knowledge 24 May 2017 |

Security for Costs Against a Plaintiff Company: Why a defendant might not be so secure any more

S52 of the Companies Act 2014 provides that:

“Where a company is plaintiff in any action or other legal proceeding, any judge having jurisdiction in the matter, may, if it appears by credible testimony that there is reason to believe that the company will be unable to pay the costs of the defendant if successful in his or her defence, require security to be given for those costs and may stay all proceedings until the security is given.”

In general, this provision mirrors its predecessor s390 of the Companies Act 1963 except that s390 required a plaintiff company to provide “sufficient” security for costs. In Lismore Homes Ltd v Bank of Ireland Finance¹ this had been interpreted by the Supreme Court as requiring a company to provide security for the full amount of the defendant’s costs of the action. The court had no discretion to merely award a percentage. This requirement was recognition of the benefits of limited liability enjoyed by corporate entities. However, it was envisaged that there might be more flexibility under the 2014 Act as the reference to “sufficient” security had been removed from the legislation. This has been shown to be true.

In the recent case of Fides Capital Ltd v Alchemy Products Ltd,² Barrett J was satisfied that the defendant had established a prima facie defence to the claim against it and that the plaintiff company would not be able to pay the costs of the action should the defence succeed. In those circumstances, he was prepared to order security for costs. But in what quantum? 

Echoing sentiments from his earlier judgment of Euro Safety and Training Services Ltd v FÁS,³ he said that the Oireachtas was unlikely to have intended that by dropping the word “sufficient”, the courts should order security that was insufficient. However, the meaning of terms like “sufficiency” and “insufficiency”, following the debate after Lismore Homes was such that it was preferable to avoid the use of any variants of this terminology and to view the law as restored to the position before Lismore Homes. 

In that light, the task of the court was as described in Thalle v Soares⁴ where the court viewed security as not intended “as an indemnity against all costs or as an encouragement to luxurious litigation”. Barrett J also referred to Framus Ltd v CRH plc⁵ where the task of the court was described as “ensuring that the security is not a mere token and at the same time not an obstacle to a full and fair disposal of the issues between the parties.” In reconciling these objectives, his view was that the usual approach prior to Lismore Homes was to order one-third of the amount of a defendant’s likely costs, absent particular circumstances.⁶ He decided that this amount would be appropriate here.

Comment

While the general outcome of this judgment is not unexpected given the change to the legislation, the level of security ordered should give defendants pause for thought. It clearly illustrates how the previous strategic advantage available to a defendant, faced with proceedings from an impecunious corporate plaintiff, has now been undermined.