Security for costs granted against corporate plaintiffs in a rejected insurance claim appeal due to excessive litigation costs.

THE SUPREME COURT

Denham J.

Murphy J.

Murray J.

Record No. 140/01

BETWEEN/

SUPERWOOD HOLDINGS plc SUPERWOOD LIMITED, SUPERWOOD EXPORTS LIMITED, SUPERCHIP LIMITED, SUPERWOOD

INTERNATIONAL LIMITED, and SUPERWOOD (U.K.) LIMITED

PLAINTIFFS/APPELLANTS

and

SUN ALLIANCE AND LONDON INSURANCE plc Trading as SUN ALLIANCE INSURANCE GROUP, PRUDENTIAL ASSURANCE GROUP

COMPANY LIMITED CHURCH AND GENERAL INSURANCE COMPANY LIMITED and RAYMOND P. McGOVERN as LLOYDS

UNDERWRITERS SOLE GENERAL REPRESENTATIVE REPUBLIC OF IRELAND

DEFENDANTS/RESPONDENTS

Judgment of the Court delivered on the 12th day of April, 2002 by Denham J.

This is an application on behalf of the first, second and third named defendants/respondents (hereinafter referred to as the

defendants), for an order directing the plaintiffs/appellants, (hereinafter referred to as the plaintiffs), to furnish security for

costs pursuant to s. 390 of the Companies Act, 1963 in respect of their appeal to the Supreme Court. The application is

grounded on an affidavit sworn on the 20th December, 2001 by Mr. Ivan Durcan, solicitor, on behalf of the defendants. The

case arose as a result of a fire on the plaintiffs’ premises in October, 1987 after which the plaintiffs sought compensation under

policies of insurance issued by the defendants and the other above named defendants (hereinafter together referred to as “the

defendants”). The proceedings were protracted and expensive. They commenced in 1989 and were at hearing for 116 days in

the first instance. In a judgment comprising some 400 pages O’Hanlon J. dismissed the claim made by the plaintiffs. That

judgment was appealed to this Court. That appeal was heard over a period of 16 days. Judgment was delivered on the 27th of

June, 1995, reversing the decision of the High Court and directing a retrial on the issue of damages. That issue was at hearing

for 281 days and it generated approximately 41,000 pages of transcript. The judgment consists of 872 pages together with a

book of indexed exhibits comprising 1,525 documents and other related matters.

By his judgment and the order made thereon dated the 7th day of April, 2001, Smyth J. awarded to Superwood Limited and

Superwood Exports Limited the sum of £314,940.20 in damages (inclusive of interest to the 19th November, 2000) but ordered,

pursuant to s. 17 (2) of the Civil Liability Act, 1961, that the sum so awarded be reduced by the amount of the monies received

by the plaintiffs from the fourthly named defendants by virtue of a compromise reached and concluded between them. It

appears from the affidavit of Mr. Ivan Durcan that this settlement involved the payment by the fourthly named defendant to

the plaintiffs in the month of May, 1998 a sum of £1,235,753.80 sterling (being the equivalent of IR£1,422,031.30) in addition to

the release to the plaintiffs of the monies lodged in court by those defendants and amounting to the sum of IR£1,600,000, that

is to say, a total sum of IR£3,022,031.30.

The first, second and third named defendants had lodged in court to meet the plaintiffs’ claim for damages the sum of

£3,152,761 and the order of Smyth J. directed the repayment of that sum to the defendants. The plaintiffs have appealed

against the order of Smyth J. by notice dated the 14th day of May, 2001. That notice sets out 336 separate grounds of appeal.

In his affidavit grounding the application for security for costs Mr. Ivan Durcan pointed out that the claim for damages as

originally formulated by the plaintiffs amounted to £2 million. By June, 1989 it had increased to £5 million. In July, 1990 the sum

of £8 million was claimed and after the order and judgment of the Supreme Court dated the 27th day of June, 1995, the claim

escalated to £92 million.

It would appear from the affidavits sworn by Mr. Ivan Durcan on behalf of the defendants and Mr. A. Derek E. Burke, solicitor on

behalf of the plaintiffs, that the parties are agreed that the maximum sum available at the present time to the plaintiffs is an

amount not exceeding £145,655.21. This does not take into account the defendants’ High Court costs. Furthermore, it has been

suggested that a firm of solicitors may have a claim on that amount for a sum of £100,000. In any event it is not suggested

that the monies now available to the plaintiffs would be preserved to meet any part of the costs of the defendants in the event

of the appeal being dismissed.

There is a serious difference of opinion between the two solicitors as to the likely costs of the appeal. Mr. Burke has expressed

the opinion that the appeal could be disposed of in two weeks. By reference to the taxation of the costs in the earlier appeal in

these proceedings he suggests that an appropriate instruction fee for the solicitors would be £70,000 and that it would be

appropriate to brief one senior only and one junior counsel and that the brief fee payable to the senior would be £75,000 and

junior counsel £50,000. This would give a total of £195,000 on the basis of a one day hearing. Mr. Burke does not make any

estimate in respect of the refresher fees or other costs involved in the remaining 13 days of the anticipated hearing.

Messrs. Cyril O’Neill & Co., Legal Cost Accountants, engaged by the defendants, originally estimated that the appeal would take

40 days but were persuaded by counsel that it would be disposed of in 20 hearing days. On the basis of that estimate the cost

accountants advised that the legal fees would amount to £1,253,882.66. That is based on an instruction fee of £206,000: a

brief fee for each of two senior counsel of £175,000, a brief fee for junior counsel of £116,606.66 and refreshers for senior

counsel of £59,850 and junior counsel at £39,900 in total. To those alarming figures is added the sum of £160,000 for the

preparation of “outline legal submissions”.

Even taking the most optimistic view of these conflicting opinions it is difficult to believe that the costs could be less than

£250,000 and accordingly would comfortably exceed the maximum amount which is at present available to the plaintiffs. In the

event of security being directed the amount to be provided would be determined by the Master of the High Court (or the High

Court on appeal from him). For the purposes of the present application it is sufficient to say that the figures establish that the

plaintiffs will not be in a position to meet in full the defendants’ costs of defending successfully the appeal herein.

The Law

The Companies Act, 1963, s. 390 provides 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 if successful in his defence, require sufficient security to be given for those costs and may stay all

proceedings until the security is given.”

Even where, as in the present case, it is established that a corporate appellant will be unable to pay the costs of a successful

respondent security will not necessarily be ordered under that section. The power of the court to order security is

discretionary.

In the leading case of Peppard and Co. Ltd. v Bogoff [1962] I.R. 180, Kingsmill Moore J. in interpreting s. 278 of the Companies

(Consolidation) Act, 1908, which was in the same terms as s. 309 aforesaid, said at p. 188:

“I am of the opinion that the section does not make it mandatory to order security for costs in every case where the

plaintiff company appears to be unable to pay the costs of a successful defendant but that there still remains a discretion

in the Court which may be exercised in special circumstances.”

It is clear that the onus lies on the company resisting the application to prove the existence of “special circumstances” to

justify the court in exercising its discretion in favour of the plaintiff. In Jack O’Toole Ltd. v MacEoin Kelly Associates & Wicklow

County Council [1986] I.R. 277 Finlay C.J. made this clear when he said at p. 283:

“It is clear that there is no presumption, either in favour of the making of an order for security for costs or against it, but

I am satisfied that where it is established or conceded, as arises in this case, that a limited liability company which is a

plaintiff would be unable to meet the costs of a successful defendant, that if the plaintiff company seeks to avoid an

order for security for costs it must, as a matter of onus of proof, establish to the satisfaction of the judge the special

circumstances which would justify the refusal of an order.”

In relation to the costs of an appeal to this court the position could not be otherwise. The Rules of the Superior Courts, 1986

provide at Order 58 Rule 17 that:

“Such deposit or other security for the costs to be occasioned by any appeal shall be made or given as may be directed

under special circumstances by the Supreme Court.”

Under that rule any appellant - whether an individual or a company - may be required to provide security if “special

circumstances” are established. The obligation imposed on a limited liability company by s. 390 of the 1963 Act is more

extensive and derives from the statutory immunity enjoyed by shareholders of such companies. (See Lismore Homes Ltd. v

Bank of Ireland and Others (Unreported; Supreme Court, 5th October, 2001) ).

In S.E.E. Company Ltd. v Public Lighting Services Ltd. [1987] I.L.R.M. 255 McCarthy J. identified certain factors which would be

material in determining whether in a given case the court should exercise its discretion in making an order under s. 390

aforesaid. He said at pp. 258-259:

“Without attempting to make an exhaustive list, it would seem relevant to consider such matters as:

(I) Has a prima facie case been made to the effect that the inability identified by the section flows from the wrong

allegedly committed by the parties seeking security?

(II) Is there an arguable case stated in the notice of appeal?

(III) Has there been any undue delay by the moving party?

He then went on to observe:

“Countervailing circumstances would include the very fact that the insolvent company has lost the case in the High Court

and is now an appellant.”

It may be that the factors identified by McCarthy J. would be of particular relevance where the court is determining the duty of

a party to give security for costs pursuant to the Rules of the Superior Courts but no doubt the factors identified by the

learned judge are, or may be, of assistance to the court in determining whether or not to exercise its discretion under the

statutory provisions relating exclusively to companies. Unfortunately the suggested guidelines may not be appropriate or

applicable to the facts of every case.

In relation to the allegation of delay the court has no hesitation in disregarding it as a relevant factor in the present case. The

High Court order was perfected on the 18th May, 2001. On the 17th July, 2001, the defendants wrote seeking security. On the

2nd November, 2001 the defendants brought a motion to dismiss the appeal for want of prosecution. Directions were then given

by the court as to the transcript and books of appeal. This motion for security is dated the 21st December, 2001. In those

circumstances, and having regard to the complexity of the matter, the court is satisfied that there has been no undue delay in

making the application for security.

The application of the other tests or guidelines is more difficult. In one sense there is no doubt that the plaintiffs have an

arguable case. The matter was remitted to the High Court solely for the purpose of assessing the damages payable by the

defendants to the plaintiffs. The issue between the parties relates to quantum: not liability. Clearly the plaintiffs may argue that

a more substantial award could have been made. In that sense and to that extent an arguable right of appeal exists. However,

the reality of the matter, and the circumstances in which the court in the present case must exercise its discretion, is that the

plaintiffs, as has already been pointed out, revised upwards their claim for damages from £2,000,000 to £92,000,000. The

plaintiffs pursued that claim over a lengthy and expensive hearing notwithstanding the fact that the defendants had between

them lodged £4,752,761 to meet the claim. It was argued in this court that the lodgement suggested that the defendants

themselves recognised that the ultimate award of £155,535 (together with interest) was wholly inadequate. That does not

necessarily follow. It may be that the defendants having already faced a protracted hearing and assessing the cost of the then

pending proceedings calculated that a payment far in excess of the value of the claim would represent a prudent commercial

decision. If that was their view it proved to be correct. If the lodgement of £3,152,761 had been taken up by the plaintiffs, the

defendants would have saved their costs of the hearing which have been estimated at £5 million. The plaintiffs persisted in a

claim for a vastly greater sum which was comprehensively rejected by the trial judge. In the final analysis the reality of this

matter is that the plaintiffs are limited liability companies who are pursuing - as they are entitled to pursue - expensive litigation

which exposes the defendants to a very substantial financial burden. The particular and specific purpose of s. 390 aforesaid

was to protect defendants from litigation by corporate bodies who are not a mark for the costs of such litigation. The time has

come when the defendants may properly ask the Court to direct and the Court should in its discretion direct that security

should be given by the plaintiffs for the costs of further litigation in pursuance of the enormous claim which has already involved

such protracted and expensive litigation in which the plaintiffs’ claim to substantial damages was rejected.

The Court directs that further proceedings in the appeal be stayed pending the giving of security in such sum as may be

determined by the Master of the High Court.