3V Benelux BV v Safecharge Card Services ltd.

Factual and Procedural Background

This opinion concerns an application by the Defendant for an order requiring the Plaintiff to provide security for the Defendant’s costs in an action for damages for breach of contract. The Plaintiff is a company registered in the Netherlands distributing prepaid cards in the Benelux region, and the Defendant is an Irish company developing financial products for prepaid debit cards. The parties entered into a five-year services agreement in October 2014, whereby the Defendant supplied cards and the Plaintiff distributed them, sharing revenue 75% to the Plaintiff and 25% to the Defendant.

The operation of the agreement depended on BIN sponsoring services provided by a bank. Previously, ABN Amro Bank NV provided these services but had given notice to discontinue. There was dispute as to responsibility for securing an alternative BIN service provider and whether such a provider was available. The Plaintiff alleges breach of contract by the Defendant, particularly relating to a letter dated 4th December 2015 in which the Defendant declared the contract frustrated and terminated. The Plaintiff claims damages for loss of business and reputation, estimated in excess of €7 million, though no detailed breakdown was provided. The Defendant denies breach, pleads frustration of contract, and counterclaims for unpaid invoices and damages related to the Plaintiff’s participation in a television programme.

The application for security for costs was made after pleadings closed, and the Defendant relies on Order 29 of the Rules of the Superior Courts. The court was tasked with determining whether the Defendant had a prima facie defence and whether there was reason to believe the Plaintiff could not pay costs if unsuccessful.

Legal Issues Presented

1. Whether the Defendant has a prima facie defence to the Plaintiff’s claim, including whether the contract was frustrated.
2. Whether there is reason to believe the Plaintiff will be unable to pay the Defendant’s costs if the action fails.
3. Whether any such impecuniosity of the Plaintiff is attributable to the Defendant’s alleged wrongdoing.
4. The proper application of the legal principles governing security for costs, including the burden of proof and assessment of prima facie defences.

Arguments of the Parties

Defendant's Arguments

• The contract was frustrated due to the unavailability of an alternative BIN sponsor, justifying termination on 4th December 2015.
• Alternatively, the Defendant continued to provide services until 31st January 2017 and was not obliged to secure an alternative BIN sponsor or modify products.
• The Plaintiff’s losses and inability to pay costs are not caused by the Defendant’s conduct but by external factors including regulatory changes and the Plaintiff’s business decisions.
• The Plaintiff is unlikely to be able to pay costs if unsuccessful, supported by credible expert evidence and the Plaintiff’s limited financial disclosures.

Plaintiff's Arguments

• The Defendant wrongfully terminated the services agreement on 4th December 2015.
• The Plaintiff’s business was badly damaged by the Defendant’s breach, causing inability to pay costs.
• The Defendant was obliged under the contract to secure an alternative BIN sponsor and to modify the products to comply with regulatory requirements.
• The Plaintiff has sufficient assets and projected income, including from inactivity charges, to meet any adverse costs order.
• Any inability to pay costs is attributable to the Defendant’s wrongful termination and breach.

Table of Precedents Cited

Court's Reasoning and Analysis

The court first considered whether the Defendant had established a prima facie defence. The Defendant’s frustration defence, based on the unavailability of an alternative BIN sponsor and the impact of regulatory changes, was scrutinized. The court found the frustration argument to be largely a mere assertion, as the event relied upon was foreseen by the parties at contract formation and the actual cessation of services by ABN Amro occurred later than the Defendant’s termination notice. Therefore, the Defendant had not discharged the burden to show frustration as a prima facie defence.

However, the court accepted the Defendant’s alternative argument that it continued to provide services on an ad hoc basis until January 2017 and that it was not obliged to secure an alternative BIN sponsor or to modify the products. Credible evidence supported this position, providing a prima facie defence on these grounds.

Regarding the Plaintiff’s ability to pay costs, the court examined expert financial reports and found conflicting evidence. The Plaintiff’s projections included significant income from inactivity charges, but these were disputed and would cease by the end of 2021. The court noted the relevant date for assessing ability to pay is when a costs order would be made, likely after 2021. Given the risks of prolonged litigation, appeals, and additional interlocutory disputes, the court concluded there was reason to believe the Plaintiff might be unable to pay costs if unsuccessful.

On the question of whether the Plaintiff’s alleged impecuniosity was caused by the Defendant’s breach, the court applied the four-part test from Connaughton Road Construction. While the Plaintiff established prima facie wrongdoing in terminating the contract, it failed to provide credible evidence linking this breach causally to the Plaintiff’s inability to pay costs. The evidence was inconsistent, particularly concerning whether services and cards were supplied after termination, and the Plaintiff did not demonstrate specific, recoverable losses directly caused by the Defendant’s conduct. The court therefore rejected the Plaintiff’s submission that any risk of inability to pay was attributable to the Defendant.

Holding and Implications

The court held that the Defendant has a prima facie defence based on the continued provision of services and the absence of obligation to secure an alternative BIN sponsor or modify products. It also held that there is reason to believe the Plaintiff will be unable to pay the Defendant’s costs if the action fails. However, the Plaintiff has not established on a prima facie basis that its potential inability to pay is attributable to the Defendant’s alleged wrongdoing.

The Defendant is entitled to the order for security for costs which it claims.

The amount of security was to be determined subsequently. The decision directly affects the parties by requiring the Plaintiff to provide security for costs, potentially impacting the Plaintiff’s ability to continue litigation without funding such security. The opinion does not establish new precedent but applies established principles governing security for costs, frustration, and causation in contract disputes.