Court of Appeal: Order of garnishee for the satisfaction of damages in litigation upheld against company
The Court of Appeal has upheld an order of garnishee which was made to satisfy a damages award against a company in personal injury proceedings. The garnishee order was granted following the settlement of separate proceedings taken by the company against its insurance broker and underwriter.
The company had argued that the garnishee order should not have been made and, moreover, that the High Court should have allowed the company to adduce further evidence after the final order had been granted. The Court of Appeal rejected the company’s submissions and held that the trial judge was entitled to make the order.
The case had an unusual background. The company, Dermot McGann Groundworks Limited, was sued by the plaintiff for personal injuries arising from a workplace accident. In November 2019, Ms Justice Bronagh O’Hanlon awarded €105,000 to the plaintiff, with legal costs which were adjudicated at €123,000.
However, the company’s insurers declined to cover the incident and the company was left to defend the proceedings on its own. As such, the company brought separate proceedings against the insurance broker and underwriter seeking indemnity for the personal injuries proceedings.
The personal injuries case was adjourned from time to time to allow the indemnity proceedings to progress. It was accepted that the company had no money to pay the plaintiff and was effectively insolvent.
In December 2020, the indemnity proceedings settled, with a total of €250,000 being provided to the company by the insurance broker. The terms of settlement recorded that €80,000 would be reserved for the plaintiff’s action and €170,000 would be provided to pay the legal costs of the company in all proceedings.
The company notified the plaintiff of the settlement and stated that they would provide €80,000 inclusive of costs in full and final settlement of the claim. The letter stated that if the offer was not accepted, then the plaintiff could choose to bring liquidation proceedings. The letter did not contain any information about the €170,000 payable to the company’s lawyers.
Subsequently, in December 2020, the plaintiff brought an ex parte application seeking a garnishee order against the company. The application sought the full amount of damages and legal costs of the plaintiff, which came to approximately €229,000. A conditional order was granted.
On 12 January 2021, the matter came before Ms Justice O’Hanlon, where the company was asked to show cause why the garnishee order should not be made absolute. While the court was told of the settlement, no information was given to the court about its terms. The settlement was subject to a confidentiality clause, but counsel for the company failed to disclose this to the court.
The trial judge held that a garnishee order should be made because the €80,000 proposal by the company did not satisfy the damages awarded to the plaintiff.
The following week, the company asked the court to reconsider the garnishee order and attempted to adduce the terms of settlement in an affidavit. The court was invited to reverse its decision based on the settlement, but the trial judge stated refused on the grounds that she was functus officio.
Accordingly, the court did not hear submissions by the company that the monies payable under the settlement as legal costs were the subject of a Quistclose trust.
The company appealed on ten grounds. The first ground stated that the trial judge was incorrect in making the absolute order of garnishee, while the nine remaining grounds focused on the refusal by the judge to revisit her ruling.
The company relied on three main points in the appeal. First, it was said that the court clearly had jurisdiction to revisit her decision based on AIB Mortgage Bank v. Nadine Thompson  IEHC 306. Second, it was argued that the €170,000 was the subject of a trust which provided that the monies could only be applied to discharge the legal costs (see Barclays Bank Limited v. Quistclose Investments Limited  AC 567). Third, the company asserted that a solicitor’s lien applied to the €170,000, although this was only raised in reply to the plaintiff’s submissions.
Court of Appeal
Delivering judgment in the case, Mr Justice Donald Binchy noted that it would have been preferable for the company to address the confidentiality issue before the garnishee application, or to have sought an adjournment in order to get such agreement from the parties to the indemnity proceedings.
The court held that costs recovered in legal proceedings belonged to the party rather than the lawyers and any money was vulnerable to a garnishee application under Order 45 RSC.
On the issue of whether the trial judge should have revisited her decision, it was clear that the trial judge was not satisfied by the company’s reasoning for not taking adequate measures at the previous hearing, the court said. Every opportunity had been afforded to the company to make submissions and it failed to seek an adjournment which might have allowed it to adduce the terms of the settlement.
The court could find no fault with the reasons for the judge’s dissatisfaction of the company’s conduct. It was not for the Court of Appeal to interfere with the reasoned discretion of the trial judge.
Although this arguably disposed of the issue, the court went on to consider whether a Quistclose trust applied in the case. The court outlined the facts of the case in detail and referred to the requisite criteria for such a trust (derived from Harlequin Property (SVG) Limited v. Padraig O’Halloran  IEHC 362).
The court held that the €170,000 could not be part of a trust. The monies failed to satisfy the third criteria of a Quistclose trust, which required that the monies be mutually intended for monies to not be part of the general assets of the company. The statements made by counsel for the broker showed that their only interest was bringing the indemnity proceedings to an end. The broker was completely indifferent to how the monies were to be applied, and as such there was no “mutual intention” for the €170,000.
Further, there was doubt as to whether the company even had standing to raise the trust issue, because the beneficiaries of any trust would be the broker. The court also noted that it had never been suggested to the trial judge that a trust arose in the case.
Finally, the court held that the claim to a solicitor’s lien over the €170,000 was raised far too late in the day. The issue was only raised in counsel’s reply after the plaintiff’s submissions were made. It was not a ground of appeal and the plaintiff had no opportunity to respond to it.
Accordingly, the company’s appeal was dismissed. While it may be unfair that the garnishee order would deprive the company’s lawyers of their fees, the company had “simply not invoked” the mechanisms to protect themselves in the High Court, the court said.
© Irish Legal News Ltd 2021