Security for Costs Orders-An Update
Security for costs is an order which may be granted by a Court where a Defendant, against whom a Plaintiff has issued proceedings, has concerns about a Plaintiff’s ability to discharge a Defendant’s costs should a Plaintiff’s claim is unsuccessful.
An order for security for costs can require a Plaintiff to lodge a sum of money into the Court to meet the costs of the other party of the proceedings. The making of these types of orders differs as to whether or not a Plaintiff is an individual (a natural person), a company governed by the Companies Act 2014 or a corporate entity which would be any company registered outside of the jurisdiction, an unlimited company or an entity otherwise than a natural person.
The amount of security which a Court may order will differ depending on whether the Plaintiff is an individual or a Corporate Entity. The rule of practice has developed that security will be ordered as against an individual to approximately one third of the estimated costs and in the case of a corporate entity, full security is usually required.
The amount of security is entirely at the discretion of the Court and is governed by order 29 rule 7 of the rules of the Superior Court. This provides the Master with the power to determine the amount of security to be ordered. As this is essentially a mathematical exercise the Master will require the evidence of cost accountants in relation to the calculation of the estimated costs.
The Court may require the Plaintiff to make a direct deposit of the security with the Court’s accountants.
Order 29 of the Rules of the Superior Courts outlines the procedure to apply for Security for Costs as against Individuals. Since the application of European Law and, in the particular, the Brussels Regulations, the modern position is that security for costs will not be ordered against an individual who is a national of and resident in either a member state of the European Union or a contracting state of the Lugano Convention.
A Defendant must first issue a request for voluntary security to the Plaintiff. The Plaintiff must then either provide security or provide confirmation that they will provide security within 28 hours of the voluntary request.
If security is not provided on a voluntary basis it is then open to the Defendant to issue a Notice of Motion grounded on an Affidavit signed by the Defendant themselves which sets out the background of the matter, the bone fida defence including the specific or ascertainable defence on evidence (not merely an assertion that they have a defence to the action, but evidence establishing a specific or ascertainable defence) and demonstrating that the Plaintiff is ordinarily resident outside of the jurisdiction, the European Union or a contracting state of the Luganon Convention. The Affidavit must also outline how the applying party first sought the security on a voluntary basis.
In recent years there have been several attempts to extend the jurisdiction requesting a Court to order security for costs as against a Plaintiff who simply does not have the means. This has been resisted by the Courts and they have reiterated that the purpose of the relief of security for costs is to protect a Defendant with a prima facia defence from being left in a position where they have no ability to enforce an order for costs against a foreign Plaintiff. Just because a Plaintiff is known to have little or no means should not allow the Defendant to obtain an order for security for costs prior to the ultimate hearing of the action.
When looking to secure an order for security for costs as against a company, this is governed by Section 52 of the Companies Act 2014. This provides that a Plaintiff Company in any action or other legal proceedings may be required to give security for costs if it appears to a Judge with jurisdiction by way of credible testimony that there is reason to believe that the Plaintiff Company will be unable to pay the costs of the Defendant if successful in his or her defence.
Section 52 only applies to companies registered and governed by the Companies Act 2014. Therefore, unlimited companies incorporated within the state or companies registered outside of the jurisdiction are not included in this process.
To satisfy the requirements of section 52 the Defendant applying for security must show that they have a prima facia defence to the Plaintiff’s action and that the Plaintiff would not be in a position to pay the Defendant’s costs if the defence was successful.
The Court may exercise its discretion in applying Section 52 as it is not mandatorily applicable. The Court may therefore when considering such a motion, consider the circumstances of the parties and may have regard to factors such as whether the Defendant may be potentially responsible for the Plaintiff’s inability to provide security or whether the issue is a matter of public importance. Importantly the reference under section 52 to “other legal proceedings” does not limit the matter to litigation and has been extended to such proceedings as decisions of the taxing master and judicial review.
Other Corporate Entities
In order to seek security as against any other corporate entity not covered by the previous procedures, the Court’s jurisdiction to deal with such corporate entities is derived from order 29 of the rules of the Superior Court (which governs the security as against individuals) and relies upon the principles applied by section 52 of the Companies Act. Therefore, a similar procedure in seeking the order applies to corporate entities such that they must attempt to agree the security on a voluntary basis and if the security is not provided, a Notice of Motion and Affidavit will issue in the same terms as against an individual. Thereafter the Court may apply the principles under section 52 as to whether or not they should exercise their discretion and take the prevailing circumstances of the proceedings into account.
The ordering of security for costs is clearly a compromise of a Plaintiff’s right to litigate which was defined in Tuohy v Courtney 1994 as the right to achieve by action in the Courts the appropriate remedy upon of an actionable wrong causing damage or loss as recognised by law. This is separate and distinct from a Plaintiff’s right of access to the Courts.
The Court has emphasized that the starting point is always that the Plaintiff has a constitutional right to litigate a matter and, although it is possible to compromise this right, the Court must exercise their jurisdiction in granting such security carefully and must be satisfied that the Defendant has established at least the minimum requirements for the granting of such security.
Indeed, the constitutionality of section 52 has been considered by the Courts previously. The Court has commented that it is a balancing of Plaintiff’s right to litigate and a Defendant’s right to seek security for costs. It has been noted by the Court that there is reasonable and objective justification where the aim is a legitimate one of balancing the rights of each party to access the Court in the first part and resistance of unstateable claims in the second.
Resisting an Application for Security of Costs
A Plaintiff may of course resist an application for security which may allow the Court to exercise its discretion to refuse the application. The burden of proof rests with the Plaintiff to provide prima facia evidence of the Defendant’s responsibility in the matter complained of. The decision of a Court to order a security for costs in a major one as it is signifies the Court’s acknowledgement that the Defendant has a stateable and evidence based defence. Such an Order may indeed bring the entire matter to an end if a Plaintiff decides not to proceed with their claim on foot of such an order being made against them.
Evidence such as the Defendant’s actions causing a Plaintiff’s difficult to provide security will assist the Court in refusing an application of this nature.
It is very difficult for a Plaintiff to secure an order for security for costs as against a Defendant in circumstances were, they already exercise extraordinary control in their ability to issue proceedings as against Defendants. However, the Courts have in limited circumstances allowed for orders to be made as against Defendants, particularly in circumstances for example where a Defendant has appealed a matter to the Supreme Court but where their counter claim bears no connection to the Plaintiff’s original claim. The granting of Security for Costs against Defendants is likely to be extremely limited.
Given the potential outcomes associated with security for costs being awarded to the Defendants, the Courts are aware that this may be applied as a tactical strategy by Defendants and are mindful of same. It would be important for all Plaintiffs who are requested to provide security for costs to reassess their claim and the Notice of Motion and Affidavit from the Defendant to ascertain how they can resist such an action. Additionally, Defendants should be cautious in their use of this application to Court and ensure that they reach the minimum requirements with supportive evidence prior to considering making such an application.
If you require advice on any litigation matter or any other issues involving a dispute please contact Donna Phelan or Conor White on 01 2960666