12 01 2018 Insights Litigation & Dispute Resolution

Court of Appeal Considers Rules Governing the Granting of Security For Costs

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By Ricky Kelly and Ciara Ni Longaigh
16 January, 2018

On the 15th of December 2017, Mr. Justice Gerard Hogan delivered the long-awaited Court of Appeal decision in the case of Used Car Importers of Ireland Limited v Minister for Finance, Revenue Commissioners, Ireland and the Attorney General. The decision offers clarity on when an order for security of costs pursuant to Order 86 Rule 9 of the Rules of the Superior Courts (“RSC”) will be awarded and what the level of those costs should be.

The plaintiff company, Used Car Importers of Ireland Limited (“UCII”), specialised in the importation of used cars from other right-hand car markets where vehicle taxes tended to be lower. UCII challenged the system of vehicle registration in Ireland and contended that the method of valuing imported cars utilised by the Revenue Commissioners was “artificial and non-transparent” resulting in the inflation of the true value of imported vehicles. UCII argued that the system was operating ultra vires the parent legislation as well as contending that the legislation was unconstitutional and violated Article 78 of the Sixth VAT Directive. The High Court proceedings were determined in 2012 following a 33 day hearing and the UCII’s action was dismissed with an order for costs made against it. UCII lodged an appeal with the Supreme Court which was subsequently transferred to the Court of Appeal pursuant to Article 64 of the Constitution.

Jurisdiction to Order Security for Costs
Justice Hogan considered the jurisdiction of the Court to order for security for costs. The basis for the security application by the State was expressed to be under s. 390 of the Companies Act 1963 (the “1963 Act”) or s. 52 of the Companies Act 2014 (the “2014 Act”) or Order 86 Rule 9 of the Rules of the Superior Court (the “Rule”). The Court noted the importance of the jurisdictional issue on which the State sought to rely due to the differences between the various statutory provisions and rules.

Justice Hogan noted that while the State’s application post-dated the repeal of s. 390 of the 1963 Act it was arguable that it applied in circumstances where s. 390 was in force when the proceedings were commenced and on the date of the issuing of the original appeal to the Supreme Court. In this regard the Court acknowledged the difference between s. 390 of the 1963 Act and s. 52 of the 2014 Act and the argument that the full quantum requirements of s. 390, as set out in Lismore Homes Ltd v Bank of Ireland (Finance) Ltd [2001] 3 I.R. 536, no longer applied to s. 52 due to the removal of reference to “sufficient security”.

Ultimately the State opted to ground its application for security on the provisions of Order 86 Rule 9 of the Rules of the Superior Courts but submitted that some of the case law relevant to s. 390 had continuing applicability to its application.

Order 86 Rule 9 of the Rules of the Superior Court
Justice Hogan, quoting the Rule noted the reference to “special circumstances” as implying that security is generally not required but instead confined to special or clearly identified categories of cases. Justice Hogan identified the leading authorities in relation to the categories of what may constitute “special circumstances” as being the decision of Walsh J. in Midland Bank Ltd v Crossley-Cooke [1969] I.R. 56 and Clarke J. in Farrell v Bank of Ireland [2013] 2 I.L.R.M. 183.

Justice Hogan stressed that of all the categories poverty or impecuniosity of the applicant is a prerequisite to the making or an order for security. As a preliminary remark, the court accepted that UCII was facing serious financial difficulty and was not in a position to discharge the High Court order for costs.

Justice Hogan then went on to consider the categories of “special circumstances” identified by Walsh J. in Crossley-Cooke as follows:-

1. Existence of arguable grounds

Justice Hogan discussed circumstances where an appeal discloses no arguable grounds or reasonable prospect of success. He stated that it has long been established that neither the Court of Appeal nor the Supreme Court will extend time where there is no real prospect of success and noted that the same can be said of applications for security under Order 86 Rule 9. However, in the present case, he noted that the appellant had disclosed arguable grounds for appeal.

2. Impecuniosity of a limited liability company plaintiff

The court examined circumstances where the impecuniosity of a limited liability company plaintiff is at issue and noted that this was another recognised category of special circumstances. Justice Hogan noted that unlike a personal plaintiff, an order for security in these circumstances may be required even at first instance. In the present case, two countervailing circumstances as to why no order for security for costs should be made were presented to the court; i) the fact that the plaintiff’s impecuniosity was caused by the defendant’s wrongful conduct and ii) that the present appeal involves a point of law of public importance.

i) Plaintiff’s impecuniosity was caused by the defendant’s wrongful conduct

Justice Hogan accepted that a plaintiff may resist an order for security where it can be shown that the defendant’s wrongful conduct caused or contributed to the plaintiff’s impecuniosity. He drew a distinction however between straight-forward actions for personal injury and those for damages for negligence, breach of EU law and breaches of constitutional rights. He noted however, in light of the three heads of claim in the present circumstances, it would be difficult to establish a link between the impecuniosity of UCII and any alleged wrongful conduct of the State that might entitle UCII to damages.

ii) Point of law of public importance

The court noted that it is clear from the authorities that security will not always be ordered even when a case presents a point of law of exceptional public importance. Justice Hogan set out that as the Court of Appeal has now replaced the Court of Criminal Appeal, the question the Court of Appeal must ask is whether the issue before it is of general public importance rather one of exceptional public importance. Justice Hogan went on to highlight that the present claim was fundamentally one for damages issued by a private company. He noted that while the issues before the court in the present case were of considerable importance, he did not believe them to be of general importance to the public and as a result held that the ordinary rules as to an order for security should continue to apply.

Level of Quantum of Security
Justice Hogan quoted from the decision of Clarke J. in Farrell in relation to the object of security. In particular he noted that the security rule was to ensure “fair process” as between parties. To achieve this Clarke J. identified two factors that needed to be present:

i) There must be a countervailing potential interference with the right of the respondent/defendant such that it would justify directing security for costs; and,

ii) The nature and scope (quantum) of the security must be proportionate to the situation.

The Ruling
Justice Hogan held that State’s application fell within the scope of Rule so that it was appropriate to order payment of a deposit or other security. He further found that as the plaintiff was an impecunious limited liability company security will generally be ordered in the absence of “sufficiently weighty countervailing circumstances”. Justice Hogan found that no such circumstances had been established by UCII and accordingly granted the State’s application.

In considering the quantum of any such security Justice Hogan invited the parties to make further submissions as to the extent of such security.

It is clear from this decision that there remain circumstances where s. 390 of the 1963 Act may still apply and that, when granting an order for security, the Courts will measure the quantum proportionate to the situation. This decision offers support to the decisions of Finlay Geoghegan J. in Flannery & Anor v. Walters & Ors [2015] IECA 147 and Laffoy J. in Ticket Generator Limited v Dublin Airport Authority plc & Ors [2012] IEHC 216 that the Courts may depart from the long established rule, that the quantum be not more than a third of the costs likely to be incurred (the “One-third Rule”), where doing so was necessary and proportionate.

It remains to be seen whether the Court of Appeal will be required to adjudicate on whether it is proportionate to depart from the One-third Rule in this case.

For more information on the content of this Insight contact:
Ricky Kelly, Partner, ricky.kelly@rdj.ie, +353 21 2332826.

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