Security for costs was recently sought under section 390 of the Companies Act 1963, and denied in James Elliott Construction Limited v Irish Asphalt Limited(1), in the long running pyrite litigation a case in which the plaintiff claimed that the defendant had supplied it with material that was defective due to the presence of pyrite. Setting out the test for security of costs, Justice Clarke stated that a bona fide defence must be established, as well as credible evidence of a plaintiff’s inability to discharge costs if unsuccessful. If both factors are shown, to avoid the order, a plaintiff must show special circumstances, such as delay or that its financial difficulty stems from the wrongdoing alleged.
The interesting thing about this application is that the case was nearing trial at the time of the application, which was grounded on comments made by the plaintiff’s Counsel in court as to the state of impecuniousness of the plaintiff. A significant €2,000,000 in costs had already been incurred by the defendant, and it was estimated that only a further €700,000 would be incurred. While the plaintiff’s last published accounts in 2009 were healthy, plaintiff’s counsel had commented in court, during the course of a motion that arose in the proceedings, that the plaintiff ‘may not be around at the end of March’ and had said that the plaintiff’s staff were on protective notice and that the plaintiff could not take on new contracts. Justice Clarke accepted that this sufficed to demonstrate a worsening financial position, and the plaintiff’s failure to explain such circumstances meant that the defendant had discharged the necessary burden of proof.
The court noted however that contingency had been made for the cost of proceedings in the plaintiff’s 2009 accounts and that, if the wrong had not occurred, the 2009 accounts would have been significantly better. Accordingly, the court found special circumstances and exercised its discretion not to order security for costs. Interestingly, in its analysis, the court considered the amount of costs both incurred to date by the defendant, and estimated to incur. While it declined to determine whether this approach is always appropriate, it found it to be here in circumstances where the case was well advanced and the vast majority of costs had already been incurred. Justice Clarke also found that delay can only be measured from the time the defendant would have had a legitimate basis for pursuing an application. In this case that possibility only arose after the comments of the plaintiff’s counsel had been made.