Security for Costs Applications
A security for costs application is a useful strategic step that can be taken by a defendant. A defendant can avail of this procedure where it believes that the case against it is unmeritorious and that the plaintiff would be unable to meet a costs award. Given the wave of litigation that is likely to arise due to COVID-19 related disputes, defendants may focus on this application to avoid becoming embroiled in litigation.
Security for Costs is a discretionary relief and the courts seek to find the balance of justice between parties. The courts are alert to the fact that some defendants may use it as a “tactical weapon” to stifle a good claim.
This two-part series will focus on recent High Court and Court of Appeal decisions demonstrating how plaintiff companies may overcome a security for costs order. A plaintiff must show, on a prima facie basis, that special circumstances exist which justify the court exercising its discretion to refuse such an application. The first of this two-part series will focus on a plaintiff’s impecuniosity, a common example of a special circumstance.
Generally, to be successful, a defendant must establish two matters on a prima facie basis: (i) that he has a defence to the plaintiff’s claim; and (ii) that the plaintiff will be unable to pay the costs if he succeeds in his defence.
Once these points have been established, a plaintiff may then seek to defeat a security for costs order by showing, on a prima facie basis, that special circumstances exist which justify the court to exercise its discretion to refuse such an application. The list of special circumstances is non-exhaustive.
- Plaintiff’s Impecuniosity;
- Conduct of the defendant;
- Exceptional Public Importance.
This article will focus on a plaintiff’s impecuniosity. Our next article in the series will look at items 2 to 4.
To avail of this commonly invoked special circumstance, a plaintiff must show that its admitted or established inability to pay the likely costs of the defendant stems from the wrongdoing alleged in the proceedings. The test applied in determining the impecuniosity of a plaintiff was established in Connaughton Road Construction Ltd. v. Laing O’Rourke Ireland Ltd IEHC 7(“Connaughton“).
This test was applied recently in two Court of Appeal decisions: Quinn Insurance Limited v PricewaterhouseCoopers IECA 109 (“Quinn“) and Protégé International Group (Cyprus) Ltd v. Irish Distillers Ltd IECA 80 (“Protégé“).
Quinn Insurance Limited v PricewaterhouseCoopers
This case concerned Quinn Insurance which was in administration. It brought a claim against its auditors, PwC, for negligence and breach of contract. The High Court refused PwC’s application that Quinn provide security for its costs on the basis that special circumstances existed to justify the refusal.
The Court of Appeal focused on whether there was a causal connection between the actionable wrongdoing and a practical consequence or consequences for the plaintiff. Baker J stated that the causal connection between the actionable wrongdoing and a plaintiff’s impecuniosity requires a plaintiff to establish, on a prima facie basis, a connection between specific losses claimed and the likely inability to meet the costs of a successful defendant. The plaintiff would have to show prima facie that the damages award would reverse the current financial position to the extent necessary to put it in a position to discharge an adverse costs order. In Baker J’s view, Quinn had arguably met the test that special circumstances existed which entitled the court to exercise its discretion to refuse an order for security.
Despite this finding Baker J. held that security for costs still ought to be provided. The agreed estimate of the costs was €30m, and the Court found that it would be unfair to expect PwC, a company which does not benefit from limited liability like Quinn, to bear the risk of meeting such costs. The individual PwC partners would be liable for the enormous costs. Also, the granting of security did not create a form of injustice to Quinn. Quinn had financial backing for its own costs and the litigation was likely to continue even if security had to be provided.
Protégé International Group (Cyprus) Ltd v. Irish Distillers Ltd
The issue of a plaintiff’s impecuniosity was also addressed in Protégé. This case concerned a claim that the defendant abused a dominant position in the Irish whiskey market by refusing to supply Irish whiskey to the plaintiffs without objective justification and wrongfully discriminated against the plaintiffs. An order for security for costs was made against the plaintiffs in the High Court and was appealed.
Costello J in the Court of Appeal stated that the plaintiffs must establish on a prima facie basis that the defendant’s alleged actionable wrongdoing gave rise to some specific level of loss to each plaintiff, which is recoverable as a matter of law. In addition, where the company had no significant assets prior to the events which gave rise to the proceedings concerned, it was incumbent upon that company to show that were it not for the wrongdoing asserted, not only would it not have lost money, but it would have generated sufficient profits, such that it would have had sufficient funds to pay the likely costs of a successful defendant.
However, the balance of the evidence relied upon by the appellants was found to be no more than “bare assertion” and did not satisfy the threshold of prima facie evidence. There was no evidence of the level of unquantified damages which the appellants claim was such to transform the appellant’s financial fortunes to a position where they could furnish the necessary security.
Prima facie evidence must be adduced showing a connection between the defendant’s wrongdoing and the plaintiff’s inability to pay the defendants costs to invoke impecuniosity as a special circumstance.
A Word of Warning to Plaintiffs
It is expected that the level of litigation will increase as a result of COVID-19 related disputes. A security for costs application can be a useful, tactical measure taken by defendants to ensure protection against unmeritorious claims but also by some defendants to stifle a good claim. Plaintiffs may overcome such an application if they can show, to a prima facie level, that special circumstances exist.
Contributed by Joanne Ryan