knowledge 29 September 2022 |

Security for costs against a foreign limited company – clarity on the principles which apply

In this case,¹ the defendant sought an order for security for costs against the plaintiff, a company incorporated in Switzerland. One key issue which arose for determination was the test which should apply when security for costs is sought against a foreign limited liability company.

The defendant argued that the court should decide the application by reference to the criteria which govern an application under section 52 of the Companies Act 2014 (“2014 Act”) against an Irish limited liability company, which focus on the inability of the plaintiff to meet an order for costs against it if it unsuccessful in the proceedings; often referred to as the plaintiff’s ‘impecuniosity’ (the “Section 52 Criteria”). For its part, the plaintiff argued that as section 52 does not apply to a foreign company, the relevant criteria should be those applicable to an individual plaintiff resident outside the jurisdiction under Order 29 of the Rules of the Superior Courts, which focuses on the difficulty of enforcing an award of costs in foreign jurisdictions, primarily those outside Europe (the “Order 29 Criteria”).

The relevance of the applicable test was twofold.  First, if the Section 52 Criteria were applied, once a prima facie defence had been made out by the defendant, that fact coupled with the plaintiff’s admitted impecuniosity would be enough to justify the granting of an order for security. However, if the Order 29 Criteria were applied, security would not have been ordered, as the plaintiff in the case was based in Switzerland which is a party to the Lugano Convention which provides for easier enforcement of judgments from European jurisdictions. Secondly, once a decision was made to grant security, the amount of security granted by reference to section 52 could be expected to significantly exceed that which might be granted under Order 29.

Decision of the court

Having reviewed the relevant case law, O’Moore J granted the application for security in the case. He concluded that, in deciding an application for security for costs involving a foreign limited company as plaintiff, it was proper to take into account the factors which must be considered in an application against an Irish limited company under section 52 of the 2014 Act, notwithstanding that the 2014 Act does not apply to such foreign companies.

The court found that no rational basis had been advanced as to why foreign limited companies should be treated in the same way as individual claimants, as opposed to Irish corporate plaintiffs. It agreed with the analysis expressed in certain previous decisions to the effect that foreign limited liability companies bringing proceedings in Ireland should be treated in the same way (by having the same criteria applied on applications for security for costs against them) as Irish companies.

Applying the Section 52 Criteria, the court noted that the plaintiff accepted it was impecunious and that it would not be able to pay the defendant’s costs in the event that the proceedings were successfully defended and the defendant was awarded its costs of the action. O’Moore J was also satisfied on the facts that the defendant had established a prima defence to the substantive action.

The court then went on to consider whether the plaintiff could establish, on a prima facie basis, any special circumstances why the court should exercise its discretion not to grant the order for security. It held against the plaintiff here finding that it had failed to demonstrate that its inability to pay the defendant’s costs flowed from any wrongdoing on the part of the defendant. The court was also not satisfied that the substantive case concerned a point of law of exceptional public importance that needed to be resolved by the court such as would justify refusing the application for security.

Following the rationale set out earlier in the judgment, rather than following the Order 29 practice of granting security for one third of the defendant’s anticipated party and party costs, the court granted security for the full amount of the defendant’s estimated costs in line with the approach usually taken under section 52 of the 2014 Act.

Comment

This decision provides a useful clarification of this area of the law. Of particular interest is O’Moore J’s view that it is an acceptable development of the case law to treat a foreign limited liability company plaintiff in the same way as an Irish limited company would be treated, notwithstanding that such foreign companies do not come within the scope of section 52 of the 2014 Act (which applies to Irish companies only). O’Moore J did not see the need for legislative intervention and rejected the plaintiff’s suggestion that following this approach would constitute an overreach which could violate the separation of powers.

The decision clarifies any uncertainty in relation to the basis on which defendants can bring an application for security for costs against foreign limited liability companies, particularly those based in Europe.²