A successful party will generally be awarded its costs against the unsuccessful party. However, this isn’t much of a comfort if obtaining costs from the plaintiff may be unrealistic. In these circumstances, as a defendant has no choice in being a participant in litigation, Irish procedure allows a defendant to protect itself against a plaintiff where enforcement may be difficult by seeking security for costs. Commercial Disputes partners, Gearoid Carey and Gerard Kelly examine this concept.
In Ireland, if a defendant thinks it might be difficult to get the plaintiff to pay for costs after the case, they can ask the court to make the plaintiff provide security. This requires the plaintiff to put up security by way of cash or a bond before the case can move forward. This ensures that, if the defendant wins, they can get their legal costs paid. The reason for this rule is to balance two things:
- The defendant's right to get costs back if they win, and
- The plaintiff's right to access the courts and to due process
This article examines the principles the courts will take into account when determining applications for security for costs. There are two separate routes which can be used to pursue security for costs, one under statute and the other under court rules. The main differences between the two are that one is exclusively applicable to Irish corporate plaintiffs and, for these plaintiffs, lack of funds is a key factor in the test.
Order 29, Rules of the Superior Courts
Order 29 of the Rules of the Superior Courts sets out the authority to award security for costs. That authority applies broadly. However, there is a separate statutory basis for security for costs applications against companies. This is subject to certain exceptions but generally the Order 29 ground is available where the application relates to corporate plaintiffs not falling within the other regime.
For the purpose of Order 29, two principal criteria must be satisfied:
- The plaintiff must be ordinarily resident of Ireland, the EU or a contracting state to the Lugano Convention, and
- The defendant must have a prima facie defence on the merits, ie that the first impression of the defence would suggest it has merit
Accordingly, security for costs will generally not be ordered against personal plaintiffs resident within the EEA. However, even where both criteria are met, the court still retains a discretion not to make the order. For example, it may not do so if the plaintiff has assets in the country against which enforcement could be pursued.[1] Accordingly, it has been acknowledged that even where those criteria are met there is no automatic right to security for costs and the facts of each individual case should be considered.
Overall, the objective behind Order 29 is to afford a mechanism to protect a defendant in circumstances where a plaintiff may be able to avoid complying with an order for costs simply because they would be beyond the reach of the court’s power. However, a recognised exception arises where the plaintiff can be said to be a ‘nominal plaintiff’, where the real beneficiaries to the proceedings are others. In these cases, an order for security for costs may be made regardless of residence in the country.[2] It is important to note that the unavailability of funds of an individual plaintiff is not, in and of itself, a basis to award security for costs against them.[3]
In addition to disputing the award of costs by reference to the principles above, a plaintiff could also seek to maintain that they are unable to meet any security to be awarded because of the conduct of the defendant, ie, the defendant has caused loss and therefore no security can be given. If such a defence to a motion is raised, a clear causal connection must be set out, and a general assertion will not suffice.[4] Another basis which may be relied on is undue delay, but that would need to be detailed and any consequential prejudice suffered by the plaintiff explained.
Section 52, Companies Act 2014
The alternative basis for seeking security for costs arises under Section 52 of the Companies Act 2014. Although, by definition, the Act applies to companies, the section does not extend to companies registered outside the country or to unlimited companies incorporated in Ireland. So, for those companies at least, the principles relevant to Order 29 are relevant.
Effectively, Section 52 requires a defendant to establish they have a prima facie defence to the plaintiff’s claim and that the plaintiff will not be able to pay the defendant’s costs if the defendant is successful.[5] More than the mere risk of the plaintiff being unable to pay the defendant’s costs is required. While a plaintiff’s accounts / financial statements will be relevant, it is not the case they will be determinative and the court will look at all available evidence.
However, the power under Section 52 is not mandatory in nature so the court is not required to order security for costs in all cases where it appears the plaintiff may be unable to pay the successful defendant’s costs. Rather, the court retains a discretion not to award security which may be exercised in “special circumstances”[6] which are for the plaintiff to demonstrate. What constitutes ‘special circumstances’ can include where:
- The plaintiff company’s poor financial position derives from the conduct of the defendant[7]
- Undue delay by the defendant[8], and
- The case involves a point of law of significant public importance[9]
Although case law recognises that the category of those circumstances is not limited, commentators have suggested caution relying on decisions related to the prior statutory regime under Section 390 of the Companies Act 1963 which was drafted slightly differently.
Amount of security
The amount of security to be ordered also varies depending on the class of plaintiff subject to each route by which security might be obtained. For individual plaintiffs subject to Order 29, by virtue of a rule of practice which has developed, the security is approximately one third of the estimated costs to be incurred by the party to give security. By contrast, for corporate plaintiffs subject to Section 52, subject to the discretion of the court full security will typically be required. Given the arithmetical exercises involved, the actual quantifications of the security to be paid can often require evidence from legal costs accountants as to potential costs.
Conclusion
The availability of security of costs is to afford some level of protection to a defendant from the costs of having to defend a claim where costs recovery if successful may be challenging. To that extent, it reflects an element of recalibration of the scales of justice so that, in appropriate cases, the ordering of security protects a defendant while balancing the right of a plaintiff to pursue their action. Given that the award of security for cost can stifle an action, the courts are careful to avoid awarding it where it is put forward as a tactical ploy. To succeed in obtaining security for costs, an applicant will need to satisfy the court that it has met the relevant element of the tests and that it should exercise its discretion in favour of awarding security.
For more information and expert advice on commercial disputes, contact a member of our Commercial Disputes team.
The content of this article is provided for information purposes only and does not constitute legal or other advice.
[1] Malone v Brown Thomas & Co Ltd. [1995] 1 ILRM 369
[2] See, for example, Goode Concrete v CRH plc [2012] IEHC 25
[3] Unlike the position involving a corporate plaintiff, addressed further below.
[4] Philip Harrington Daly & Co. v JVC (UK) Ltd., unreported High Court (O'Hanlon J) 16 March 1995 at 16.
[5] Inter Finance Group Ltd v KPMG Peat Marwick [1998] IEHC 217 at 4.
[6] West Donegal Land League Ltd v Údarás na Gaeltachta [2006] IESC 29
[7] Connaughton Road Construction Ltd v Laing O'Rourke Ireland Ltd [2009] IEHC 7
[8] Beauross v Kennedy Unreported High Court (Morris J) 18 October 1995.
[9] Digital Rights Ireland Ltd v Minister for Communications, Marine and Natural Resources [2010] IEHC 221
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