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Drawing a line in the sand: Security for costs update

Holmes are acting in the defence of a Commercial Court professional negligence case in which security for costs was ordered against the Plaintiff in circumstances where that Plaintiff would otherwise be able to inflict €3 million in legal costs on the Defendants with no prospect of recovery of those costs if the action was successfully defended.

BACKGROUND

The case concerns the purchase and subsequent sale of the James Street Hotel. The Plaintiff being James Street Hotel Limited, a €1 shelf company, incorporated solely for the purpose of acquiring this site. Prior to the purchase, the planning permission granted for the development was challenged by way of judicial review proceedings by the owner of an adjacent hostel on the basis that it interfered with their alleged right to light. These proceedings were discontinued however, following the purchase of the site for €7.2 million. The hostel owner issued injunctive proceedings preventing the Plaintiff developing the site. The Plaintiff subsequently sold the site at a loss of over €2 million. Holmes are instructed on behalf of one of the eleven defendants sued in these proceedings.

APPLICABLE LAW / JUDGMENT

Justice Twomey applied the twopronged test, concluding that all eleven defendants had a prima facie defence on the basis that there was evidence to show that the Plaintiff was likely aware of the right to light issue and the associated judicial review proceedings and appear to have purchased the site anyway. This, coupled with the fact that the Plaintiff, being a €1 company, would not have assets to cover the defendants’ costs if so ordered, satisfied the two criteria.

The additional ‘special circumstances’ limb of the test was then considered. It was noted that the Plaintiff could not, and had not, claimed that its inability to pay the defendants' costs was due to the wrongdoing of the defendants, as it had always been a €1 company. Instead, the Plaintiff sought to rely on the special circumstances claimed in Valebrook - that the Plaintiff is bound to succeed against one defendant. The fact that the Plaintiff appeared to have knowledge of the issue and proceeded regardless was deemed to be a defence available to all defendants and as such, the Court held that there is no guarantee that the Plaintiff will be successful against any of the defendants.

Justice Twomey ordered the Plaintiff to provide security for costs in favour of all eleven defendants in the region of €3 million. The Plaintiff’s request for phasing the costs up until discovery stage was rejected. However, the Judge did limit the security to be provided to the costs incurred until the end of mediation, which appears to be an encouragement to settle the matter without the necessity for a court hearing.

CONCLUSION

Twomey equated being sued by a Plaintiff without assets to blackmail, the blackmail not being the merit or liability associated with the claim, but rather the significant legal costs that will never be recoverable. As a result of this, it is not uncommon for defendants to make strategic decisions to “buy off” the risk. Justice Twomey noted that this ‘blackmail’ is exacerbated in Ireland where the courts system seems to allow, or indeed, require the majority of litigation to be issued in the High Court, as opposed to the Circuit or District Courts which are used more in England and Wales.

Mr. Justice Twomey describes litigation as a “game of chance” and noted that while the Plaintiff has a choice as to whether they wish to spend money on this game of chance, the defendants would be forced to incur significant defence costs, regardless of the outcome. The judgment is a welcome effort to level the playing field as the Plaintiff now also has to run the risk of incurring costs in this “completely unpredictable business” that is litigation.

Holmes were pleased to achieve a successful outcome for our client in the Security for Costs motion issued.

Michael Murphy receives strong feedback for his professional indemnity practice. Clients say that his strong technical skills and "his arguments are well thought out, researched and backed up." His advice on "strategy is clear, decisive and very accurate."

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