High Court rejects one-third rule for foreign corporate plaintiff, ordering full security for costs based on inability to pay.

Neutral Citation: [2014] IEHC 575

THE HIGH COURT

COMMERCIAL

[2014 No. 2473 P]

[2014 No. 35 COM]

BETWEEN

JAMES PATRICK FLANNERY AND LEXINGTON SERVICES LIMITED

PLAINTIFFS

AND

MORTIMER JOHN WALTERS, BRIAN CONNELL, ACTIVITY MONITORING SOLUTIONS LIMITED, CATHARSIS TECHNOLOGIES

LIMITED, ASHLEY TRUST LIMITED AND ASHLEY NOMINEES LIMITED

DEFENDANTS

AND

CATHARSIS TECHNOLOGIES LIMITED

COUNTERCLAIM PLAINTIFF

AND

JAMES PATRICK FLANNERY, BRUCE BAHEER AND SHAEF-2 LIMITED

COUNTERCLAIIM DEFENDANTS

JUDGMENT of Mr. Justice Brian J. McGovern delivered on the 28th day of October 2014

1. On 22nd July 2014, I delivered a judgment ordering the counterclaim plaintiff, Catharsis Technologies Ltd. (“CTL”) to furnish

security costs in respect of the counterclaim. This judgment concerns the amount of security to be furnished.

2. I received both written and oral submissions from the parties as to how I should approach the issue of the correct amount of

security to be furnished and the date from which that amount should be calculated. The original application was made pursuant to O.

29 of the Rules of the Superior Courts. I ordered security on the basis that I was satisfied that the defendants to the counterclaim

had adduced credible evidence that there is reason to believe that the counterclaim plaintiff, CTL, will be unable to pay the costs of

the defendants to the counterclaim if successful in their defence.

3. The parties are in agreement that where security for costs is ordered under O. 29 against a foreign individual plaintiff, the usual

rule is to order one-third of the costs to be put up by way of security in the absence of special circumstances. Where the parties

disagree in this case is whether the “one-third rule” applies in the case of a foreign corporate body against whom security for costs

has been ordered. That is the position in this case. The counterclaim defendants argue that I should follow the reasoning of Clarke J.

in Harlequin Property (SVG) Ltd. v. O’Halloran [2012] IEHC 13, and Cooke J. in Goode Concrete v. CRH plc. & Ors. [2012] IEHC 198.

The counterclaim plaintiff, on the other hand, argues that I should follow the decision of Laffoy J. in Ticket Generator Ltd. v. Dublin

Airport Authority plc. [2012] IEHC 216, in which she felt bound by the Supreme Court decision in Framus Ltd. v. CRH plc. [2004] 2

I.R. 20, and concluded that in the absence of special circumstances, she must apply the “one-third rule” in ordering security under O.

29 of the Rules of the Superior Courts against a foreign defendant. She distinguished the position with s. 390 of the Companies Act.

4. In Harlequin Property (SVG) Ltd. v. O’Halloran, Clarke J. held that where the Court makes an order for security for costs against a

non-resident body corporate pursuant to O. 29 of the Rules, the Court should ordinarily treat the non-resident body on a par with an

Irish company the subject of s. 390 of the 1963 Act, and should order that full security for costs be provided, and should depart from

the one-third rule applicable to foreign personal plaintiffs. At para. 4.15 of his judgment, he stated:

“4.15 . . . such analysis seems to me to support the view that the justice of an application for security for costs under

Order 29 made against a corporate foreign plaintiff should lead to that corporate foreign plaintiff being required to put

up the same type of security as an Irish corporate plaintiff would have to. I should emphasise that the logic of that

position only holds true in circumstances where the court makes the order for security for costs against the foreign

corporate plaintiff on the same grounds as the court would make an order for security for costs against an Irish

corporate plaintiff, i.e., that the relevant corporate plaintiff would be unable to pay costs in the event of losing. There

may well be circumstances where an Irish court would direct security against a foreign corporate plaintiff solely on the

basis that that foreign corporate entity was based outside the jurisdiction and had no assets inside this or any other

relevant jurisdiction. In such a case, it is difficult to see how any legitimate distinction could be drawn between a foreign

corporate plaintiff and a foreign individual plaintiff. Where, however, as here, the court has already been satisfied that

the tests for the making of an order for security under s. 390 of the 1963 Act were met, save only for the fact that the

corporate entity concerned was not Irish, then it seems to me that there is a compelling logic in applying the same

regime for the calculation of the amount of security required as would apply arising out of a successful application for

security under s. 390 of the 1963 Act.”

Clarke J. went on to state that it would be a strange result if a foreign company could maintain proceedings in Ireland on easier terms

than an Irish company.

5. In Goode Concrete v. CRH plc. & Ors., Cooke J. exercised his discretion to depart from the one-third rule and ordered full security

under O. 29 against an unlimited company, by analogy with s. 390 of the 1963 Act. In his judgment, he set out a broad analysis of

the distinction between O. 29 of the Rules and s. 390 of the 1963 Act. He also observed that the practice of the Court to order

security on a one-third basis of the full estimate against personal litigants under O. 29 is not a rule, as such, but “. . . is no more

than a custom or practice and the Court can depart from it in appropriate cases in exercise of its discretion to grant security”. See

paras. 13-15.

6. In Ticket Generator Ltd. v. Dublin Airport Authority plc. Laffoy J. concluded at para. 14:

“Although the matter is anything but ‘black and white’, with a considerable degree of diffidence, I have to come to the

conclusion that this Court is bound to adopt the approach taken in Thalee v. Soares, as explained in the Framus case,

and to apply the one-third practice as to the amount of security ordered, notwithstanding that the order for security is

against a limited company incorporated outside the State, unless there are special circumstances indicating that it

should be departed from. I find no such special circumstances in this case.”

It is interesting to note that in the Ticket Generator case, Laffoy J. concluded that as a matter of probability, the plaintiff would not

be able to pay the costs of the second and third named defendants in defending the proceedings if they were successful. I have

reached a similar conclusion with regard to the counterclaim plaintiff, CTL, in this case.

7. In Farrell v. Bank of Ireland [2013] 2 ILRM 183, [2012] IESC 42 (which was decided subsequent to the Ticket Generator case), the

Supreme Court recognised and exercised its discretion to depart from the one-third rule in measuring security to be provided by an

individual plaintiff/appellant. The judgment of the Supreme Court was delivered by Clarke J. who referred to the practice of fixing

security in the amount of one-third of the estimated costs which had existed since Thalle v. Soares & Ors. [1957] I.R. 182, but

stated that it was not clear as to what the origins of the practice may have been. He also raised the question as to whether an

appropriate distinction should be made between foreign litigants from outside the EU between those who have assets and could

provide security (but the only problem is the availability of those assets within the jurisdiction so as to be readily available to meet an

order for costs) and those who do not have sufficient assets at all. That question was left over for consideration at another

appropriate time and the Court went on to deal with the issue of security on the basis of existing jurisdiction. In doing so, the Court

held that existing jurisprudence does permit a departure from the so-called “one-third rule” in an appropriate case, and in that case,

fixed security at 50% of the estimated costs. The case underlines the discretionary principles which apply in deciding on the level of

security for costs to be ordered by the courts in applications brought under O. 29.

8. In the Framus judgment at p. 59 (para. 86), Murray J. referred to the judgment of Hederman J. in Fallon v. An Bord Pleanála [1992]

2 I.R. 380 at 391, when he referred to Thalle v. Soares & Ors. and stated:

“. . . the customary order when fixing the amount of security for costs was one-third of the costs to be incurred by the

party against whom the order for security had been obtained. No case has been brought to the attention of the court

where a sum greater than one-third was in fact ordered by the courts. I do, however, accept there is a discretion in the

court as to the amount of the security to be fixed and that that amount will be fixed having regard to the individual

facts of each case based on the balance of justice arising in that particular case.”

Murray J. went on to state that in his view, this approach is equally applicable to the application for security for costs under O. 31, r.

12 which deals with discovery.

9. Like Laffoy J., I believe the legal issues surrounding the distinction to be drawn between a foreign corporate plaintiff and an Irish

corporate plaintiff under O. 29 and s. 390, respectively, is anything but clear. For my part, I do not read the Framus judgment as

limiting the discretion which I have to decide on the amount of the security to be ordered, although it does appear to suggest that

the “one-third rule” is the default position to be adopted in the absence of special circumstances. In Farrell v. Bank of Ireland, the

Supreme Court seems to have pulled back somewhat from that position and I feel I am entitled to rely on it. It is difficult to ignore the

obvious problem that arises if foreign companies could maintain proceedings in Ireland on easier terms than Irish companies. Clarke J.

referred to this problem in the Harlequin case (para. 4.11). Such an anomaly could not serve the interests of justice. It is one of the

hallmarks of justice that there should be consistency and equality of treatment between similar parties presenting before the courts in

similar circumstances. On rare occasions, the Court may find itself faced with a situation where it has to make an order that might not

meet this standard, simply because of a statutory provision which requires to be fulfilled. In such cases, all the Court can do is to

point out the anomaly and hope that the Legislature will act to cure the problem.

10. There seems to be no good reason in this case why the counterclaim plaintiff should be treated any differently than an Irish

company would be in similar circumstances, having regard to the fact that I directed security be furnished on the basis of inability to

pay the costs of the defendants to the counterclaim if successful in their defence. In those circumstances, I will fix security in the

full amount of such figures as I calculate on the basis of the competing sums offered by the legal cost accountants for each party.

11. The security to be furnished will be security in respect of costs from the date of the first request. On 1st May 2014, the

counterclaim defendant first requested security for costs and that is the date from which the costs should be estimated.

12. So far as the legal cost accountants for each party to this motion are in disagreement, I have approached the amount of security

on the basis of a 4-day hearing related to the counterclaim. I assess the security on the basis of the following figures which I believe

to be reasonable as estimates of the costs associated with the issue:

Solicitors’ Instruction Fee: €40,000

Senior Counsel

Brief Fee: €10,000

Refreshers €4,000 x 4: €16,000

Other Fees: €2,700

Junior Counsel

Brief Fee: €6,500

Refreshers 4 x €2,665 €10,660

Other Fees: €3,500

Stenographers: €7,500

Electronic Discovery: €3,500

VAT*: €14,046.00

Witnesses Expenses: €20,000

Total: €134,406.00

* In view of the uncertainty surrounding the VAT position, but having regard to the fact that one of the counterclaim defendants will

be liable for VAT, I will allow a sum of €14,046 under that heading.

13. I will direct that the security to be furnished in respect of the counterclaim defendants’ costs be fixed in the sum of €134,406.00.