Dispute Resolution Update: Court of Appeal Sets Aside Security For Costs Order Where A Substantial Lodgement Had Already Been Made

An important consideration for all defendants in litigation is the issue of costs. A defendant can try to limit its exposure to litigation costs by making a payment into court for the plaintiff's consideration in satisfaction of the claim. Such payments are commonly known as lodgements. If the plaintiff continues with the litigation and wins the case but fails to obtain an award in excess of the amount lodged to court, i.e. fails to "beat" the lodgement, the plaintiff will generally have to pay the defendant's costs from the date of the lodgement.

Separately, if there is a concern that a corporate plaintiff might not have the means to pay a successful defendant's costs, a defendant can apply for an order for security of the costs of the action. Section 390 of the Companies Act, 1963, now Section 52 of the Companies Act 2014, says that a defendant to legal proceedings can apply to the court for such an order where there is 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 its defence. Proceedings will usually be stayed until security for the defendant's costs is given. If security cannot be given, the proceedings will come to an end.

In the case of Pagnell Limited (Trading as Snap Printing) v O.C.E. Ireland Limited 1, the plaintiff company, Pagnell Limited, sought damages for premature and unlawful termination of a contract to provide printing services to the defendant, O.C.E. Ireland Limited. The defendant made a lodgement and then successfully applied to the High Court for an order for security of costs. The plaintiff appealed the order on the basis that the defendant did not have a prima facie defence. It argued that the defence lacked bona fides following the decision to make a substantial lodgement. Counsel for the defendant argued that no inference regarding the bona fides of the defence could properly be drawn from the existence of such a lodgement.

The Judgment

Judge Hogan in the Court of Appeal considered previous case law on security for costs orders made under Section 390. He gave particular attention to Judge Clarke's judgment in the case of Connaughton Road Construction Limited v Laing O'Rourke Ireland Limited[2009] IEHC 7. In that case, it was held that absent special circumstances where the court should exercise its discretion, such an order should be made if the defendant proves to the satisfaction of the court that it has a prima...