Fortberry LTD v Promontoria (Aran) LTD & Ors (Approved)

Factual and Procedural Background

This opinion concerns an application by the first defendant ("Promontoria") for security for costs against the plaintiff ("Fortberry") pursuant to section 52 of the Companies Act 2014. Fortberry claims damages related to the sale of a medieval castle and adjacent manor house ("the Castle") in County Meath, which was sold by receivers appointed by Promontoria. The dispute arises from Fortberry's allegations that the defendants acted unlawfully and in bad faith in appointing receivers and selling the Castle, arguing that a prior agreement existed to sell the Castle at a higher price (€2.2 million) than the eventual sale price (€1.95 million), and that the sale was delayed to increase costs.

The background includes correspondence between the parties, including a letter from a director of Fortberry indicating a conditional agreement to sell the Castle and adjacent lands for €2.2 million, subject to resolution of an alleged interest overcharge. Promontoria pleads that the sale was necessary due to access issues involving land owned by the director of Fortberry and that they sought court directions on the invalidity of a lease related to the Castle. Fortberry also issued a waiver consenting to the sale by the receivers, which it later sought to withdraw alleging duress.

The court was asked to determine whether security for costs should be ordered, considering the strength of Promontoria's prima facie defence, Fortberry's ability to pay costs if unsuccessful, and whether any special circumstances justified refusing security for costs.

Legal Issues Presented

1. Whether the defendants have a prima facie defence to the plaintiff's claims.
2. Whether the plaintiff is able to pay the defendants' costs in the event of losing the action.
3. Whether there exist any special circumstances justifying the court's discretion to refuse an order for security for costs.
4. Whether the grant of security for costs would stifle the litigation unjustly.
5. The appropriate amount and duration of security for costs to be ordered.

Arguments of the Parties

Defendant's Arguments

• The defendants assert they have a prima facie defence based on the limited evidence supporting the plaintiff's claim, including the conditional nature and deficiencies of the alleged prior sale agreement.
• They contend the duties of receivers are limited and that their actions in appointing receivers and selling the Castle complied with their security rights.
• They argue the plaintiff is unlikely to be able to pay costs if unsuccessful, supported by the plaintiff’s egregious default in filing accounts and a substantial balance sheet deficit.
• They maintain no special circumstances exist that would justify refusing security for costs, emphasizing the private nature of the dispute.
• They submit that even if security for costs stifles litigation, this is an expected effect under the Companies Act 2014 and not a sufficient reason to refuse the order.

Plaintiff's Arguments

• The plaintiff claims economic duress arising from the receivers obtaining waivers from borrowers not to sue, asserting this raises a matter of exceptional public importance.
• They contend that the grant of security for costs would stifle the litigation.
• The plaintiff, through legal costs accountants, estimates the trial would last three days with costs around €112,500 excluding VAT.
• They propose guarantees from directors as an alternative to security for costs.

Table of Precedents Cited

Court's Reasoning and Analysis

The court first examined whether the defendants have a prima facie defence. It found the plaintiff’s evidence supporting its claim weak, especially the letter alleging a prior sale agreement, which was conditional and deficient in key respects. The court also considered the limited duties of receivers and the existence of a waiver by the plaintiff consenting to the sale, which further supports the defendants’ prima facie defence.

Next, the court assessed the plaintiff’s financial position and concluded that the plaintiff is unlikely to be able to pay the defendants' costs if unsuccessful. This conclusion was based on the plaintiff’s significant default in filing accounts and a substantial deficit shown in the last filed accounts, as well as expert evidence from a forensic accountant.

The court then considered whether any special circumstances existed to refuse security for costs. It rejected the plaintiff’s argument that the case raised a point of exceptional public importance, applying a high threshold from relevant precedent and finding the dispute to be a private commercial matter without broader public significance.

Regarding whether security for costs would stifle the litigation, the court acknowledged that this is a common effect of such orders under the Companies Act 2014 and is not generally a reason to refuse security. The court noted the plaintiff appears to have funding for the litigation, further diminishing concerns about stifling.

Finally, the court addressed the amount of security for costs. It considered differing estimates from legal costs accountants for the duration and cost of the trial and concluded the matter could be efficiently dealt with in four days, setting the security for costs accordingly to encourage efficient case management and use of court resources.

Holding and Implications

The court ORDERED that security for costs be provided by the plaintiff in the sum of €129,470 excluding VAT, representing four days of hearing costs. This decision places the plaintiff and defendants on an equal footing regarding litigation costs, requiring the plaintiff to bear the financial risk of the litigation as is customary unless special circumstances apply.

The court found no special circumstances or exceptional public importance sufficient to displace the default rule requiring security for costs. The order aims to encourage efficient conduct of the proceedings and responsible use of court resources. No new legal precedent was established; the ruling applies established principles to the facts of this case.