Factual and Procedural Background
This opinion concerns an application for security for costs made by the Defendant in proceedings initiated by the Plaintiff. The Plaintiff, a limited liability company incorporated in Ireland, entered into a 30-year lease to operate a National Aquatic Centre under a project agreement with a statutory authority, the Defendant, which is the legal successor of a government-established company originally responsible for developing the sports campus.
A dispute arose regarding whether Value Added Tax (VAT) was payable on the grant of the lease. The dispute centered on the application of the VAT Act 1972, specifically the 'economic value test' introduced by the Finance Act 2002. The Defendant relied on alternative mathematical methods to calculate the open market price of the lease, resulting in a VAT liability of approximately €10 million for the Plaintiff. The Plaintiff contended that a valuation report by a State valuer, which the Defendant had received and which valued the lease at less than the development cost, constituted evidence that precluded the Defendant’s method and thus no VAT was payable.
The VAT dispute progressed through arbitration, where the arbitrator ruled in favor of the Defendant, finding VAT was due. The Plaintiff challenged this award unsuccessfully in the High Court but succeeded on appeal to the Supreme Court, which held that the valuer’s report was evidence precluding use of the Defendant’s mathematical formulae. The matter was remitted for further arbitration, but the Defendant later ceased contesting the dispute and withdrew its VAT claim and a statutory demand for payment.
Subsequently, the Plaintiff obtained documents via Freedom of Information revealing that the Defendant had been advised by its tax advisors that the method it used to claim VAT was contrary to law. The Plaintiff then commenced proceedings against the Defendant claiming damages for abuse of civil process, interference with business relations, breach of contract, misrepresentation, negligence, and breach of duty, arising from the Defendant’s pursuit of the VAT claim and related conduct.
The Defendant filed a defence denying liability and malicious intent, asserting a reasonable belief in its entitlement to charge VAT, and pleading that the claim is statute-barred. The Defendant also applied for security for costs pursuant to section 390 of the Companies Act 1963, seeking an order requiring the Plaintiff to provide security for the Defendant’s costs and a stay of proceedings pending compliance.
Legal Issues Presented
- Whether the Defendant has established a prima facie defence to the Plaintiff’s claims.
- Whether the Plaintiff is unable to pay the Defendant’s costs if the Defendant is successful.
- Whether there are special circumstances justifying the court’s discretion to refuse an order for security for costs.
- Whether the Plaintiff must disclose any third-party litigation funding arrangements.
Arguments of the Parties
Defendant's Arguments
- The Defendant contends it has a prima facie defence to the Plaintiff’s claims, grounded on its reasonable belief, at the time, that it was entitled to charge VAT on the lease.
- The Defendant argues that the Plaintiff is able to pay costs or that any impecuniosity is not caused by the Defendant’s conduct.
- The Defendant denies any malicious intent or bad faith in pursuing the VAT claim.
- The Defendant requests security for costs under s.390 and alternatively seeks identification of any third-party funders of the Plaintiff’s litigation.
Plaintiff's Arguments
- The Plaintiff acknowledges for the purposes of this application that the Defendant has a prima facie defence and that the Plaintiff is currently unable to pay the Defendant’s costs if the Defendant is successful.
- The Plaintiff contends special circumstances exist justifying refusal of security for costs, including the public interest in holding a semi-state body accountable for pursuing a legally unfounded VAT claim.
- The Plaintiff relies on expert evidence that its current impecuniosity is caused by the Defendant’s wrongful conduct in pursuing the VAT claim.
- The Plaintiff opposes the imposition of security for costs but agrees that disclosure of any litigation funding is appropriate to protect public interest.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Usk and District Residents Association Limited v. The Environmental Protection Agency [2006] 1 ILRM 363 |
Principles governing security for costs applications under s.390 of the Companies Act 1963 |
Provided the framework for assessing whether the Defendant had a prima facie defence and if security for costs should be granted. |
| Connaughton Road Construction v. Laing O’Rourke Ireland Ltd. [2009] IEHC 7 |
Test for granting security for costs, including the burden of proof and discretion considerations |
Guided the court’s application of the three-step test for security for costs and the identification of special circumstances. |
| Tribune Newspapers (In Receivership) v. Associated Newspapers Limited (Unreported, 25 March 2011) |
Definition of prima facie defence requiring admissible evidence and arguable legal submissions |
Clarified that the Defendant must demonstrate evidence and legal arguments which, if accepted, provide a defence to the Plaintiff’s claim. |
| Oltech Systems (Ltd.) v. Olivetti UK Limited [2012] IEHC 512 |
Refinement of the prima facie defence test and requirement that legal defence be potentially sustainable |
Supported the court’s approach to assessing the Defendant’s prima facie defence on both factual and legal grounds. |
| Lancefort Ltd. v. An Bord Pleanla [1998] 2 IR 511 |
Public interest as a special circumstance to refuse security for costs |
Used as authority that exceptional public interest points may justify refusal of security for costs. |
| Village Residents Association Ltd. v. An Bord Pleanla [2000] 4 I.R. 321 |
Public interest considerations in security for costs applications |
Supported the court’s recognition that public interest may justify refusal of security for costs. |
| Comcast v. Minister for Public Enterprise [2012] IESC 50 |
Exceptional public interest may justify refusal of security for costs |
Referenced as an example of a case with extreme public interest where security for costs was refused. |
| Millstream Recycling Ltd. v. Tierney [2010] IEHC 55 |
Public interest in cases involving reputational harm and public concern |
Used to illustrate that points of fact affecting public interest can justify refusal of security for costs. |
| West Donegal Land League v. Udars na Gaelteachta [2006] IESC 29 |
Consideration of justice and the ends of justice in security for costs decisions |
Quoted to emphasize the court’s duty to advance justice and avoid hindering it by ordering security for costs unjustly. |
Court's Reasoning and Analysis
The court applied the established three-part test for security for costs under s.390 of the Companies Act 1963, as refined in relevant case law. The Defendant was assumed to have a prima facie defence, and it was accepted that the Plaintiff was currently unable to pay the Defendant’s costs if the Defendant were successful. The critical issue was whether the Plaintiff had demonstrated special circumstances justifying the court’s discretion to refuse security for costs.
The court found that the Plaintiff had established, on a prima facie basis, that its impecuniosity was caused by the Defendant’s alleged wrongdoing in pursuing a VAT claim that was contrary to law and known by the Defendant to be unfounded. The court emphasized the public interest in holding a semi-state body accountable when it knowingly pursued an unlawful claim, especially where the Defendant admitted it acted contrary to expert legal advice and statutory requirements.
The court rejected the Defendant’s argument that its conduct was excusable because others acted similarly or because the Revenue Commissioners tolerated the approach. The court underscored the principle that all entities, including semi-state bodies, must comply with the law.
Regarding the Defendant’s contention that it acted in accordance with its tax advisors’ advice, the court noted that the Defendant was aware from 27 November 2002 of the correct legal position and could not rely on contrary “accepted practice.” The court declined to comment on the conduct of the tax advisors as they were not parties to the proceedings.
In balancing interests, the court recognized the importance of the public interest in the litigation proceeding and the need to avoid unjustly hindering the Plaintiff’s access to justice. The court also considered the possibility of third-party funding and ordered that the Plaintiff disclose any such funding arrangements to ensure transparency and protect the public interest.
Holding and Implications
The court DECLINED TO GRANT the Defendant’s application for security for costs pursuant to section 390 of the Companies Act 1963.
The refusal was grounded on special circumstances arising from the public interest in holding a publicly-owned body accountable for pursuing a legally unfounded VAT claim and the Plaintiff’s prima facie demonstration that its inability to pay costs stems from the Defendant’s alleged wrongdoing.
The court ordered the Plaintiff to disclose the identity of any person or entity funding, or willing to fund, the litigation, whether by binding agreement or otherwise, to ensure transparency and protect the public interest.
No new legal precedent was established; the decision applies existing principles to the particular facts of this case, highlighting the court’s role in balancing access to justice against protection from unmeritorious claims for costs.