Irish court reaffirms need for transparency when seeking security for costs

Lisa Carty, commercial litigation expert at Pinsent Masons, was commenting following a High Court judgment she said demonstrated how essential it is for a defendant to provide sufficient evidence of a valid defence to a plaintiff’s claim to succeed in an application for security for costs.

Carty said: “It can be tempting to withhold important strategic information at such an early stage of the proceedings. However, failure to provide the court with sufficient evidence of the defendant’s genuine defence may prevent a defendant from obtaining security for costs, as was the case in these proceedings.”

The decision (34 pages, 877KB) arose from a motion for security for costs issued by the Joint Arab-Irish Chamber of Commerce CLG (AICC) against Mr Mohammad Tahboub.

Tahboub had issued High Court proceedings against AICC seeking his re-instatement as a director of AICC. Prior to the determination of the substantive proceedings, AICC issued a motion seeking an order from the High Court under order 29, rule 1 of the Rules of the Superior Courts (‘the rule’), requiring Tahboub to provide security for the costs of the proceedings. The purpose of the rule is to protect a defendant against the risk of defending proceedings successfully, yet ultimately being unable to recover the costs incurred as a result of the plaintiff residing beyond the reach of the Irish courts.

To obtain an order in terms of the rule, AICC was required to establish that Tahboub was resident outside of the jurisdiction of the Irish courts, the EU and Lugano Convention contracting states; and that AICC had a ‘prima facie’ defence on the merits to the claim. If AICC established these criteria, the onus would then shift to Tahboub to demonstrate any special circumstances which would warrant a refusal of the order sought.

Tahboub was confirmed to be resident in Jordan, and as such the first criterion for obtaining the order had been satisfied. With regard to the second criterion, the primary defence relied on by AICC was that Tahboub had not been validly nominated as a director because the communication nominating him did not comply with the AICC’s articles of association.

The court considered the obligation on a defendant to satisfy the requirement to establish a bona fide defence to the claim. The court described the “price of the application” as an “onerous one”, as it requires a defendant to disclose its intended defence and the evidence to be relied on in detail at an early stage.

The court assessed the evidence relied on by AICC to demonstrate its defence and found it to be insufficient. In particular, the court was critical of AICC’s failure to put contemporaneous documentation about the alleged nomination of Tahboub as a director and other important matters before the court. The court was also critical of the absence of any affidavit evidence from an individual within AICC stating that they personally believed that AICC had a prima facie defence to the claim. Ultimately, the court determined that AICC had failed to demonstrate a reasonably sustainable basis for the defence it had asserted to Tahboub’s claim.

While the court was satisfied that AICC’s failure to establish a prima facie defence was sufficient basis for refusing to grant an order for security for costs, it also addressed the special circumstances relied on by Tahboub as justifying the refusal of the order. These included the composition of AICC’s membership and its board, being typically comprised of 12 Irish directors and 12 directors from Arab countries. Tahboub argued that this meant that it was not appropriate to rely on his non-residence as a reason to seek security for costs against him. Additionally, Tahboub asserted that it was a special circumstance that he was a man of significant means and had strong ties to Ireland and would therefore honour his legal and commercial obligations. He also argued that a special circumstance arose because AICC had delayed in issuing its motion for security for costs.

The court found that the composition of AICC did not constitute a special circumstance, as the claim was made by Tahboub in a personal capacity. With respect to Tahboub’s means and ties to Ireland, the court noted that there was no evidence before it of a specific risk that Mr Tahboub could not or would not discharge a costs’ order, as would be required in an application for security for costs against a company under the Companies Act 2014. However, given that such evidence is not a requirement under the rule, the court could not accept Tahboub’s ability and willingness to meet any ultimate costs order as a special circumstance.

On the delay point, the court accepted that the delay of six months between the issue of the proceedings and the issue of the motion for security for costs could constitute a basis for refusing to grant security for costs. However, on the facts and taking into account the parties’ actions during the six-month period, the court found that the overall lapse of time did not justify the refusal of the order as a special circumstance.