High Court: Shelf company must provide security for costs to defendants with legal bill estimated at €3 million

About this case:

• Citation:
  [2022] IEHC 549
• Judgment:
  External link
• Court:
  High Court
• Judge:
  Mr Justice Michael Twomey

In so ruling, the court commented on the inherent unfairness of the plaintiff company being able to inflict significant costs on the defendants without being a mark for costs itself because the company had no assets. Since that the plaintiff’s legal proceedings were being funded by a well-financed parent company, the plaintiff should have obtained the requisite security from the parent company in order to “collect” the €4 million claimed in damages, the court said.

Background

In March 2019, the plaintiff agreed to purchase a site on James Street, Dublin 8 for €7.2 million. The purchase was financed through borrowings and funding from the parent company. The site purchase was facilitated by a sub-sale of the site to the plaintiff rather than a sale to the third defendant, which would have incurred stamp duty. 

The plaintiff company was described as a “shelf company” or a €1 company, insofar as it did not have any assets.

The site was subject to planning permission for a hotel that was challenged in 2018 by an adjacent hostel in judicial review proceedings prior to the sale . These proceedings were taken against the Planning Board’s decision in respect an easement of light allegedly enjoyed by the hostel and were ultimately discontinued.

Following the sale, the hostel sought an injunction to prevent the plaintiff from building the hotel which would allegedly affect the easement of light. These proceedings were settled.

In June 2021, the plaintiff completed a sale of the site to a third party for €5.25 million. The plaintiff was aggrieved by this reduced value of the site and issued proceedings seeking damages for the difference in prices. The plaintiff sued multiple defendants, including the vendors of the site, the solicitors who acted in the sale and the former owner of the site.

The plaintiff’s principal complaint was that the first/second defendants and the third defendant provided replies to the Law Society’s Requisition 14.6 that there was no litigation pending or threatened against the site and there was no adverse claim made by any person. It was said that the hostel’s judicial review was an adverse claim to the site which should have been disclosed. It was claimed that the plaintiff would not have proceeded with the sale if it had been notified of these proceedings.

The defendants each issued a defence to the proceedings. In particular, the first, second and third defendants claimed that the proceedings against the Planning Board was a public law claim and therefore was not an adverse claim against the property. Further, it was alleged that there was an absence of causation that the alleged misstatement because the plaintiff had received specialist professional advice (including from a light specialist) prior to purchasing the sight.

Accordingly, the defendants each brought applications seeking security for costs against the plaintiff. It was stated that the estimated legal bill for the defendants was €3 million. In opposing the motion, the plaintiff claimed that security for costs should not be awarded because it was certain to succeed against one of the defendants. Further, it was said that the first/second and third defendants did not have a prima facie defence to the claim.

High Court

Delivering judgment in the case, Mr Justice Michael Twomey identified the test for security for costs required the defendants to establish whether a) there was a prima facie defence to the claim and b) whether the plaintiff would not be able to pay the defendants’ costs if the claim was unsuccessful. If both limbs were satisfied, security for costs should be ordered unless there were specific circumstances which justified a court exercising its discretion to refuse security for costs (see Usk and District Residents Associations Ltd v. The Environmental Protection Agency [2006] IESC 1).

In assessing whether the first three defendants had a prima facie defence to the claim and whether the plaintiff was guaranteed to be successful against one of the defendants, the court was required to consider the merits of the plaintiff’s claim. The court noted that there was correspondence which indicated that the plaintiff should have been aware of issues relating to the hostel’s lighting prior to the judicial review proceedings.

Further, the court held that the hostel’s claim was a public law claim against a State entity rather than a private law claim against the owner of the site. The plaintiff had a copy of the planning file with all the details of the hostel’s easement claim and had engaged in a risk analysis prior to purchasing the site. Accordingly, the court held that the defendants had a prima facie defence to the plaintiff’s case as it was at least arguable that the plaintiff would have proceeded with the purchase even if it had known about the judicial review proceedings.

The court moved to consider whether the plaintiff was highly likely to succeed against one defendant and therefore whether security for costs should not be ordered (see Valebrook Developments Ltd (in Receivership) v. Keelgrove Properties Ltd [2011] IEHC 173). The court noted that if it was held at trial that the plaintiff would have proceeded with the purchase in any event, this would be a defence for all the defendants. As such, it was held that the plaintiff was not certain to succeed against any of the defendants.

As such, the court held that the plaintiff was liable to provide security for costs to the defendants. The court refused a request to phase the security for costs so that quantum only had to be provided until discovery was finalised (see Quinn Insurance Ltd (Under Administration) v. PricewaterhouseCoopers [2021] IESC 15). However, it was accepted that there would be a basis for only providing security for costs up to the end of a mediation between the parties, since there was a clear public interest in settling cases out of court. Accordingly, the court determined that it would hear further submissions on the exact manner in which security might be phased in the case.

As part of his analysis, Mr Justice Twomey commented that it was unfair that the defendants would be forced to pay €3 million in costs whether they won or lost the case due to the fact that the plaintiff was not a mark for costs. It was “simply a basic principle of fair-play that there should be a level playing field in litigation between plaintiffs and defendants, such that it is win/lose for both parties.”

Since the plaintiff’s legal proceedings were being funded by the parent company, the parent should be able to provide €3 million in security to obtain €4 million in the proceedings, the court reasoned. At a minimum, the plaintiff has the choice whether to pursue expensive litigation, while the defendants did not. This was an unjust situation, the court said.

Conclusion

The court held that the plaintiff was required to provide security for costs and would hear further submissions on whether the payment should be phased to the end of mediation between the parties.

James Street Hotel Limited v. Mullins Investment Limited and Ors. [2022] IEHC 549