Ochre Ridge Ltd (plaintiff) v Cork Bonded Warehouses Ltd and Port of Cork Company Ltd (defendants).

Practice and Procedure - Security for costs application - Plaintiff a "shelf" company having no assets save its interest in the contract the subject of the proceedings - Plaintiff not insolvent as at date of application - Whether first defendant having discharged onus of proving insolvency of plaintiff - Whether plaintiff's impecuniosity due to the alleged wrongdoing on part of the first defendant - Companies Act 1963, section 390.

The High Court (before Mr Justice O'Neill); judgment delivered 20 December 2000.

In an application for security for costs, the court must look forward to the conclusion of the proceedings, and assess the ability of the plaintiff to meet an order for costs at that time. Where the plaintiff was a "shelf" company formed for the purpose of entering into the contract the subject matter of the proceedings, and its only asset was its interest in the contract which was the subject of the proceedings, the first defendant had discharged the onus of proving the inability of the plaintiff to pay as at the conclusion of the proceedings. Where the financial status of the plaintiff was inextricably linked to the outcome of the proceedings, the plaintiff had demonstrated special circumstances of the kind envisaged by the authorities which would move the court to exercise its discretion against ordering the security for costs sought.

Mr Justice O'Neill so held in refusing the application of the first defendant for an order for security for costs.

Benedict O Floinn BL for the plaintiff; Brian Cregan BL for the first defendant.

Mr Justice O'Neill said that the first defendant was seeking an order directing the plaintiff to furnish security for the costs of proceedings in which the plaintiff sought specific performance of a contract for sale dated 8 October 1999, whereby the plaintiff agreed to purchase the first defendant's interest as lessee in premises at Custom House Quay, Cork. The first defendant had purported to rescind the contract and had forfeited the non-refundable part of the deposit, being the sum of £25,000, and had returned the balance.

Section 390 of the Companies Act 1963, provides that where a limited liability company is plaintiff in any action, the court may, if it appears by credible testimony that there is reason to believe that the company would be unable to pay the costs of the defendant if successful in his defence, require sufficient security to be given for those costs and may stay all proceedings until security is given.

The first defendant submitted that it had a bona fide defence which had been disclosed in the affidavit filed on behalf of the first defendant, and that the court must determine the application on the assumption that the first defendant would be successful in its defence and would obtain an order for costs against the plaintiff. The plaintiff being a "shelf" company with no assets, it was probable that the plaintiff would be unable to pay the costs of the first defendant. Having discharged the onus of proving those matters, the onus then shifted to the plaintiff to show special circumstances which would move the court to exercise its discretion against the granting of the relief sought. It was also submitted that the plaintiff had not demonstrated that the alleged wrongdoing of the first defendant had caused or contributed to the plaintiff being unable to meet an order for costs in the event of the first defendant being successful.

The plaintiff submitted that the application was premature, the pleadings not having been closed and the scope of the action not yet being defined. It was also submitted that the first defendant bore the onus of proof and that it would have to produce impressive evidence of the plaintiff's insolvency. On the contrary, the evidence demonstrated that the plaintiff had been able to meet its debts as they fell due, having spent £127,000 on the preparation of various plans and proposals for the development of the property the subject matter of the contract. The plaintiff, it was contended, had a valuable asset in the benefit of the contract in dispute. It was also submitted that the plaintiff had described special circumstances which, in the event of the court finding that the first defendant had discharged the onus on them of proving inability to pay, should move the court to exercise its discretion in favour of refusing the reliefs sought. It was the wrongdoing of the defendant in unlawfully refusing to complete the contract and of the second defendant in refusing its consent, as landlord, to the assignment, which would have brought about the impecuniosity of the plaintiff. Without that alleged wrongdoing, the plaintiff would be the owners of a very valuable asset and would be well able to meet an order for costs in favour of the first defendant.

Mr Justice O'Neill said that this case differed from the cases he had been referred to in that in all of those cases either insolvency had been proved or inability to pay had been admitted. The plaintiff was correct in its submission that the first defendant had not discharged the onus of proving either insolvency or otherwise inability to pay as at the time of the making of this application or at any time prior to that.

The first defendant had contended that the point in time which was fixed by section 390 as being the relevant time was the end of the proceedings the defendant having been successful in his defence. The only asset which the plaintiff laid claim to on the affidavits, was the interest in the contract the subject matter of the proceedings. That would manifestly not be an asset of the company and in those circumstances the plaintiffs would in all probability have no assets or income out of which to meet a demand by the first defendant for its costs. Mr Justice O'Neill said that despite the fact that the principals of the plaintiff were businessmen with significant and unimpeachable careers, it wasunlikely that money would be put into a "shelf" company in circumstances where the only asset of the company had been lost in litigation, in order that the plaintiff would be able to meet an order for the first defendant's costs.

The plaintiff had pointed to the deposit as being an asset to which recourse could be had in the event of the first defendant being successful in obtaining an order for costs. One third of the deposit, being the sum of £25,000 would be lawfully forfeit to the first defendant under the terms of the contract if the first defendant ultimately succeeded. The remaining two thirds, being £50,000, had been returned to the plaintiff and Mr Justice O'Neill said that it was unlikely that it would remain in the company until after the end of the proceedings for the purposes of meeting an order for costs. The plaintiff had no other trading income or assets apart from the claim to a beneficial interest in the contract and hence it would seem likely that those funds would be used to meet the expenses of the company in the immediate future.

Mr Justice O'Neill said that he had therefore come to the conclusion that the first defendant had discharged the onus of proving on the balance of probabilities that the plaintiff would be unable to pay the costs of the first defendant. Mr Justice O'Neill said that he was also satisfied that the first defendant had disclosed a bona fide defence to the proceedings.

The onus then shifted to the plaintiff to prove special circumstances which would move the court to exercise its discretion against ordering the security sought. The plaintiff claimed that its impecuniosity was brought about by the wrongdoing of which complaint had been made against the first defendant in these proceedings. The applicable principles had been summarised in Lismore Homes Ltd v Bank of Ireland Finance Ltd and Others [1999] 1 IR 501, in which Mr Justice Barron said that one of the main matters to be considered was whether there was a prima facie case of a causal connection between the wrong alleged and the inability to furnish security for costs.

Mr Justice O'Neill said that he was satisfied that at the time of the making of the application and prior to that the plaintiff was not and had not been impecunious. If the defendants were successful in these proceedings, the plaintiff would in that circumstance be impecunious in the sense of being unable to pay a demand for costs. What would alter the plaintiff from being solvent now to impecunious then would be the outcome of the litigation. Hence it would seem that the financial status of the plaintiff was inextricably linked to the merits of the claims made by the plaintiffs in the proceedings.

Mr Justice O'Neill said that he was satisfied that the plaintiff had demonstrated special circumstances of the kind envisaged by the authorities, which would move the court to exercise its discretion against ordering the security for costs sought. Accordingly, the application was refused.

Solicitors: O'Donnell Breen-Walsh O'Donoghue (Cork) for the plaintiff; Ronan Daly Jermyn (Cork) for the first defendant.