High Court: Security for costs granted against ‘impecunious plaintiff’ as judge heavily criticises legal costs in Ireland
The High Court has granted an application for security for costs against an impecunious company suing for €228,000. The company was ordered to pay 80 percent of the defendant’s costs, which were estimated at €231,000.
In delivering the judgment, Mr Justice Michael Twomey was highly critical of the current system for legal costs in Ireland. In particular, he said that it would cost more money to litigate the case than the case was worth and that it was unfair that a defendant could be sued with no hope of recovering costs from a poor plaintiff.
The plaintiff, Tom McEvaddy Property Limited trading as Nexus Homes, had sued National Asset Loan Management DAC for the return of €228,000 which it claimed was wrongly taken into the scheme. The plaintiff company was in liquidation and had no assets or money to its name. As such, the defendant brought an application for security for costs in the High Court, seeking to prevent exposure to the costs of a full hearing.
In the principal judgment from November 2020, Mr Justice Twomey determined that NALM was entitled to security for costs against the plaintiff. After the parties could not agree to the level of legal costs which would be covered by the order, the defendant applied to the High Court to set the value.
In a 29-page judgment, Mr Justice Twomey began by outlining his view that legal costs in Ireland were disproportionately high and that this was a serious issue for the administration of justice. On the basis of a costs estimate from McCann Sadlier, the court noted that the defendant’s legal costs were expected to be €230,000 and that the legal costs for each side would therefore be €460,000. This was apparently the “going rate” for legal proceedings in the High Court, which ultimately meant that the costs would be double the value of the case.
Having considered the level of costs, the court noted that it can suit impecunious plaintiffs to have high legal costs because there was no reality to a defendant recovering their costs from the penniless plaintiff. As such, a plaintiff can use their weak financial position to force the defendant to settle a case rather than incur the legal fees. The court relied on Farrell v. Bank of Ireland  IESC which described this as an “unfair tactic” that was “little short of blackmail.”
The court also heavily quoted from the recent report from Mr Justice Peter Kelly entitled “Review of the Administration of Civil Justice,” which was critical of the costs of litigating in Ireland. The court said that “it is clear that reform is necessary,” on the basis of the report, particularly because impecunious plaintiffs with “no skin in the game” can cost a defendant large sums of money even if they win the case.
In light of these comments, the court said that the only people who can litigate in Ireland are “millionaires or paupers,” and that legal fees in the State could often be disproportionate to the value of the case. The court also said that an average person who could not recover their costs from a poor plaintiff may spend a significant part of their life paying off legal fees in a case they ostensibly “won.” Further, the court claimed that there was also a cost to the taxpayer when people take unmeritorious cases against the State.
The court further held that defendants have the same rights as plaintiffs when it comes to conducting litigation and that it was important for a court to vindicate a defendant’s property rights whereby it did not cost them to win a case. As such, the court framed the present case as one involving a plaintiff’s access to justice being weighed against a defendant’s right to property.
The present case
Mr Justice Twomey then turned to the actual question in the case, which was the level of security for costs to be awarded. While some cases involving impecunious individuals had variously allowed for 50 percent of the costs or less, it was generally accepted that companies are ordered to provide 100 percent of the estimated costs.
The court held that any security for costs should include VAT on the basis that NALM was not in a position to recover VAT for its legal fees. The court also accepted the defendant’s submission that security should be provided for all costs incurred in the proceedings rather than just costs from the date of the application. This was to avoid a defendant having to pay out at all if it won the case.
The court went on to say that the plaintiff should not be given any discount from the usual rule that corporate plaintiffs pay 100 percent of the legal fees as security even if it had a 50/50 chance of success. Even where an impecunious plaintiff had a very strong case, the court still said that security for costs should not be significantly discounted from 100 percent in order to protect the defendant’s property rights. However, the fixing of costs was not an exact science and some caution must be had when considering the expert evidence of the legal costs in the case (Goode Concrete v. CRH plc  IEHC 198).
The court awarded security for costs in the value of 80 percent of the defendant’s estimated legal fees, which was the sum of €185,000.
© Irish Legal News Ltd 2021