Welcome Ireland Hospitality Ltd. v Cedarcourt Developments Ltd. [2019] IECA 308 (17 December 2019)

Page 1 ⇓

Baker J.

Donnelly J.

Power J.

BETWEEN/

THE COURT OF APPEAL

Neutral Citation Number: [2019] IECA 308

Appeal No.: 2017/563

WELCOME IRELAND HOSPITALITY LIMITED

PLAINTIFF/

APPELLANT

- AND -

CEDARCOURT DEVELOPMENTS LIMITED

DEFENDANT/

RESPONDENT

JUDGMENT of Ms Justice Baker delivered on the 17th day of December, 2019

1. This is an appeal from the order of McGovern J. made on 27 November 2017, that the

plaintiff appellant should provide security for the costs of the defendant respondent

measured in the sum of €150,000. The order was made following the delivery of an ex

tempore judgment in which he set out the material facts and the relevant legal principles.

The argument on appeal is that the trial judge failed to give adequate weight to the

contention that special circumstances existed by reason of the assertion that the current

impecuniosity of the plaintiff appellant arose from the wrongdoing in respect of which the

action is brought.

2. For convenience, I propose referring to the plaintiff appellant as “Welcome” and the

defendant respondent as “Cedarcourt”.

Background facts

3. The facts may briefly be stated.

4. By document in writing dated 12 June 2017, Cedarcourt granted to Welcome an option to

take a lease of premises at Cedars Hotel, Rosslare, County Wexford, for the term of five

years from 30 June 2017 at an initial annual rent of €20,000, increasing in accordance

with its provisions to €100,000 by year five. The case made by Welcome is that it

intended to use the premises, formerly a hotel premises but not at the time of the

agreement in use for that purpose, as an emergency reception and orientation centre for

asylum seekers.

5. The substantive issue between the parties is whether the agreement for lease expressly

or by implication limited the use of the premises to a hotel, and whether the proposed use

by Welcome was within the contemplation of the parties. One issue likely to be

controversial at trial is whether the insertion of the letters “RIA” by Welcome in the user

Page 2 ⇓

clause in the lease before the option agreement was executed on its behalf is sufficient,

whether on a construction of the lease or in the light of negotiations between the parties,

to permit the intended use. The plenary summons sought specific performance, but the

claim now is one for damages in lieu.

6. Because of the manner in which the appeal was conducted, it is not necessary to engage

the question of whether Cedarcourt has a stateable defence that it was entitled to refuse

to grant the lease on account of the pleaded misrepresentation or because the proposed

use constituted a fundamental breach of the agreement entitling Cedarcourt. The parties

are agreed that the appeal may proceed on the basis that it is accepted that the plaintiff

is impecunious, the defendant has a prima facie defence to the action, and that the sole

issue for determination is whether the trial judge was correct that special circumstances

did not exist to displace the requirement that security be provided.

7. The focus of the trial judge was somewhat different from that engaged in the course of

the appeal. The argument crystalized and narrowed somewhat at appeal stage and, at

first instance, it would appear that some time was taken in the argument regarding the

credibility of the plaintiff’s claim.

The law

8. Section 52 of the Companies Act 2014 provides as follows:

“Where a 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 or her defence, require security to be given for those

costs and may stay all proceedings until the security is given.”

9. From the authorities, a number of principles are uncontroversial. Section 52 of the

Companies Act 2014 imposes what has been described as an “initial onus” on the moving

party to establish two cumulative requirements, that it has a bona fide defence to the

claim of the plaintiff, and that the plaintiff will not be able to pay the moving party’s costs

if that party is successful. It is accepted that this onus has been satisfied.

10. Once that hurdle is crossed, security ought to be ordered unless it can be shown that

special circumstances justify the exercise by the court of its discretion, and the onus of

establishing “special circumstances” rests on the party resisting the order. This is clear

from the judgment of Clarke J. in Connaughton Road Construction Ltd v. Laing O'Rourke

Ireland Ltd [2009] IEHC 7, 28 ILT 242, at paras. 2.1 et seq. This proposition is a

reflection of the fact that the statutory jurisdiction to award costs is discretionary and that

the discretionary nature of the jurisdiction permits consideration of special circumstances.

11. The notice of appeal contained several grounds but at the hearing they were condensed

to this single ground.

12. The case law has established a number of categories of cases where a resisting party

might successfully defend an application for security for costs. The one relied on in the

Page 3 ⇓

present case is that the impecuniosity or admitted inability to pay is caused by the alleged

wrongdoing. Clarke J. described that test at para. 3.4 of his judgment in Connaughton

Road Construction Ltd v. Laing O'Rourke Ireland Ltd as follows:

“In order for a plaintiff to be correct in his assertion that his inability to pay stems

from the wrongdoing asserted, it seems to me that four propositions must

necessarily be true:

“(1) That there was actionable wrongdoing on the part of the defendant (for

example a breach of contract or tort);

(2) that there is a causal connection between that actionable wrongdoing and a

practical consequence or consequences for the plaintiff;

(3) that the consequence(s) referred to in (2) have given rise to some specific

level of loss in the hands of the plaintiff which loss is recoverable as a matter

of law (for example by not being too remote); and

(4) that the loss concerned is sufficient to make the difference between the

plaintiff being in a position to meet the costs of the defendant in the event

that the defendant should succeed, and the plaintiff not being in such a

position.”

13. The Supreme Court considered the equivalent test contained in s. 390 of the Companies

Act 1963 (the only material difference between which and s. 52 of the Companies Act

2014 being the quantum of security to be given) in Usk and District Residents

Associations Ltd v. The Environmental Protection Agency [2006] IESC 1, [2006] 1 ILRM

363. The Court approved the analysis provided by Morris J. in Inter Finance Group Ltd v.

KPMG Peat Marwick t/a KPMG (Unreported, High Court, 29 June 1998) where there was

identified as a common example of special circumstances that a plaintiff’s inability to

discharge the costs of a defendant flowed from the wrong allegedly committed. The test

was followed in a number of cases by this Court, including Rayan Restaurant Ltd v. Kean

t/a Keans Solicitors & McGagh [2015] IECA 264, Tír Na N-Óg Projects (Ireland) Ltd v. P.J.

O'Driscoll & Sons (A Firm) [2019] IECA 154, National Private Hire & Taxi Association Ltd

v. AXA Insurance Ltd [2015] IECA 75, and in a number of reasoned and detailed

judgments in the High Court. None of the cases have thrown any doubt on the

correctness of the analysis of Clarke J. in Connaughton Road Construction Ltd v. Laing

O'Rourke Ireland Ltd.

14. Causation, therefore, is important, and the resisting party must show that the loss

pleaded to have been caused by the asserted wrongdoing can be established on a prima

facie basis sufficient to, as Clarke J. later put it at para. 3.6, “reverse the current financial

position whereby the plaintiff company would be unable to pay the defendant's costs in

the event that the defendant was successful.”

15. The quantum of the alleged losses the subject matter of the proceedings must be

sufficient to meet the test and that, prima facie at least, it is the alleged wrongdoing that

caused the inability to pay.

Page 4 ⇓

Alleged losses

16. The application was grounded on the affidavit of Colm Menton of 14 November 2017, to

which a replying affidavit of Daniel Hughes sworn on the 16 November 2017 was filed. A

final affidavit of Colm Menton of 19 November 2017 completed the evidence.

17. From the evidence of Mr Hughes on behalf of Welcome it appears that, as a result of the

refusal by Cedarcourt to execute a lease in accordance with the option agreement,

Welcome was unable to complete negotiations then in train with the Department of

Justice, Equality and Law Reform (“the Department of Justice”) for the operation of an

emergency reception and accommodation centre. Mr Hughes’s own evidence is that the

company has suffered the loss of €1.24m, a figure calculated after corporation tax and

net of repairs, sundry, administration, and professional fees. Mr Hughes’s evidence is

based on calculations contained in a short document dated 24 October 2017 of O’Connell

Consulting Chartered Certified Accountants showing the estimated loss of profits.

18. It is useful to analyse this in some detail.

19. The document from O’Connell Consulting consists of two pages, the first a letter of 24

October 2017 addressed to Mr Hughes as managing director of Welcome. The letter is

short, and the material part may be quoted in full:

“With regard to the above I confirm that I have analysed your projections and in

this regard would not consider them unreasonable in relation to the terms of the

contract you had with the Department of Justice.

I have adjusted your figures accordingly to account for some additional costs such

as Repairs, sundry administration and Professional fees.”

20. The letter is headed “Projections Welcome Ireland Limited. First 4 years of operation” and

takes no account of the rent of €100,000 for the fifth year reserved by the lease. That

sum of €100,000 would make some difference to the calculation, but it is not material.

21. A number of observations may be made regarding this evidence. Insofar as it can be

understood from the affidavit, when read in conjunction with the letter, the projections

were prepared by Mr Hughes who describes himself as “events manager” and the sole

director of Welcome. He says that he engaged a chartered engineer, a solicitor, and an

accountant to advise in regard to the proposed provision of a reception and

accommodation centre and to advise him with regard to compliance with building

regulations, fire safety requirements, and compliance with the requirements of the

Department of Justice.

22. It seems that, on 31 May 2017, an agreement in principle was reached between a

representative from the Department of Justice and the Welcome that it would be paid

€32.50 per person per night for a minimum of ninety persons per night from August 2017

and that any initial agreement with the Department of Justice for the provision of the

centre would be for two years with an option for an extension by a further two years.

There is exhibited a short memo in handwriting, which seems to be Mr Hughes’s, which is

Page 5 ⇓

not otherwise explained, showing details of the number and type of rooms that will be

provided, basic household equipment needed, a reference to planning and regulation

compliance, fire alarms, etc., and the sum of €32.50 does appear on the last page.

23. The memorandum and other documentation exhibited give no indication of the matters

that would fall for consideration for the renewal of the two-year intended term of the

contract with the Department of Justice.

Nature of evidence

24. The first point for consideration is the nature of the evidence of the causative link

between the impecuniosity of Welcome and the wrong the subject matter of the claim. In

Jack O'Toole Ltd v. MacEoin Kelly Associates [1986] 1 IR 277, at p 284, Finlay C.J. said

that the test was not met where a plaintiff made “a mere bald statement of fact”. The

proposition is reflected in the general requirement from the authorities and from Clarke J.

in Connaughton Road Construction Ltd v. Laing O'Rourke Ireland Ltd, that the evidence

adduced of the causal connection be credible.

25. As to what might amount to prima facie evidence, Peart J., with whose judgment in Tír Na

N-Óg Projects (Ireland) Ltd v P.J. O'Driscoll & Sons the other two judges of the Court of

Appeal agreed, having stated that whilst establishing the matter on a prima facie basis

required a lower standard of proof than the civil standard that would apply at trial, that a

plaintiff had to do more than merely assert a proposition but:

“must bring forth some evidence which is cogent and credible, which corroborates

the contention being made”, at para. 31.

26. It is worth noting that in the early leading case on security for costs, Lismore Homes Ltd

(In Receivership) v. Bank of Ireland Finance Ltd (No. 2) [1999] 1 IR 501, the Supreme

Court analysed the evidence and considered that the plaintiff had adduced credible expert

evidence which had not been doubted by the defendant.

27. It is also clear from the judgment of Clarke J. in Connaughton Road Construction Ltd v.

Laing O'Rourke Ireland Ltd, at paras. 4.14 et seq., that the evidence required must be

such that enables a court to form a view as to whether the causative connection between

the financial difficulties and the alleged wrongdoing can be established. What has been

the required in the reported cases is at least “some approximate accounts” to enable the

court to carry out the exercise of analysing the current financial position of a plaintiff and

to draw inference from the comparison between that and likely projection absent the

alleged wrongdoing.

Application of the test to the present appeal

28. In the light of the authorities, and because what is required is prima facie credible

evidence and more than mere assertions on the part of the resisting party, I consider the

evidence in the present case is not sufficient. The evidence is that negotiations were well

advanced for the provision by Welcome of a reception centre, that a possible agreement

with the Department of Justice for two years was actively under discussion, and that a

payment of €32.50 per person per night for a minimum of ninety persons would be made.

Page 6 ⇓

The agreement was subject to compliance with a number of regulations, then under

active discussion, and was not a concluded agreement.

29. No correspondence or documentation from the solicitor, engineer, or accountant said by

Mr Hughes to have been employed by the Company was exhibited nor was their advice

described in his affidavit. At its height, his affidavit says that he engaged such persons to

“advise in respect of compliance” what any necessary measures to ensure compliance

would cost, or whether compliance was likely to be achieved whether on time or at all. He

does not say whether, in the time frame he envisaged, compliance was likely to be

achieved.

30. I am not satisfied in the circumstances that the affidavit contains sufficient evidence of

the pleaded causative link between the alleged wrongdoing and the impecuniosity of

Welcome. I further have regard to the fact that the short letter from O’Connell Consulting,

whilst it makes reference to the projections of Mr Hughes, does not positively state a view

from an accounting prospective. The letter is stated in the negative that the writer “would

not consider them unreasonable”. That expression is not evidence of the view of Mr

O’Connell who signed the letter of actual projections and, more importantly, of the basis

on which they were calculated.

31. This evidence of the causative connection between the wrongdoing and the admitted

impecuniosity of Welcome in the present case does not meet this threshold even on a

prima facie basis. It is based on a single assertion stated in the negative by an

accountant. The factual basis of the projected figures remains unclear, save with regard

to payment of €32.50 per person per night for each asylum seeker who avails of the

centre, and amounts to no more than a statement as to the reasonableness of figures

provided by a non-expert.

32. Mr Hughes’s evidence states that compliance with various regulatory and statutory

requirements was needed and that he had sought advice in respect of such compliance,

but not how much it would cost. His evidence was that he personally intended to fund the

“renovation” of the premises estimated at €100,000, but not whether those renovations

would meet the advice of his engineer, solicitor, and accountant, or even the

requirements of the Department of Justice. In fact, he does not say in his affidavit that he

obtained, and was in a position to act on the advice of the engineer, solicitor, and

accountant, what advice they had given him, how much it would cost to meet the

concrete terms of their advice, and how this was to be met.

Special purpose vehicle

33. Counsel for Cedarcourt argues that regard is to be had to the fact Welcome had no assets

and was a special purpose vehicle established for the purpose of taking the lease and

running the reception centre. It is argued that those circumstances suggest that the claim

of the plaintiff is essentially one to “establish an asset” in the proceedings, but I am not

satisfied that the principles explained in the authorities are sufficient to find that special

circumstances do not exist merely on account of the fact that a wholly impecunious

Page 7 ⇓

plaintiff might have commenced proceedings seeking damages where those damages

would be the sole or a primary asset of the company were it to succeed.

34. That argument may have some force with regard to the credibility or weight of the

evidence adduced by the party resisting an application for security for costs, and a wholly

impecunious entity established as a special purpose vehicle which, without the asset or

profits said to have been lost as a result of the wrongful action the subject matter of the

proceedings, may, in a suitable case, seek to rely on special circumstances. But the

evidence needed to adduce to so establish these circumstances might fail to meet the test

of credibility if they were mere assertion of a hope that a business might succeed.

35. It is for that reason that it is commonplace for such a company resisting an application for

security for cost to provide credible and detailed evidence from an accountant or suitably

qualified expert regarding projected losses in a form that does more than the short letter

on which Mr Hughes relies. This type of evidence will depend on the circumstances of the

case, but the evidence must be credible and more than mere assertion and would have to

credibly point to projected costs and likely profit by reference to some objectively

ascertainable evidence.

Some general observations

36. In giving his ruling, McGovern J. noted his view that the defence of special circumstances

arising from the alleged causal connection between the wrongdoing the subject matter of

the proceedings and the inability to pay are:

“more generally ones which arise where the dispute is one on a debt and where the

defendant is the party who has not discharged the debt”.

Insofar as the trial judge came to his conclusion based on that assertion, it is not one

which is properly derived from the authorities.

37. Furthermore, insofar as the trial judge came to his decision on the grounds that there

was as he described:

“a major issue arising on whether or not a binding contract exists”,

I note it was accepted by the parties at appeal stage that this is not a correct statement

of the test.

38. Nothing, however, turns on those observations for the purpose of the appeal and the

parties accepted correctly that the jurisdiction of this Court is to hear the matter in the

light of the affidavit evidence and argument and having regard to the nature of the

appellate jurisdiction in discretion interlocutory applications as explained by the judgment

of Irvine J. in Collins v. Minister for Justice, Equality and Law Reform [2015] IECA 27 and

by Peart J. in Tír Na N-Óg Projects (Ireland) Ltd v. P.J. O'Driscoll & Sons.

Conclusion

39. I consider that the evidence put on affidavit by Mr Hughes does not meet the threshold.

His affidavit amounts to mere assertions not supported by any credible evidence. In

Page 8 ⇓

particular, he has not produced any evidence of having reached a concluded agreement

with the Department of Justice subject only to obtaining a satisfactory lease or letting of

the premises. Further, he has not established credible expert figures regarding the cost of

complying with unspecified regulatory requirements, nor has he adduced any positive

evidence of the likely costs.

40. The evidence does not enable any coherent analysis to be carried out of his projected

figures. At its height, Welcome is shown to have been in negotiations, described as

“ongoing contractual discussions” in an email of 19 June 2017, with the principal officer of

the relevant agency within the Department of Justice. The height of their assertion is that

a contract with the Department of Justice has been lost, that profits are likely to have

been made by Welcome from that contract, and a credible causative connection has not

been shown between the loss of those profits and the alleged wrongdoing asserted in the

proceedings.

41. In my view, the trial judge was correct and the defence to the application for security for

costs must fail.

42. I would dismiss the appeal.

Result: Dismiss appeal

	[Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback]
	Irish Court of Appeal
You are here: BAILII >> Databases >> Irish Court of Appeal >> Welcome Ireland Hospitality Ltd. v Cedarcourt Developments Ltd. [2019] IECA 308 (17 December 2019) URL: http://www.bailii.org/ie/cases/IECA/2019/2019IECA308.html Cite as: [2019] IECA 308

Irish Court of Appeal