High Court of Ireland Decisions

1. By its Notice of Motion dated the 6th November, 2000 the first named Defendant in these proceedings seeks an Order pursuant to Section 390 of the Companies Act 1963 and/or pursuant to Order 29 of the Rules of the Superior Courts directing the Plaintiffs’ to furnish security for the costs of these proceedings.

2. The Plaintiff and the first named Defendant entered into a contract on the 8th October, 1999 whereby the Plaintiffs’ agreed to purchase for the sum of £775,000.00 the Defendants’ interests as lessee in the premises known as ALL THAT the warehouse premises situate at Custom House Quay, Cork being the property comprised in Indenture of Lease dated 27th March, 1918 made between the Cork Harbour Commissioners of the one part and William Thomas Green and John George Green of the other part. The second named Defendants are the successors in title of the lessors under the said lease.

3. Amongst the special conditions attached to the said contract, special conditions numbers 9 (a) and (b) appear to be particularly germane to these proceedings and read as follows

4. The first named Defendant, on the grounds that the Plaintiff had not concluded negotiations to its satisfaction with the second named Defendant regarding the development of the premises before the closing date of the 10th April 2000 and hence not having closed the sale by that date, treated the contract as at an end and forfeited the non refundable part of the deposit namely £25,000.00 and returned the balance. The Plaintiff, being aggrieved by this, commenced proceedings in this Court by way of a Plenary Summons issued on the 11th day of August, 2000 which, inter alia as against the first named Defendant, seeks an Order of Specific Performance of the said agreement, a declaration that the first named Defendant failed to use its best endeavours in order to procure the consent of the second named Defendant to the assignment of the said lease the subject matter of the said sale, a declaration that the purported recision of the said contract by the first named Defendant was invalid, and a declaration that the consent of the second named Defendant to the assignment of the said lease was no longer necessary. As against the second named Defendant, the Plaintiffs in the said Plenary Summons seeks a declaration that the second named Defendant has unreasonably withheld its consent to the said agreement and a declaration that the first named Defendant is entitled to assign the said leasehold interest without the consent of the second named Defendant. An appearance was entered to that summons by the first named Defendant and before any further proceedings took place, the Motion which is now before me was brought.

5. This Motion is grounded on the Affidavit of Richard Martin Esq., a partner in the firm of Ronan Daly Jermyn who are the Solicitors on record for the first named Defendant. In this he deposes to the making of the aforesaid contract, and to its termination on the grounds that the Plaintiff had failed to comply with clause 9 (a) and (b) of the special conditions attached to the said contract.

6. Mr. Martin goes on to deal with the Plaintiffs financial position and he deposes to the fact that the Plaintiff was incorporated on the 18th of August, 1999 less than two months prior to the contract being entered into. He avers that the company is a “shelf company” and he expresses the belief that it was incorporated or activated by the Plaintiff for the sole purpose of purchasing the premises described in the Contract for Sale. He further deposes to the fact that the issued share capital of the Plaintiff company consists of 100,000.00 ordinary shares of 1 Euro each of which only two have been allotted thus resulting in the paid up capital of the company being only 2 Euros. He further deposes to the fact that no annual returns or accounts had been filed with the companies office and that there did not appear to be any assets in the company and he concludes by saying that because the Plaintiff was a mere “shelf company” that it is appropriate that the order for security for costs should be granted by this Court.

7. In opposing the application an Affidavit is sworn by Tim Tallent for the Plaintiffs. In this Affidavit, Mr. Tallent disputes the contention of the first named Defendant that they have a defence to these proceedings and he refers to the Statement of Claim yet to be filed. In his Affidavit, Mr. Tallent makes the case that the contract which was entered into between the Plaintiff and first named Defendant was the culmination of negotiations that commenced in September of 1998 with both Defendants’. These negotiations involved the Plaintiffs strategy for a comprehensive redevelopment of the property, the subject matter of the contract. The Plaintiffs proposal for the redevelopment of this property were contained in a confidential document which was furnished to the second named Defendant on the 23rd November 1998 and that subsequent to these proposals there were discussions with the Chief Executive of the second named Defendant company and subsequently with the directors of the first named Defendant, and that during the course of these discussions the Plaintiffs were encouraged to contact officials from the planning department of Cork Corporation with a view to establishing the feasibility of the development, and that as a result of these contacts Mr. Tallent was of the view that the planning officials appeared to be satisfied with the plans proposed. Mr. Tallent deposed to the fact that the preparation of all of these plans and proposals resulted in the expenditure of a sum of £127,000.00 by the Plaintiffs.

8. Mr. Tallent further deposes, that in his view he had secured the full support of the second named Defendant prior to proceeding to contract with the first named Defendant and that because of that he was prepared to enter into a contract which was a conditional and

9. Mr. Tallent goes on to aver that he subsequently learned that the second named Defendant were themselves bidding for the lease and that as a result of this alleged duplicity the second named Defendant then refused to consent to the assignment of the lease on grounds which the Plaintiff’s contend were entirely spurious. The Plaintiff’s in their Statement of Claim make the case that the consent of the second named Defendant has been unreasonably withheld and in addition that both Defendants have conspired to deprive the Plaintiffs of the benefit of the proposed development and in addition claim damages from both Defendants for conspiracy.

10. Although the defence has not yet been filed the grounds of the first named Defendant’s defence are set out in the Affidavit of Mr. Martin

11. For the first named Defendant it was submitted by Mr. Creegan as follows;

12. For the Plaintiffs Mr. O’Floinn submitted as follows

13. This case differs significantly from the reported cases I was referred to in that in all of these cases either insolvency was proved or inability to pay was admitted, whereas in this case it is contended for the Plaintiffs, that the first named Defendant has not discharged the onus of proving either insolvency or otherwise inability to pay.

14. In my opinion the Plaintiffs’ are right in this submission. No evidence has been adduced which would prove on the balance of probabilities that the Plaintiffs were insolvent as of the time of the making of this application or at any time prior to that. Mr. Creegan submissions however stressed that the point in time which is fixed by Section 390 as being the relevant time for the purposes of the Section is the end of the proceedings the Defendant having been successful in his defence. Mr. Creegan submits that the Court must look forward to that point in time and determine whether at that point in time the Plaintiffs will on the balance of probabilities be unable to pay the costs of the successful Defendant.

15. At that point in time Mr. Creegan submits that the only asset which the company lays claim to on the Affidavits, namely a beneficial interest in the contract the subject matter of the proceedings, will manifestly not be an asset of the company and hence in those circumstances the Plaintiffs’ will in all probability have no assets or income out of which to meet a demand by the first named Defendants for its costs.

16. I accept the correctness of Mr. Creegan’s submissions, that the appropriate time in respect of which the Court must determine inability to pay, is the point in time where the Defendant seeking security has been successful in his defence.

17. It follows that if the first named Defendant is successful in his defence the Plaintiff will not be entitled to the benefit of the contract the subject matter of the proceedings. In those circumstances it would appear to me to be probable that the Plaintiffs will have no assets or income out of which to meet an Order for costs in favour of the first named Defendant.

18. In the Affidavit of Mr. Tallent at paragraph 12 it is averred by Mr. Tallent’s that both he and his fellow principal Mr. A. J. Dunkerley have significant and unimpeachable business careers and he exhibits bank references. This averment is not contradicted by the first named Defendant and I would have no hesitation in accepting that it is entirely true. Nevertheless it would seem to me to be unlikely that experienced businessmen even of the most unimpeachable record would put money into “ a shelf company” in circumstances in which the only asset of the company had been lost in litigation, in order that the Plaintiff company would be able to meet an Order for costs for the first named Defendant.

19. The Plaintiffs have also pointed to the deposit in this case as being an asset to which recourse could be had in the event of the first named Defendant being successful in obtaining an Order for costs. It is common case that under the terms of the contract if the contract is at an end one third of the deposit or £25,000.00 becomes non-refundable. As matters stand the first named Defendant as part of its case, claims that portion of the deposit has by the failure of the Plaintiff to close the contract within the time specified, been lawfully forfeited to the first named Defendant.

20. Assuming the first named Defendant is successful in their defence it would necessarily follow that, that portion of the deposit would lawfully be forfeited to the first named Defendant and hence would not be an asset of the Plaintiffs which could be available to meet in whole or in part an Order for costs.

21. So far as the balance of the deposit is concerned namely approximately

22. £50,000.00, that has been returned to the Plaintiffs who have accepted it’s return and I would be of the view that it is unlikely that it will remain in the company until after the end of these proceedings for the purposes of meeting an Order for costs of the first named Defendant if successful. I reach that conclusion on the basis that the company has no other trading income or assets apart from the claim to a beneficial interest in the contract and hence it would seem to me to be likely that these funds would be used to meet the expenses of the company in the immediate future.

23. Therefore I have come to the conclusion that the first named Defendant had discharged the onus of proving on the balance of probabilities, that, at the appropriate time namely when the first named Defendant would be successful in his defence that the Plaintiffs would be unable to pay the costs of the first named Defendant.

24. I am also satisfied that the averments contained in the Affidavits of Mr. Martin disclose a bona fide defence to these proceedings.

25. The first named Defendant having discharged the onus that was on them under Section 390, the onus then shifts to the Plaintiff to prove special circumstances which would move the Court to exercise its discretion in against or ordering the security sought

26. In this regard the Plaintiffs make a case which is similar to that made in the reported cases and is to the effect that its impecuniosity was brought about by the wrong doing of which complaint is made against the first named Defendants in the proceedings.

27. Both sides cited the well known authorities in this area namely Jack O’Toole Limited -v- McKeon Kelly Associates and Wicklow County Council 1986 I.R. 277, S.E.E. Company Limited Trading as South East Electric Company -v- Public Lighting Services Limited and Petit Jean (U.K. Limited) (1987) ILRM 255, Bula Limited (in receivership) Limited and Others -v- Tara Mines Limited and Others (1987) I.R. 494, Lismore Homes Limited (in receivership) -v- Bank of Ireland Finance Limited and Others (1992) 2 I.R. 57, Lismore Homes Limited (in receivership) -v- Bank of Ireland Finance Limited and Others (1999) 1 I.R. at 501 and the unreported judgment of Laffoy J. delivered on the 27th August, 1997 in the case of Lough Neagh Exploration Limited -v- Susan Morrice and Others .

28. The following passage from the judgment of Barron J. In the case of Lismore Homes Limited -v- Bank of Ireland Finance Limited and Others (1999) 1 I.R. at 527 summarises the Principles of Law that apply, where it is clear that the Plaintiff would be unable to pay an Order for costs awarded to a successful Defendant

29. I am satisfied that at the time of the making of the application and prior to that the Plaintiffs are not and have not been impecunious. I am equally satisfied that if the Defendants’ are successful in these proceedings that the Plaintiffs will in that circumstance be impecunious in the sense of being unable to pay a demand for costs. What will alter the Plaintiff from being solvent now to impecunious then will be the outcome of the litigation. Hence it would seem to me that the financial status of the Plaintiffs is inextricably linked to the merits of the claims made by the Plaintiffs in the proceedings.

30. In the reported cases the inability to pay was either proved or admitted, as of the time of the making of the application, or before then. This case differs, in that the impecuniosity is likely to arise, in the future, at the point in time that the first Defendant is successful. In principle, there is, in my view no difference, once the essential connection between the impecuniosity of the Plaintiffs and the alleged wrongdoing of the Defendants, complained of in the proceedings, is established. I am satisfied that the Plaintiffs have demonstrated special circumstances of the kind envisaged by the authorities, which would move the Court to exercise its discretion against ordering the security for costs sought.

31. Accordingly, I must refuse this application.