Court of Appeal: Direct Provision company loses appeal against order to provide €150k security for litigation costs

About this case:

• Citation:
  [2019] IECA 308
• Judgment:
  External link
• Court:
  Court of Appeal
• Judge:
  Ms Justice Marie Baker

Finding that the company had failed to establish that the hotel owner refusing to execute the lease prevented the company from completing negotiations with the Department of Justice, Ms Justice Marie Baker said the claim of a causal link amounted to a mere assertion unsupported by any credible evidence.

Background

In June 2017, Cedarcourt Developments Ltd entered into an agreement with Welcome Ireland Hospitality Ltd whereby Welcome leased Cedars Hotel in Rosslare, County Wexford for five years at an initial annual rent of €20,000. The agreement stipulated that on the fifth year of the lease, the rent would increase to €100,000 per year.

Welcome intended to use the premises as an emergency reception and orientation centre for asylum seekers, however, Cedarcourt submitted that it was its understanding that Welcome would use the premises as a hotel.

The substantive issue in the present proceedings arose in circumstances where Cedarcourt refused to exercise the lease due to alleged misrepresentation on the part of Welcome or because the proposed use constituted a fundamental breach of the agreement.

Welcome initially sought specific performance of the contract, however, the claim has since become one for damages in lieu of specific performance. Cedarcourt contended that the agreement between the parties either expressly or by implication limited the use of the premises to a hotel, thus the issue is whether the proposed use by Welcome was within the contemplation of the parties.

Security for costs

In the High Court in November 2017, Mr Justice Brian McGovern granted Cedarcourt an order that Welcome should provide security of €150,000 for the costs of Cedarcourt.

The order was made in circumstances where the parties agreed that Welcome is impecunious. Section 52 of the Companies Act 2014 provides that “where a company is plaintiff in any action or other legal proceeding, any judge having jurisdiction in the matter, may, if it appears by credible testimony that there is reason to believe that the company will be unable to pay the costs of the defendant if successful in his or her defence, require security to be given for those costs and may stay all proceedings until the security is given”.

To obtain such an order, it must be shown that the defendant has a bona fide defence to the plaintiff’s claim, and that the plaintiff will be unable to pay costs if the defence is successful. If both conditions are satisfied, security ought to be ordered unless “special circumstances” exist – the onus to establish “special circumstances” rests on the party resisting the order (Connaughton Road Construction Ltd v Laing O’Rourke Ireland Ltd [2009] IEHC 7 considered).

Welcome argued that special circumstances did exist in the present case, in that the Welcome’s current impecuniosity arose due to Cedarcourt’s wrongdoing – that the refusal to execute the lease prevented Welcome from completing negotiations with the Department of Justice, Equality and Law Reform for the operation of an emergency reception and accommodation centre. On behalf of Welcome it was averred that the company suffered a loss of €1.24 in estimated profits.

Mere bald statement of fact

In the Court of Appeal, Welcome argued that Mr Justice McGovern had “failed to give adequate weight to the contention that special circumstances existed by reason of the assertion that the current impecuniosity of the plaintiff appellant arose from the wrongdoing in respect of which the action is brought”.

Considering the evidence presented of the causative link between Welcome’s impecuniosity and Cedarcourt’s alleged wrongdoing, Ms Justice Marie Baker considered Jack O’Toole Ltd v MacEoin Kelly Associates [1986] 1 IR 277 in which it was said that the test was not met where a plaintiff made “a mere bald statement of fact”. Ms Justice Baker said the evidence in the present case was not sufficient, that a possible two-year agreement with the Department of Justice was actively under discussion but that it was not a concluded agreement. It was notable that the agreement was subject to compliance with a number of regulations and that no evidence was presented to the court as to whether compliance was likely to be achieved.

Ms Justice Baker also voiced concerns about the projected profit figures relied on by Welcome. She said that even on a prima facie basis, the evidence of a connection between Cedarcourt’s alleged wrongdoing and the admitted impecuniosity of Welcome did not meet the threshold to establish a causal link.

Although noting some flaws in Mr Justice McGovern’s judgment, Ms Justice Baker said that nothing turned on those observations and that the order should stand.

Finding that the judge was correct to dismiss Welcome’s defence to the application for security for costs, Ms Justice Baker dismissed the appeal.