High Court declines to order security for costs in misfeasance case against FÁS

About this case:

• Judgment:
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Euro Safety & Training Services wished to sue FÁS for certain alleged acts of negligence and misfeasance, as well as certain alleged breaches of statutory duty. However, it was estimated that the proceedings could take €600,000 to complete, which Euro Safety did not have.

FÁS (now SOLAS) maintained that it had done no wrong, and was concerned that if Euro Safety lost its case, any costs order that FÁS might then obtain against Euro Safety would be useless. It therefore wished the Court to require Euro Safety to pay security for the costs of proceedings.

Euro Safety indicated that it would not be able to meet such an order, and that a case which it wanted to bring, and believed it could win, would die a premature death.

Mr Justice Max Barrett noted that the case highlighted “yet again, the need for a systemic solution to the present crushing cost of High Court litigation.”

The case concerned training which Euro Safety had been engaging in for FÁS, which ended after FÁS released the ‘Spollen Report’, and blacklisted Euro Safety.

Euro Safety alleged that as a result of this blacklisting, it has suffered a loss of reputation and consequent financial losses to its business, and will continue to do so.

The relevant law was identified as section 52 of the Companies Act, 2014, which allows judges to require security to be given and to stay proceedings until it is given if it appears that there is reason to believe that a plaintiff company will be unable to pay the costs of the defendant if successful in his defence.

This section replaced section 390 of the Companies Act, 1963, but as the two sections were nearly identical, the Court found that case law relating to s.390 was applicable.

The Court found that the cases of Connaughton Road Construction Ltd v. Laing O’Rourke Ireland Ltd IEHC 7 and Oltech (Systems) Limited v. Olivetti UK Limited IEHC 512, when read together, provided a quite comprehensive account of the current principles and practices that inform s.390 (and now s.52) applications.

The general approach was identified as being that to obtain security for costs “an initial onus rests on the moving party to establish (i) a prima facie defence to the plaintiff’s claim, and (ii) that the plaintiff will not be able to pay the moving party’s costs if the moving party be successful.”

If these were established, then security ought to be ordered unless there were special circumstances suggesting that it should not be. The burden of proof for showing special circumstances would be on the plaintiff.

Where it is asserted that the plaintiff’s inability to discharge the defendant’s costs of successfully defending the action flow from the wrong allegedly committed by same, (a) the onus of establishing this rests on the plaintiff, and (b) the obligation of the plaintiff in such circumstances is to establish a prima facie case that its inability to pay the defendant’s costs of the defendant, in the event the defendant were successful, stems from the wrongdoing alleged in the overall proceedings.

An order for security of costs could be refused if the defendant had delayed applying for it, or where a point of law, or a point of fact of national importance, arose in the case that was so important that the process of the case should not be interrupted.

It was noted that the constitutional (though not absolute) entitlement of citizens to access to the courts applies to defendants/respondents as well as plaintiffs. A defendant ought not to be forced to forego defending an action out of the fear or being bankrupted by having to incur substantial costs which will be irrecoverable from an insolvent plaintiff.

Applying these principles to the current case, it was accepted by the parties that FÁS had a prima facie defence to Euro Safety’s claim. Accounts were placed before the court which indicated that Euro Safety did not have the funds available to pay FÁS’ costs if it was successful in its defence.

It therefore followed that security for costs ought to be ordered unless special circumstances applied.

On the matter of justice, it was noted that Euro Safety had made serious and detailed allegations as to purported misfeasance in public office by certain persons within FÁS, though the court noted too that this alleged misfeasance was denied utterly by FÁS.

It was also noted that Euro Safety had placed a report before the Court that prima facie suggested that its inability to pay costs stemmed from the wrongdoing alleged.

Further, the Court noted that there had been significant delay on the part of FÁS in bringing the application, and no convincing explanation had been given.

In relation to issues of national importance, the Court observed that serious and detailed allegations had been made of purported misfeasance in public office. These allegations made the case exceptional, and one where adjudication was a matter of significant public moment and interest.

As observed by Justice Barrett, “Our continuing belief in good government is only properly sustainable for so long as substantial allegations of bad government are duly considered and adjudicated upon when raised, even if they are denied.”

Having regard to these points, the Court identified the most important as being:

“(1) that Euro Safety has(i) established on a prima facie basis that its inability to discharge FÁS’ costs of successfully defending these proceedings (if FÁS so succeeds) flows from the wrong allegedly committed by FÁS; and

(ii) made detailed and serious allegations of misfeasance in public office against FÁS (all of which allegations are denied), rendering this a case where, for the reasons stated above, an airing of, and adjudication upon, those detailed allegations is a matter of public moment and interest; and(2) to a lesser but still significant extent, the notable delay that FÁS has manifested in bringing the present application.”

As a result, the Court refused to grant the order for security of costs sought by FÁS.