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Important High Court Decision on Security of Costs

By June 29, 2023June 26th, 2024No Comments

Important High Court Decision on Security of Costs

A security of costs application can be brought against a limited company in circumstances where a Defendant is concerned that in the event of it successfully defending the Plaintiff’s claim and an award of costs being made against the Plaintiff that the Plaintiff would not have the sufficient means to be able to pay the costs awarded to the successful Defendant.

Where litigation is brought by an Irish company and a security of costs application is made against that company the provisions of Section 52 of the Companies Act 2014 apply.

In these circumstances there is a threefold test:-

  1. Is the Plaintiff company an impecunious company i.e. would it be unable to pay the costs if they were awarded
  2. Has the Defendant established a prima facie defence to the substantive action brought by the Plaintiff
  3. Are there any special circumstances which would justify not making a security of costs order.

In this case, the Plaintiff company was a Swiss company and it argued that as the 2014 Companies Act only related to Irish companies that Section 52 did not apply to an action brought by it and that the provisions of Order 29 of Superior Court Rules would apply. The affect of Order 29 applying would be that it would have been much more difficult for the Defendant to pursue costs as an order would only be made if the Defendant could show that it would have had a significant difficulty in enforcing its costs. Furthermore, the extent of the security of costs order would have been significantly less than an order made under Section 52.

Mr Justice Brian O’ Moore decided to make a security of costs order in favour of the Defendant. He followed comments made in previous cases that foreign limited liability companies bringing proceedings in Ireland should be treated in the same way (by having the same criteria applied on an application for security of costs against them) as Irish companies.

Having established that the Defendant had a prima facie defence it went on to consider whether there were any special circumstances which justified not making a security of costs order. It found that the Defendant had not been guilty of any wrongdoing and there was no point of law of exceptional public importance that justified denying an order for security of costs.

This is an important case which clarifies the circumstances of which security of costs orders will be granted against foreign Plaintiff companies. It gives significant protection for Defendants of cases brought by impecunious companies who may now have to think twice before embarking on litigation.

For any advice on this or any other company law matter please do not hesitate to contact Brendan Dillon on 01 296 0666.