Security for Costs: Further Developments
Two recent decisions from the Irish superior courts provide welcome clarification on the scope of certain security for costs provisions. Firstly, the Court of Appeal judgment in O'Donnell v Saltan Properties Limited and others concerns security for costs of an appeal. Secondly, the High Court decision in Betty Martin Financial Services v EBS concerns security for costs of a discovery application. In this briefing, we look at those decisions and analyse their impact.

Security for Costs of an Appeal 

Order 86 rule 9 of the Rules of the Superior Courts (RSC) provides that the Court of Appeal (CoA) can under special circumstances make an order for security for the costs of any appeal.  There is an onus on the applicant to prove such special circumstances exist.  Where a corporate entity is involved,  section 52 of the Companies Act 2014 (2014 Act) may be relevant as it provides for security for costs against corporate plaintiffs.   In the recent decision of O'Donnell v Saltan Properties Ltd and others [2020] IECA 226, the CoA considered the scope of the rules around both of these provisions.  

The proceedings 

The plaintiff was the owner of an apartment situated in a development which was constructed in or around 2003/2004. The first named defendant was the developer of the development.  A number of structural and other defects presented  in the development, out of which these proceedings arose.  Twenty six sets of proceedings were issued against the defendants, three of which, including the plaintiff's claim,  were being pursued as "master claims" pursuant to case management direction of the High Court.  Discovery applications were issued before the judge who was actively case managing the proceedings in the High Court.  The first named defendant was largely unsuccessful in its application.  The plaintiff was successful in her application for discovery.  The first named defendant appealed both decisions to the CoA (appeal). 

The plaintiff applied to the CoA for an order requiring the first named defendant to provide security for the costs of its appeal. The application was brought pursuant to section 52 of the 2014 Act and Order 86 rule 9 RSC on the basis that the first named defendant was insolvent, and would be unable to pay the plaintiff's costs of the appeal if a costs order was made against it. 

Order 86 rule 9 

The CoA noted that Order 86 rule 9 applies to all types of litigation and all parties; irrespective of whether the appellant is the plaintiff or the defendant in the proceedings.  While a plaintiff may not seek security for costs from a defendant at first instance, a successful plaintiff may obtain an order for security for the cost of an appeal from an unsuccessful defendant/appellant.  A number of preconditions must be satisfied:

  • Impecuniosity
    Impecuniosity of an appellant and an inability to meet any award of costs must be established. The first named defendant conceded that it would be unable to meet a costs award made against it, and so this precondition was met.
  • Prima facie defence
    It is accepted that respondents are entitled to rely upon High Court judgments to satisfy the test that they have a prima facie defence to an appeal. In addition to the fact that she succeeded in the High Court, the plaintiff relied upon Tobin v Minister for Defence [2019] IESC 57,  which held that where there is an appeal against orders for discovery made by the judge who is actively case managing the proceedings, an appellate court should give significant appreciation to that decision.  The plaintiff submitted that this applied equally where security for the costs of such an appeal is sought, such that as a matter of principle the prima facie threshold is established.   The CoA agreed that the plaintiff had satisfied this test.
  • Special circumstances
    Order 86, rule 9 requires the applicant to establish "special circumstances"  before the Court may order a party to provide security for the costs of the appeal.   The list of factors constituting special circumstances is broad, but as the CoA stated, the key issue is whether they demonstrate a sufficient risk of added and unnecessary injustice to a respondent to an appeal. 

    The CoA found that the plaintiff did not demonstrate a risk of added and unnecessary injustice to her beyond the inevitable injustice that a respondent to an appeal suffers. Consequently, the application for security for costs brought pursuant to Order 86 rule 9 was refused.  

Section 52 of the 2014 Act 

The first named defendant denied that section 52 of the 2014 Act applied in circumstances where it was an insolvent defendant, not an impecunious plaintiff.  Section 52 expressly refers to the impecunious company being a "plaintiff" and 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.” 

The CoA applied a literal interpretation to this provision. The court agreed with the first named defendant's contention that the section contemplates an application being made by a defendant against a plaintiff. The CoA did not accept that a defendant who has appealed a court order becomes a plaintiff within the meaning of section 52 simply because, as an appellant, it is the moving party on the appeal.

Therefore, the CoA found that as a simple matter of statutory interpretation, section 52 cannot extend to applications for security for costs against a defendant who brings any motion before the High Court, or appeals a decision to the CoA or the Supreme Court. 

The CoA held that section 52 does not apply to an appeal by a defendant, as it cannot be regarded as a plaintiff and is therefore outside the section's scope.   The security for costs relief sought by the plaintiff pursuant to section 52 was therefore also refused.  

Security for Costs of Discovery  

Order 31, rule 12(2)(b) RSC provides that on the hearing of an application for discovery the court may make such order on terms as to security for the costs of the discovery or otherwise.   In the High Court judgment of Betty Martin Financial Services Limited v EBS DAC [2020] IEHC 543, the defendant applied for an order requiring the plaintiff to provide security for the costs of discovery.  

The proceedings

EBS DAC (EBS) purported to terminate certain Tied Branch Agency Agreements between it and the plaintiff, as the plaintiff was allegedly in breach of the agreements.  The plaintiff claimed the terminations were invalid and instituted proceedings seeking declarations to that effect and restraining EBS from acting on foot of the notice of termination.   Applications for discovery were brought by both parties. EBS sought an order for security for costs against the plaintiff under Order 31 rule 12(2) RSC. 

EBS was agreeable to making discovery of certain categories of documents requested by the plaintiff. 

EBS adduced evidence to the effect that in relation to the discovery which it had offered to make that the cost would be in the region of €266,670, and that if the plaintiff was successful in obtaining an order for the additional categories the cost will be in the region of €488,730.  EBS conceded that the use of technology assisted review (TAR) techniques could generate certain cost efficiencies against these amounts, potentially 20% and 35% if the larger extended data set was to be reviewed.  It was not in dispute that the trading profits last reported by the plaintiff and the state of its balance sheet in the last filed financial statements were such that if the costs awarded against it, insofar as they relate to a discovery, were even significantly lower than the amounts estimated by EBS and perhaps even as little as one half of that amount, the plaintiff would be unable to meet those costs. 

The court was referred to the only two cases in which the matter of security for costs of discovery had been considered, namely Framus Ltd v CRH Plc [2004] IESC 25 and Quinn v Irish Bank Resolution Corporation Ltd [2012] 4 IR 365.

Applying these cases, Quinn J held that this was an appropriate case in which to order the plaintiff to provide security for the costs of discovery because:

  • EBS had made out a prima facie defence to the proceedings.
  • The uncontested evidence before the court was that the plaintiff would be unable of its own resources to meet an order for costs of the discovery.
  • No case was made that the plaintiff's inability to meet any such costs derives from or is caused by the actions of EBS.
  • No other special circumstances justifying the refusal of an order for security for the costs of discovery were made out.
  • There was no evidence before the court either way to demonstrate whether the making of an order for security for costs would preclude the plaintiff from pursuing the action to trial, with or without the benefit of the categories of discovery sought.

Key Takeaways

Security for costs can be an effective aid for a defendant facing a claim from an impecunious party.  However, the court will carefully scrutinise the basis for any such application because of the potential interference with a party's right of access to the courts.   Where a party is seeking security for the costs of an appeal, the RSC will assist where "special circumstances" exist to make the order.  Helpfully, the provision is not confined to defendants as is the case under section 52 of the 2014 Act, as interpreted by the CoA in O'Donnell v Saltan.

Finally, if a party is faced with a potentially costly discovery request and the financial viability of the applicant is in doubt, consideration could be given to Order 31 rule 12(2) of the RSC. 

To discuss any aspect of this briefing in more detail or security for costs in general, please contact Lisa Carty or Richard Breen, or your usual William Fry contact.  

  

Contributed by Joanne Ryan and Gail Nohilly 

 

Key Contacts

Richard Breen Partner

Lisa Carty Partner

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