Security for costs appeal dismissed; special circumstances not met despite company insolvency and tax admission.

THE SUPREME COURT

No. 082/2004

Denham J.

Geoghegan J.

Macken J.

BETWEEN/

THE WEST DONEGAL LAND LEAGUE LIMITED

Plaintiff/Appellant

and

UDARAS NA GAELTACHTA AND JOSEPH HAMILTON BOYD AND DANIEL HARLEY, AND TOGAIL DHUN NA NGALL TEORANTA AND

AERPHORT IDIRNAISIUNTA DHUN NA NGALL TEORANTA

Defendants/Respondents

JUDGMENT of Mr. Justice Geoghegan delivered the 15th day of May 2006

INTRODUCTORY

1. This is an appeal brought by the above-named plaintiff/appellant against an order of the High Court (Smyth J.) directing, pursuant

to section 390 of the Companies Act, 1963, that the appellant do furnish security for the second-named respondent’s costs in this

action and that in default thereof proceedings herein be stayed as against that respondent.

2. Before I consider dealing with the substantive issues on the appeal there are two procedural issues raised in the grounds of appeal

to which I must first refer.

3. It is part of the appellant’s case that this application came up for hearing before Smyth J. in an ordinary Monday motion list and

that counsel for the plaintiff/appellant had indicated to the court that if the court took the view the company was not solvent, he

would want the issue of whether there were special circumstances which might preclude an order for security for costs to be dealt

with on another day, if necessary on oral evidence, but that the judge, although he did give a reserved judgment, did not refer to and

still less did not accede to this request.

4. I am of opinion that the matter should not be remitted to the High Court on this account. It would be very unusual to send back a

motion for rehearing. Without special permission of the court, oral evidence is not appropriate on such a motion. In exceptional

circumstances, oral evidence may be permitted in a motion for security for costs as for instance where there are serious conflicts of

fact relevant to security for costs arising from each party’s affidavits. But what the appellant and his legal advisers were not entitled

to do was to avoid putting their full case in favour of the “special circumstances” argument on affidavit in advance of the motion

coming on for hearing. What was impressive in this case was that the trial judge reserved judgment. If he had given judgment there

and then at the motion list there might have been some legitimate grievance but in the event there was none in my view. The

judgment indicates an understanding and careful consideration of the issues.

5. The appellant has also raised an issue of apparent bias in that it is stated that the learned trial judge as senior counsel signed High

Court pleadings on or about the 4th July, 1988 in an action Cissie Houston v. Udaras na Gaeltachta and Others which action is

connected with the claims in this action. I am quite certain that if this issue had been raised, which it was not, before the learned

trial judge, he would have recused himself. I am equally certain that he had no recollection of the earlier case at all. No reasonable

observer of the scene would have had any other view than that which I have expressed. The case has now been fully considered by

three judges of the Supreme Court. What is at stake is not the action itself but a motion within the action. I am satisfied that there is

no necessity to make an order directing a rehearing in the High Court. Indeed the written reserved judgment of Mr. Justice Smyth

clearly indicates his careful attention to the salient points.

6. I turn now to deal with the substantive appeal.

7. Section 390 of the Companies Act, 1963 reads as follows:

“Where a limited 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 is successful in his defence, require sufficient security to be given for those costs and may stay all proceedings until

the security is given.”

8. The appellant is a company limited by guarantee. It is clear beyond doubt, in my view, that the expression “limited company” in

section 390 includes a company limited by guarantee. This seems obvious from the wording of all the earlier sections in Part II of the

Act. The scheme of the Act (see section 16) is that there are four kinds of companies which may be formed, three of them limited

and one of them unlimited. The limited companies are companies limited by shares, companies limited by guarantee and not having a

share capital, and companies limited by guarantee and having a share capital.

9. The case law under section 390 establishes that notwithstanding the insertion of the word “may” the court in the absence of

special circumstances and as a matter of appropriate exercise of its discretion will in a given case order security for costs in the

circumstances provided for by the section. The “special circumstances” would seem to be limited and I will return to them in detail in

due course.

10. Before doing so, I think it appropriate to signpost what could in this case give rise to a problem but for which I believe there is a

solution. In Lismore Homes Limited v. Bank of Ireland Finance Limited (No. 3) [2001] 3 I.R. 536 this court, in a judgment delivered by

Murphy J. and with which the four other members of the court concurred held, contrary to the views of the English Court of Appeal in

interpreting an equivalent section in the relevant English Companies Act, that “sufficient security” was not open to any interpretation

other than that involving making “a reasonable estimate or assessment of the actual costs which it is anticipated that the defendant

will have to meet.” Paragraph 4 of the head note is misleading in as much as it baldly states “that any injustice caused by the

operation of section 390 could be avoided by granting or withholding the order for security.” That is not a correct summary of what

was stated in the judgment of Murphy J. What he said was somewhat different and it is worth quoting:

“The word ‘sufficient’, in its plain meaning, signifies adequate or enough and it is directly related in the section to the

defendant’s costs. The section does not provide for – as it might have – a sufficient sum ‘to meet the justice of the case’ or

some such phrase as would give a general discretion to the court. Harsh though it may be, I am convinced that ‘sufficient

security’ involves making a reasonable estimate or assessment of the actual costs which it is anticipated that the defendant

will have to meet. Much of the injustice which may be anticipated by the operation of the section can be avoided by the

application of the established principles in granting or withholding the order for security. In so far as the quantum of the

security may be oppressive in a case where security is in fact ordered, this must be seen in the context in which it arises. It

applies only to limited liability companies who are shown to be insolvent. Legislation has conferred many benefits on limited

liability companies including, in particular, that very limitation and it is not surprising to find that some burdens are likewise

cast by the legislature on companies which enjoy those advantages.”

11. That passage from the judgment of Murphy J. must, I think, be read in the context of an assumption that as a matter of

probability the defendant, if successful in the action, would enjoy the benefit of the ordinary rule that costs follow the event. I have

very little doubt that, Murphy J. was thinking in terms of commercial litigation and in particular, of money claims. This action is very

different for reasons which will emerge when I outline its factual background and the nature of the reliefs sought. I would take the

view that, without tying the hands of the trial judge in any way as to how he or she should ultimately exercise his or her discretion in

relation to costs, the court at the stage of the application for security for costs may, nevertheless, on the evidence which is before

it, consider whether even if the defendant is successful, a full costs order would necessarily or probably be made against him. Vain

attempts were made to have this action remitted to the Circuit Court, which would be its natural habitat. It has long been the case

that for all sorts of reasons, title actions in the Circuit Court do not necessarily result in a full indemnity order for costs in favour of

the successful party against the unsuccessful party. I see no reason why the types of circumstances and motives which have

influenced so many Circuit Court judges over time immemorial should not equally influence, in an appropriate case, a judge of the High

Court dealing with similar litigation. I will return to this question in due course when it arises.

12. Before going into the facts and circumstances of the case it is desirable also at this stage to consider in the words of Murphy J.

“the established principles in granting or withholding the order for security.” It is not seriously in dispute as will be clear from the

later part of this judgment that the appellant company prima facie falls within section 390. It is clear from the evidence before the

court that in the event of an order for costs being made in favour of the defendant the appellant company would have little or no

assets to meet it. The onus is on a defendant to establish that state of affairs but that onus has clearly been discharged in this case.

The only remaining question is whether there are special circumstances which might justify refusal of the order. The onus of

establishing such special circumstances is on the plaintiff company. I would agree with the view expressed by Denham J. in her

judgment that the categories of special circumstances are not closed. Although in the second edition of Delany and McGrath on Civil

Procedure in the Superior Courts four categories of special circumstances are helpfully summarised, these are simply sets of

circumstances which have in fact influenced courts in particular cases to refuse the order. I am satisfied, however, that this does not

mean that a court is wide open in its discretion as to whether to grant or refuse the order. That approach would defeat a clear and,

as Murphy J. pointed out, reasonable aim of the Oireachtas as enacted in section 390. The validity of the view which I have just

expressed would appear to be well illustrated by the four sets of circumstances set out in and elaborated upon in Delany and

McGrath. These are:

(a) Where inability of the plaintiff to provide security attributable to the actions of the defendant.

(b) Delay.

(c) Point of law of exceptional public importance.

(d) Existence of individual co-plaintiff.

13. The first of these categories speaks for itself and is well known to the courts. It is not suggested by the appellant that it arises in

this case.

14. As to the issue of delay, in Hidden Ireland Heritage Homes Limited v. Indigo Services Limited [2005] 2 ILRM 498 the Supreme

Court refused an order for security for costs. Fennelly J. in the judgment delivered held that on the facts of the case before him, the

defendants had delayed to such an extent and had otherwise behaved in the conduct of the litigation in such a manner as to deprive

themselves of the entitlement to ask the court to exercise its discretion in their favour. That issue would not seem to arise in this

case.

15. The same is true of the third category. Although as I will be explaining, the appellant company was given charitable status and

purports to have some public environment objectives, this particular litigation is private litigation and there is no public element in it.

Furthermore it is not suggested that a point of law of public importance arises.

16. Finally, there is no individual co-plaintiff. That is all I will state at this stage but I will return to this point later.

17. Denham J., in her judgment, has suggested other relevant “special circumstances”. I will express my own views on these in a

later part of the judgment.

The proceedings

18. In legal language this action consists of a claim by a company limited by guarantee as alleged successor in title to some 28

individuals to an unregistered right in the property comprised in each of two Folios i.e. Folio No. 33573 and Folio No. 33574 of the

Register County Donegal, that unregistered right being a right to the beneficial interest in twenty eight undivided thirtieth shares in

each property.

19. The property comprised in Folio 33573 comprises an undivided moiety in more than 213 acres of land.

20. The property comprised in Folio 33574 is the remaining undivided moiety in the same land.

21. The registered owner on Folio 33573 is the second-named defendant/respondent, Joseph Hamilton Boyd.

22. The registered owner on Folio 33574 is Cissie Houston now deceased and of whom the third-named defendant/respondent is the

personal representative.

23. It is alleged in the statement of claim that the land in question was originally land gained by the sea receding and that it first

became viable in the early 1900s. It would, of course, have become the property of the owner of the land contiguous to it who

apparently was the Marquis of Conyingham. It is pleaded in the statement of claim that the land attracted a rent which was small but

which became divided between a large number of graziers. The statement of claim goes on to plead that two of the graziers collected

the rent from all the others and paid it over to the landlord. The present registered owners are as far as the registered title is

concerned successors in title of the two collecting graziers. The land became vested in the Land Commission under the Land Acts. I

should mention here that irrespective of whether originally there was a tenancy in the strict sense i.e. relationship of landlord and

tenant or whether there were merely grazing lettings not involving legal possession the land would have vested in the Land

Commission under the Land Acts, Donegal being a congested districts county. The statement of claim pleads that the original

individual graziers (by which is presumably included their successors in title) continue to occupy the land and to graze their cattle

thereon and to take “bent” therefrom “in the traditional manner on an unbroken basis since at least 1910”. It is then pleaded that

the registered owners were regarded as trustees for the graziers. As to whether any of that is true or untrue will obviously be a

matter for the trial and I can form no opinion on it at this stage. It is obvious, however, that the root cause of this litigation is that

the land certainly became valuable and that part of it was and now more of it is required for the operation of Donegal Airport. A

twenty year lease was granted in 1978 by the two registered owners for this purpose. At that stage the rent was very small being a

nominal £10 per annum. The statement of claim then alleges that in 1984 or thereabouts another lease was purported to be entered

into by the registered owners for fifty years and it is alleged that this lease was null and void as its validity allegedly would have

required the concurrence of the other graziers. It appears, however, from paragraph 2 of the affidavit of Michael Gillespie, solicitor for

the plaintiff, sworn on the 22nd July, 2003 that £25,000 paid in consideration of the second lease was not handed over to the

registered owners but was given to a committee representing all the graziers. In that connection, it is alleged that there was an

admission by the second-named respondent of trusteeship in that when capital gains tax was sought from him in respect of £12,500

being half of the £25,000, he made the case that he had no personal interest in the land and had never received the monies. I will

return, in due course, to the significance or lack of it of this bit of evidence.

24. Returning to the statement of claim, paragraph 9 alleges that the airport lands were subsequently transferred from the two

respective Folios to the first-named defendant. If those transfers were transfers for value then the first-named defendant would have

an indefeasible title to that property if it has now become registered owner. There is no inhibition entered on either Folio requiring

notice in order to protect the claimed unregistered rights. Such protection, of course, is not necessary as against Joseph Hamilton

Boyd and Daniel Harley as they do not derive their title from a purchase for value.

25. It is pleaded in paragraph 9(h) of the statement of claim that the alleged “land ownership rights” of the so called graziers “have

been transferred to the plaintiff by the graziers”. It is a curious and unsatisfactory feature of the evidence that no such alleged

transfer to the plaintiff company is exhibited in any affidavit or is in any way before the court. In a reply to a notice of particulars

“the graziers of local farmers who formed the plaintiff company” are listed. It is by no means clear, however, who exactly is claiming

ownership rights and under what title. Even the figure of thirty is clearly only an approximate figure.

26. The second-named defendant/respondent has delivered a defence and counterclaim. The first plea is a plea of the Statute of

Limitations. This is a very relevant plea because the result of this case may well in the end hang on the history of the actual

possession of the land. The defence goes on to deny any of the alleged ownership rights and in particular to deny the existence of

any trusteeship. At this stage of the case, I have no idea whether these defences will be successful or not but they are clearly

stateable defences. The mere fact that the second-named defendant is a registered owner is not of itself a defence because as I

have already pointed out he does not derive his title under purchase for value.

27. It is important at this stage to draw attention to some features of the Folios and the Land Commission Inspectors’ reports which

are before the court. First of all, it seems clear that the vesting order made by the Land Commission was made as late as the 30th

April, 1954. As was usual practice and in accordance with the Land Acts, the vesting in each case was made “subject to the equities

arising” from the previous interest of the intended registered owner and was deemed to be a graft on his or her previous interest. In

this regard see entry 3 in Folio 33573 and entry No. 3 in Folio 33574. In each case, however, an examination of the respective Folios

shows that the equity note became discharged and cancelled, in the case of Folio 33573 on the 1st November, 1983 and in the case

of Folio 33574 on the 19th August, 1991. That cancellation would not have been effected by the Land Registry without the

appropriate affidavit under Land Registration Rules being filed which would have testified that there was no on else claiming an

interest in the property. It seems clear, therefore, that at the stage of the discharge of equities, claims to beneficial ownership by

the registered owners were made. In one of the Folios there is also entered a right of residence something which a trustee would

have had no right to create.

28. The Land Commission documentation which is before the court is also interesting. In the inspector’s report of the 10th October,

1953, the inspector refers to an earlier inspector’s report of the 25th February, 1933. The latter inspector had stated that the lands

now comprised in the two Folios covered an area of 214 acres “of sand-banks” and “that there were a large number of sub-tenants

scattered over a wide area and some outside the estate using the holdings for grazing and the bent grass thereon for thatching.”

The same inspector had also reported that the tenant shown on the official form under the 1923 Act had really no more right to the

holding than the sub-tenants and that he acted for the others in paying the rent for the holding. He went on to observe that the

sub-tenants were constantly changing. Apparently, a fresh report was obtained in June, 1952, which stated that the so called sub-

tenants were still continually changing and sub-division and consolidation would not improve the position and he recommended that

John Houston be accepted as a trustee. It is clear from the report that the view was taken that it would be very difficult to

determine the names and addresses of claimants to the property and that there was the possibility of protracted objections to a

vesting order due to the non-inclusion of some of the interested parties whose interest might not come to light during the Land

Commission investigation. It was decided, therefore, to treat John Houston and William Alcorn who are predecessors in title of the

current registered owners as the tenants. That report undoubtedly favours the plaintiff in as much as it suggests that originally at

least there was some kind of trusteeship.

29. However, a note sent by a superior officer to the Commissioners dated the 9th July, 1952 is much more helpful to the second-

named respondent. It is worth quoting in full:

“Commissioners

The position here is most peculiar. In reality there are neither tenants nor sub-tenants. William Alcorn who has been returned

as tenant is apparently the only one of the persons who use the holding who is permanently in occupation of portion thereof.

Alcorn pays the annuity and collects small grazing rents from the parties who use the sparse bent grass which is all the land

grows. All through the information we have gleaned runs the inference that he must let but the parties who take the lettings

are continually changing and the undivided shares returned must have been an attempt to regularise the position on paper.

As the persons who take the lettings are not continuously in occupation there are no firm sub-tenants and it is recommended

that no action be taken under section 15 1931 Act – question of amending LVH to show any other than Alcorn entitled to the

tenancy interest to be gone into later.”

30. There is then an indecipherable signature. What that note suggests was that the graziers over the years were not necessarily

successors in title to others at all. They simply paid rent for the grazing. A strong point in favour of the defendants is the continual

use even by the plaintiff of the expression “grazier”. That expression does not normally imply any kind of ownership interest. Its most

common meaning in Ireland would be a person holding under an 11 month letting but then of course it can also mean a person entitled

to a profit à prendre. The 1933 inspector’s report made the further following observation:

“These two holdings cover an area of 214 acres of sand-bank growing practically nothing but ‘bent’ but even the bent then

only grew in tufts here and there over the greater part of it. The ‘bent’ was used for thatching but very little was available.

The indiscriminate cutting of ‘bent’ and the fact that the sea covered the greater part of the area at very high tide had

rendered the holdings of little value. There were a large number of sub-tenants of both holdings, scattered over a wide area

and some outside the estate.”

31. It is a matter for the trial judge to determine the origin of these rights, if any. On one view the graziers as such may well have

had no estate or interest in the land but simply paid a rent for the bent. There is no evidence before the court what animals were

ever put on the land even though the word “graziers” is used. The actual use to which the lands has been put at any given period

over the years and by whom is obviously a hugely controversial area and I cannot see how the plaintiff can possibly argue that it is

bound to win. On one scenario it is perfectly possible that the plaintiff will win. But it is also perfectly possible that the plaintiff will

lose.

32. It defies all credibility to deny that at least part of the motive of the promoters of the plaintiff in forming the company was

precisely for the purpose of avoiding having to pay costs out of their own pockets if they brought the action in their own names and

lost. From the point of view of the second-named defendant/respondent this is unfair litigation unless he is given security for costs. I

have already pointed out that the plaintiff is unable in this case to invoke any of the so called “special circumstances” that have

been found in previous cases to entitle a court to refuse security for costs under section 390. Denham J. in her judgment however

has identified as a special circumstance the “cannot have his cake and eat it” argument. What the learned judge is referring to there

is a proven admission at one stage of trusteeship. That was in the context of avoiding/evading paying tax. While that whole episode

may be useful ammunition in favour of the plaintiff at the ultimate hearing of the action, I do not think that it is relevant to the

question of whether there should be security for costs. As I have already shown, there is other evidence which will indicate that both

of these registered owners and their predecessors in title regarded themselves as beneficial owners. The trustee admission was made

without legal advice and with a view to avoiding tax. Whereas it may have been disingenuous and even inaccurate legally, there was

another aspect to it. Mr. Boyd was being asked to pay Capital Gains Tax on a sum which he never received. Unless the admission was

of such a kind as to put the position beyond doubt that the plaintiff company was beneficially entitled to the 28/30th interest, it is

not in my view relevant to the issue of whether there should be security for costs. The kinds of circumstances which have been held

by the courts to be “special circumstances” are totally different in their nature. Fairness in the litigation in this case would dictate

that that factor of the admission in connection with tax should not be regarded as a special circumstance depriving the second-

named respondent of his prima facie entitlement to security for costs. If there were some individual co-plaintiffs with a reasonable

amount of assets between them the necessary “special circumstances” might be held to exist. Indeed if that were to happen as a

consequence of some reconstruction of the proceedings, the issue of security for costs could be reopened.

33. The references to “commonage” does not impress me. That is not a legal expression, or if it could be regarded as such, it is a

legal expression which can have quite different meanings. An unfenced area of land owned jointly or in undivided shares by fifty

people might legitimately be called “commonage” but equally and indeed more correctly fifty people who each had a common of

pasture or in other words a profit à prendre in the nature of a grazing right in a particular area of land can also be described as

enjoying commonage. In other words “commonage” does not necessarily imply ownership. The subject receives an excellent

treatment in Peter Bland’s “The Law of Easements and Profits à Prendre” at p. 156 ff.

34. There is another point which is also relevant to mention. If in fact a number of farmers have enjoyed grazing rights on these lands

even on foot of annual 11 month lettings the reality is that they would be expecting compensation if the land was given over for an

airport. The fact that the money was paid over to a committee of the graziers may well be neutral evidence in relation to any

ownership rights. But that is entirely a matter for the trial judge. On the existing evidence it would be absolutely impossible to form

any view nor would it be proper to do so.

35. It has been suggested in the affidavit of the plaintiff’s solicitor that the case could last two weeks in the High Court. I would not

dispute that possibility but I think that with good case management, which this case will certainly need, the issues of Mr. Boyd’s and

Mr. Harley’s ownership and the extent (if any) of their ownership could be determined in four days, if say, the case began on a

Tuesday and ended on a Friday. Even if that did not prove possible, I think it probable for the reasons which I indicated earlier on in

the judgment that this would not be a simple case of costs following the event. It would be legitimate in my view to take that factor

into account in determining how “sufficient” security for costs is to be assessed. I would dismiss the appeal and affirm the order of

the High Court but I would direct that the security to be given should be on the basis of a maximum of a four day hearing, such costs

to be assessed by the Master of the High Court. Future applications (if any) relating to the order should be made to the High Court.