Security for Costs – The Proper Approach to Assessing a Plaintiff's Ability to Pay Costs
A recent High Court judgment on a security for costs application considered the proper approach to assessing a plaintiff's ability to pay a defendant's costs should the plaintiff be unsuccessful in its proceedings. This note looks at that judgment in more detail.

Introduction

Atin Investments Limited v Remcoll Capital Limited and Garlin Investments ICAV [2022] IEHC 357 involved a dispute relating to the termination of a service level agreement between the plaintiff (Atin) and the first named defendant (Remcoll). Remcoll had entered the agreement in its capacity as an investment advisor to the second named defendant (Garlin). Remcoll unilaterally terminated the contract with Atin. Atin instituted proceedings claiming breach of contract against Remcoll and Garlin arising from the termination of the contract, and a claim against Garlin for the tort of inducement of breach of contract (Proceedings). 

The Security for Costs Application 

Garlin brought a security for costs application under section 52 of the Companies Act 2014 (Section 52 Application) on the basis that Atin's financial position was such that it would be unable to meet Garlin's costs, if it successfully defended the claim. 

Applicable Legal Principles 

The High Court (Court) noted that the principles applicable to Section 52 Applications are well established.  The Court, citing Clarke CJ in Quinn Insurance Ltd (Under Administration) v PricewaterhouseCoopers (A Firm) [2021] IESC 15 (Quinn), referred to three key considerations, namely a bona fide defence, plaintiff's ability to pay the defendant's costs and the existence of special circumstances.  

  • Bona Fide Defence 
    Having regard to existing caselaw, the Court found that it was not required to form a view as to the likelihood of a particular defence succeeding at trial but that a defendant must go beyond a mere assertion of a defence.   In this case, the Court was satisfied that Garlin had raised a bona fide defence to the claims made in the Proceedings. 
  • Atin's ability to pay Garlin's costs if unsuccessful
    In security for costs applications, a defendant bears the onus of demonstrating a plaintiff's inability to pay its costs.  Garlin produced evidence, by way of a legal costs accountant's report, that its likely costs to defend the Proceedings would be €161,445.

    In its defence to the Section 52 Application, Atin had sought to include the sums claimed by it in the Proceedings, to show that it had sufficient assets. Atin had placed considerable reliance on the fact that the contract recorded an agreed payment of €150,000 to be made to Atin and that no evidence had been advanced by Remcoll to dispute that this sum was owing, notwithstanding the traverse denial of that element of the claim in Remcoll's defence. The Court held that it is not open to a plaintiff to seek to rely on sums the subject of disputed claims as part of its assets to satisfy the "ability to pay" test, once it had been established that a defendant had a bona fide defence to the claim.  The Court described this approach as "conceptually flawed". 

    The Court reasoned as follows: 
  • Garlin had a bona fide defence to the claims against it, and Garlin may be found not to have any obligations under the contract at all;
  • It would be problematic to proceed on the basis that the claim against Remcoll, who was not the subject of the Section 52 Application; who was not before the Court; and who could not reasonably be expected to have tendered evidence in the application, should be accepted as being likely to succeed where Remcoll had denied the claim in its pleadings; and
  • Given the evidence as to Garlin’s likely costs, the Court was not satisfied that receipt of €150,000 that was specifically referred to in the contract between the parties, would be sufficient to put Atin in a net asset position which would enable it to meet Garlin’s costs.

    Due to a lack of evidence, the Court also rejected the argument that if Atin succeeded against Remcoll but not against Garlin, Garlin could recover its costs against Remcoll.

    As Garlin had demonstrated to the Court's satisfaction that Atin was unlikely to be able to meet its costs if Atin was unsuccessful at trial, the Court turned to consider the special circumstances question. 
  • Special Circumstances
    The special circumstances put forward by Atin  was that its impecuniosity was caused by the wrongdoing of Garlin, in accordance with the relevant test set out in Connaughton Road Construction Ltd. v. Laing O'Rourke Ireland Ltd [2009] IEHC 7 (Connaughton Road).  Atin's case was that but for Garlin's inducement of breach of contract, and the consequent termination of the contract, it would be in a position to meet Garlin's costs. 

    The Court agreed that there was an arguable proposition that sufficient causality had been made out by Atin under the Connaughton Road test between the alleged inducement of breach of contract claim and the losses now claimed in the Proceedings. 

    The Court found that Atin had discharged its onus of demonstrating a special circumstance against the grant of security for costs in favour of Garlin. In the circumstances, the Section 52 Application was refused.  
 
Contributed by Joanne Ryan & Niamh Green

 

Key Contacts

Lisa Carty Partner

Hilary Rogers Consultant

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