Companies Act: Security For Costs

Introduction

Under Irish law, as a general rule, costs typically follow the event such that the winning party recovers its party and party costs from the unsuccessful party. Where a defendant believes that a plaintiff has brought unmeritorious proceedings and is concerned that the plaintiff may be unable to meet any costs order against it in the event that it succeeds at trial, it may seek security for its costs from the plaintiff as a condition of proceeding with the claim.

Although the granting of security for costs is strictly controlled, in the right case such an application can be a useful weapon in the armoury of a defendant. While court rules govern the general jurisdiction of the courts to make such orders1, a statutory jurisdiction is afforded to defendants where the plaintiff is a company. The recent High Court decision in County Monaghan Anti-Pylon Ltd v Eirgrid plc2 has reiterated the test applicable under that legislation.

The statutory basis for security for costs is detailed at Section 390 of the Companies Act 1963:

"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."

Facts

The plaintiff started as a committee of objectors, which later incorporated as the plaintiff company. The defendant applied for planning permission for an infrastructure project and the matter ultimately proceeded to an oral planning hearing. That hearing went on for some time before the defendant announced that it could proceed no further – there had been an error in the relevant newspaper announcements regarding the planning sought and the application was withdrawn. The plaintiff claimed that it had raised and spent – both pre and post-incorporation – some €250,000 in preparing for and participating in the oral hearing, which it could not recover and repay to the original donors. On that basis, it brought the instant proceedings, which were premised on the argument that a duty of care was owed to objectors not to waste time and money participating in a planning process which was terminated due to the applicant's own negligence, thereby causing loss. The defendant sought security for costs of the...