Demeray Limited v. O'Grady [2022] IECA 12
The Court of Appeal recently dismissed an appeal against a High Court order directing that the Plaintiff (an insolvent development company) pay security amounting to two thirds of the Defendant’s costs (fixed at €112,334) in professional negligence proceedings.
The Plaintiff had appealed the High Court’s decision to award security for costs, arguing that security should not have been granted in light of the Defendant’s delay in bringing its application and in circumstances where the Plaintiff’s inability to pay the Defendant’s costs was caused by the Defendant’s own wrongdoing.
In dismissing the Plaintiff’s appeal, the Court in Demeray stated that i) even if the Plaintiff entirely succeeded at trial, the full sum of damages would not be sufficient to restore the Plaintiff to a position where it would be able to pay the Defendant’s costs should they be awarded and ii) the Plaintiff failed to produce compelling evidence in order to establish that its inability to pay the Defendant’s costs arose from the Defendant’s wrongdoing. Furthermore, the Court was not satisfied that special circumstances of delay had been established, particularly where there had been delay on “both sides”.
Security for Costs Overview
In Ireland, the basis for seeking an order for security for costs against a company is set out in section 52 of the Companies Act 2014. In accordance with section 52, an applicant must prove that i) it has a prima facie defence to the claim; and ii) there is reason to believe that the plaintiff will be unable to pay its costs if it loses the case. If the defendant can establish these two conditions, the Court will ordinarily make an order for security for costs unless there are some “special circumstances” that persuade it not to do so. In practice however, the Courts are generally extremely reluctant to grant a security for costs order in light of the constitutional right of access to justice and therefore defendants must ensure they make a compelling and comprehensive application before the Court.
When considering whether an order is appropriate in the circumstances, the Court may have regard to factors such as whether the defendant may potentially be responsible for the plaintiff’s inability to meet such an order (as was argued in the Demeray case), or whether a potential issue of public importance arises in an action and the proceedings are likely to be stifled if security is ordered.
The test for determining what constitutes “special circumstances” justifying the refusal of a security for costs order, was recently confirmed in the Supreme Court cases of Quinn v PWC [2021] IESC 15 and Protégé v Irish Distillers [2020] IESC 106. In Quinn, the Court was clear that parties must “put their cards on the table” if they want the Court to take a particular factor into account and a mere bald assertion that the impecuniosity was caused by the alleged wrongdoing of the defendant is not sufficient.
In dismissing the appeal, the Court of Appeal in Demeray cited Quinn and Protégé with approval and was also satisfied that the quantum of the security for costs awarded was reasonable in the circumstances.
To see a full copy of the judgment, click here.
