Why Security for Costs?
As discussed in the first part of this two part series (see here), a security for costs application can be a useful strategic step for a defendant if it believes a claim against it is unmeritorious and that a plaintiff would be unable to meet a costs award. It is a discretionary relief and the courts will have regard to the special circumstances that a plaintiff may decide to raise to overcome such an application.
In Part 1, we discussed how the process for making an application was made, as well as outlining the “special circumstance” most commonly invoked by plaintiffs, namely “impecuniosity“.
In this article, we will focus on other special circumstances that were recently considered by the High Court and Court of Appeal, namely:
- Conduct of the Defendant; and
- Issues of Exceptional Public Importance.
In Druminiskin Developments Ltd, Matthew Farrell, James Farrell and Eileen Farrell v O Gorman IEHC 153 (Druminiskin), the defendant was refused a security for costs order on the basis that it had delayed 14 years in bringing the application against the first named plaintiff. This was a professional negligence case against a law firm which acted for a company in the purchase and development of lands.
There was a significant prejudice to the first plaintiff in the delay in bringing the motion, for example:
- Between 2004 – 2018, the defendant brought four substantive motions against the plaintiffs.
- The first plaintiff had to motion for a defence, make discovery and deliver four sets of particulars.
Hyland J in the High Court stated that these motions were time consuming and expensive steps could have been avoided had a motion for security been brought shortly after proceedings issued. Hyland J held that the 14-year delay was a special circumstance disentitling the defendant from obtaining a security for costs order.
2. Conduct of the Defendant
In Druminiskin, the first plaintiff asserted that no security should be granted where the Court has an inherent supervisory jurisdiction as to the conduct of the defendant as a solicitor and as an officer of the court. The first plaintiff set out various questionable acts of the defendant, including conducting proceedings without authority and breaching a solicitor’s undertaking.
Hyland J said that certain aspects of the matters identified by the first plaintiff in respect of the defendant’s conduct gave the Court serious cause for concern in respect of the defendant’s bona fides and dictated that she should exercise her discretion to refuse security. She considered that the conduct constituted special circumstances that warranted the Court to exercise its discretion to refuse the order for security for costs.
3. Exceptional Public Importance
Both plaintiffs in Quinn Insurance Limited v PricewaterhouseCoopers IECA 109 (“Quinn“) and Protégé International Group (Cyprus) Ltd v. Irish Distillers Ltd IECA 80 (“Protégé“) claimed that the proceedings raised matters of exceptional public importance justifying a refusal to grant a security for costs order. This is less frequently argued and usually arises in litigation brought by natural persons or NGOs.
A heavy burden lies on the party seeking to invoke this special circumstance. The test is “whether the point is of such gravity and importance as to transcend the interests of the parties” before the court. The court may consider whether the law relating to the alleged point of public importance is uncertain such that it is for the common good that the law be clarified so justice is administered in future cases.
In both cases, security for costs orders were made against the plaintiffs.
The Protégé 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. In the Court of Appeal, Costello J in upholding a High Court order granting security for costs, held against the appellant plaintiff that the case did not involve any issue of major public scandal, a major factual controversy, issues of personal privacy or issues of environmental law. She stated that the fact that the proceedings were competition law proceedings did not of itself elevate the proceedings to the status of raising points of law or issues of exceptional public importance.
In the Court of Appeal decision of Quinn, (as discussed in Part 1 here) Baker J, in overturning the High Court’s refusal to grant an order for security for costs in respect of this special circumstance, noted that the question arose as to whether the making of an order for security for costs might “stifle” the litigation, and if the litigation is of public interest the stifling of the litigation could harm the public. This would not be desirable. Therefore, the public interest in permitting the litigation to continue might prevail and lead to the exercise of discretion to refuse the order. Baker J stated that the fact that the taxpayer or the State coffers may benefit does not make the litigation of exceptional public interest.
The Final Word
Given the likely upsurge in COVID-19 related disputes, defendants should keep in mind that a security for costs application could be a useful strategic step to assist in overcoming an unmeritorious claim against it. However, as it is a discretionary relief, courts will give credence to special circumstances that a plaintiff must establish on a prima facie basis. As the list of special circumstances is non-exhaustive, it will be interesting to see what new arguments will be made by plaintiffs. Watch this space…
Contributed by Joanne Ryan