Marlan Homes LTD v Egan (Approved)

Factual and Procedural Background

The Plaintiff, a family company engaged in small scale housing developments, retained the Defendant, a solicitor who died in 2014 and is now represented by an administrator ad litem, to initiate proceedings against its former solicitor, Company A. The Plaintiff had purchased development lands but was unable to develop them due to a failure to obtain necessary consents, resulting in a loss of approximately €4.925 million. The Plaintiff alleged negligence by Company A in the transaction.

Company A was struck off by the Law Society in 2007 for breaches of the Solicitors Acts. The Defendant took over the Plaintiff's case against Company A in late 2007 and issued proceedings in 2010. It was later discovered that Company A's professional indemnity insurance had lapsed in November 2008, a fact not disclosed to the Plaintiff during the initial litigation.

After the Defendant's death in 2014, the Plaintiff retained new solicitors and discovered the insurance lapse, prompting the Plaintiff to issue professional negligence proceedings against the Defendant's estate in 2015, with an administrator ad litem appointed to represent the estate. The Defendant's estate then applied for security for costs in 2020, which the Plaintiff opposed.

Legal Issues Presented

1. Whether the Defendant's estate is entitled to an order for security for costs under section 52 of the Companies Act 2014 given the Plaintiff's impecuniosity.
2. Whether the Plaintiff has established special circumstances sufficient to refuse security for costs.
3. The impact of delay by the Defendant in bringing the motion for security for costs and whether such delay constitutes a special circumstance.
4. Whether requiring security for costs would stifle the Plaintiff's claim and how the court should exercise its discretion in light of that.
5. The relevance of public policy considerations in the context of professional indemnity litigation involving solicitors.

Arguments of the Parties

Defendant's Arguments

• The Plaintiff is impecunious and unable to pay the Defendant's costs if ordered.
• The Defendant has a bona fide defence to the claim.
• The Defendant was justified in delaying the motion for security until after filing its defence due to the need for third-party discovery and expert reports.
• Any prejudice caused by delay can be addressed by a modified order reducing the security by the costs incurred by the Plaintiff during the delay.
• The Plaintiff's parents and directors should be considered potential sources of funding for security.
• There are no public policy reasons to refuse security for costs in professional indemnity claims.

Plaintiff's Arguments

• The Defendant's conduct caused or contributed to the Plaintiff's impecuniosity, which should preclude security for costs.
• The Defendant delayed unreasonably in bringing the motion for security, thus disentitling it to security.
• Granting security would stifle the Plaintiff's claim as the Plaintiff cannot raise the required funds.
• Requiring security for costs in this professional negligence context would be contrary to public policy and the interests of justice.
• The Plaintiff denies that any third party, including its directors or their parents, can provide security.

Table of Precedents Cited

Court's Reasoning and Analysis

The court began by acknowledging the Plaintiff's uncontroverted impecuniosity and the Defendant's bona fide defence, which prima facie entitled the Defendant to security for costs under the Companies Act 2014.

The court then examined the Plaintiff's claimed special circumstances to refuse security:

• Public Policy: The court rejected the Plaintiff's argument that public policy precludes security in professional indemnity cases, distinguishing the general policy of solicitor insurance regulation from individual case issues.
• Cause of Impecuniosity: The court found that although the Defendant's alleged negligence contributed to the Plaintiff's impecuniosity, it did not cause all of it. The Plaintiff's financial shortfall exceeded the maximum recoverable insurance sum from Company A, indicating that impecuniosity was not solely due to the Defendant's conduct.
• Delay: The court found an 18-month delay by the Defendant in bringing the motion for security, which was not adequately explained. The Defendant had sufficient information to seek security much earlier. The court considered the delay unreasonable and prejudicial to the Plaintiff because the Plaintiff incurred significant legal costs and was burdened by ongoing proceedings during this period.
• Prejudice: The court accepted the Plaintiff was prejudiced by the delay, noting the substantial legal activity and costs incurred, as well as the stress on the Plaintiff's family company and its directors.
• Stifling of Claim: The court accepted evidence that the Plaintiff and its related parties could not raise the security amount, and that ordering security would likely end the Plaintiff's claim. The court weighed this potential injustice heavily.

Balancing the competing interests, the court found that the injustice to the Plaintiff from granting security (and thereby stifling the claim) outweighed the potential injustice to the Defendant of an irrecoverable costs order. The court noted that costs incurred before July 2020 would not be covered by any security order.

Accordingly, the court exercised its discretion to refuse the security for costs application.

Holding and Implications

The court refused the Defendant's application for security for costs.

The direct effect is that the Plaintiff may continue with its professional negligence claim against the Defendant's estate without the burden of providing security for costs. No new legal precedent was established; rather, the court applied established principles concerning security for costs, delay, prejudice, and stifling of claims, emphasizing the need to balance competing interests in the interests of justice.