. Rather the court should take into account all of the evidence and reach a conclusion as to whether it can still truly be said, in the light of all that evidence, that there is "good reason" to believe that the company "will" be unable to pay costs. 8. The 2012 Accounts 8.2 Imagine submitted that the 2012 accounts evidenced a significantly improved financial position, while Motorola drew attention to a trading loss of the order of €8 million and the absence of a Directors Note or Auditors “Emphasis of Matter” similar to those which appeared in the previous years accounts and which have been the subject of significant analysis earlier in the course of this judgment. 8.3. In response to Motorola’s assertion that the accounts revealed a trading loss of the order of €8 million Imagine drew attention to the fact that much of that loss was attributable to non-cash items. Imagine, in its submissions, made significant reference to EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortisation) which is, of course, a frequently used measure of the underlying performance of a business. The calculation of EBITDA, as its name implies, excludes deductions for interest, tax, depreciation and amortisation. It is perhaps worthy to note again the point made earlier in this judgment that expert evidence tendered on the basis of accountancy standards and/or frequently used accountancy calculations, while often useful, sometimes seeks to address a question other than the one with which the Court is concerned. The issue with which the Court is concerned in this case is a simple practical one. It is concerned with the likely ability or inability of Imagine to meet a hypothetical cost order in the future in the event that it loses these proceedings. In the context of EBITDA it is important to note that interest is a cash liability and is, therefore, potentially relevant to the ability of a company to meet such a cost order. If the company will have to pay interest on its debts between now and the hearing then that will reduce the funds available to it to meet any cost order. I do not doubt the potential usefulness of EBITDA, as an effective measure of operational profitability, in reaching certain business assessments as to the underlying viability of the undertaking of a company. The exclusion of interest, however, is of little assistance in the task with which this Court is faced. The exclusion of depreciation and amortisation, however, needs to be separately considered. 8.4 Depreciation is, of course, a non-cash cost in respect of tangible assets. Amortisation is a corresponding concept for intangible property. Whether depreciation or amortisation is relevant in considering whether a company is likely to be able to meet a claim in costs in the future is dependent on all the circumstances of the case but most particularly the extent to which any assessment of the company’s current or likely future status is materially dependent on the availability of the value of the relevant assets sought to be subject to depreciation or amortisation. If it is said that the reason why a company might, at the moment, be able to meet an order for costs is because of the value of assets subject to depreciation or amortisation then any future estimate of the position of that company may well have to pay some attention to the likely rate of depreciation or amortisation. For the reasons already analysed that may depend on whether it is appropriate to assess the company on a going concern basis (when standard accountancy deductions might apply) or on a break-up basis (when it would be more appropriate to attempt to assess the likely value which could be achieved for the relevant assets on sale and any reduction that might occur in that value). 8.5 However, on the facts of this case, for the reasons already analysed in respect of the 2011 accounts, I had, for the purposes of argument, and on the basis of giving all due weight to the argument made by Motorola in that regard, heavily discounted the value of all assets other than the broadband spectrum. On the facts of this case, and having regard to that analysis, losses attributable to depreciation or amortisation on these assets are not material to the question which this Court has to answer. 8.6 For the purposes of assessing what additional information is available from the 2012 accounts it is necessary, therefore, in analysing the performance of Imagine for the purposes of assessing its likely ability to be in a position to pay costs should it lose, to have regard to interest but not, to any material extent, to depreciation or amortisation. Thus, the emphasis by Motorola on losses which include those factors is as equally invalid as the emphasis by Imagine on EBITDA which fails to reflect interest charges. It does, however, seem, from an analysis of the accounts, that a significant proportion of the trading losses to which Motorola draws attention were, in fact, of the non-cash variety. Having largely disregarded the assets to which those losses are attributable in the calculation conducted earlier in the course of this judgment it seems to me that those losses do not, in any material way, affect the overall assessment. 8.7 Insofar as Note 1 and the Emphasis of Matter no longer appear in the 2012 accounts it seems to me that, in the absence of any explanation as to how they came to be there in 2011 and not there in 2012, little weight can be attributed to their removal. Overall it is the case, however, that the 2012 accounts do seem to reflect some continuing losses which are not attributable to non-cash items. 8.8 However, there is, in my view, nothing in those new accounts which lead to any different conclusion being reached than that which would have been reached on the basis of the accounts which were before the Court in the course of the oral argument. As noted at paragraph 6.9 above the analysis which I there conducted made allowance for some potential future losses of the company between the date of the 2011 accounts and the likely conclusion of the proceedings. That analysis, therefore, included provision for some future losses. In the context of that analysis losses obviously refer almost exclusively to cash losses given the low weight attributed to assets other than the broadband spectrum. There is nothing, therefore, in the 2012 accounts which alters the overall picture to any material extent. 9. Conclusions 9.2` It follows that it is unnecessary to consider whether there would have been special circumstances such as would have justified a refusal to order security. 9.3 I would, therefore, dismiss the appeal and affirm the order of the trial judge.
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