Fortberry Ltd & Anor v Allied Irish Banks PLC & Ors (Approved)

Factual and Procedural Background

The first-named defendant ("Company A") applied under section 52 of the Companies Act 2014 for an order directing the first-named plaintiff ("Company B") to provide security for costs, to measure the level of such security, and to stay the proceedings until the security was provided. Company B had obtained loan facilities from Company A between 2004 and 2007, with the second-named plaintiff ("Plaintiff") acting as guarantor. Various charges over three properties were provided as security. Company A sued on these facilities and guarantee in separate proceedings, resulting in consent judgments and conditions including the granting of mortgages over the properties.

Company A appointed the second-named defendant ("Individual A") as receiver over the properties in October 2016. Subsequently, Company A assigned its interests to the third-named defendant ("Company C") by a Global Deed of Transfer in August 2018. Further related bankruptcy and personal insolvency proceedings involved the Plaintiff and Company A or Company C.

The instant proceedings commenced in June 2021, with Company B challenging various actions by Company A and others, including the appointment of Individual A as receiver, the bankruptcy proceedings against Plaintiff, the assignment of debts and securities to Company C, and related issues of disclosure, indemnity, transfer, restraint on sale, and damages. Some claims were not in issue for the current application, and the court focused on whether Company A had a prima facie defence to certain claims and whether security for costs should be ordered.

Legal Issues Presented

1. Whether Company A has a prima facie defence to Company B's claims challenging the appointment of Individual A as receiver, the assignment of debt and securities to Company C, and related claims.
2. Whether security for costs should be ordered under section 52 of the Companies Act 2014.
3. Whether an indemnity offered by Plaintiff should be accepted in lieu of security for costs.
4. The appropriate quantum of security for costs to be ordered.

Arguments of the Parties

Defendant's (Company A's) Arguments

• Company A contends it has a bona fide prima facie defence to the claims made by Company B, including in relation to the assignment of debts and securities and the appointment of Individual A as receiver.
• Company A relies on statutory and equitable powers to appoint a receiver and on the validity of the assignment to Company C.
• Company A relies on a legal costs accountant's report estimating probable costs to justify the amount of security sought.

Plaintiff's (Company B's) Arguments

• Company B denies that Company A has a prima facie defence, particularly challenging the validity of the assignment of debts and securities and the appointment of Individual A as receiver.
• Plaintiff alleges Company A breached contractual and equitable duties by failing to provide an opportunity to redeem debts at the price paid by Company C.
• Plaintiff relies on alleged defects in documentation concerning the assignment and receiver appointment.
• Plaintiff's counsel conceded that the application was not resisted on the basis that Company B would be able to pay costs if unsuccessful, nor on the basis of special circumstances.
• Plaintiff offered an indemnity in respect of any liability for costs, which was argued to be an alternative to security for costs.
• Plaintiff's evidence concerning the quantum of costs was given by the Plaintiff, a former taxing master, but was not treated as expert evidence by the court.

Table of Precedents Cited

Court's Reasoning and Analysis

The court began by outlining the well-established legal principles governing security for costs under section 52 of the Companies Act 2014, requiring the defendant to establish a prima facie defence and credible evidence that the plaintiff would be unable to pay costs if unsuccessful. The plaintiff did not contest inability to pay or special circumstances, but offered an indemnity, which the court considered as part of its discretion.

The court analyzed the test for a prima facie defence, emphasizing the need for objective evidence and an arguable legal basis rather than mere assertions. It rejected that the court should assess the likelihood of success at this interlocutory stage.

Applying the test, the court found that Company A had a prima facie defence to key claims, particularly those based on the allegation that Company A breached a duty by not allowing Company B to redeem debts at the price paid by Company C. The novelty of this proposition supported the existence of a prima facie defence.

Challenges to the validity of the assignment on other grounds raised by Company B were not pleaded against Company A and thus not relevant to the prima facie defence assessment.

Regarding the appointment of Individual A as receiver, the court found that Company A did not establish a prima facie defence based on compliance with mortgage terms and conditions because it failed to provide evidence of those terms. However, Company A relied on statutory powers and equitable mortgage as fallback positions. The court held that the statutory power could not be assumed to apply without evidence of mortgage terms and conditions, and the equitable mortgage argument was not pleaded.

Nonetheless, the court accepted that there was a prima facie defence because the claims arising from the receiver appointment were assigned to Company C, which stood in Company A's shoes, thus shifting liability. The question of whether Individual A's appointment survived the assignment was a matter for Company C or Individual A, not Company A.

The court rejected Company B's argument that Company A lacked a prima facie defence due to delay in instituting proceedings, as delay was not pleaded as a defence.

On the indemnity offered by Plaintiff, the court noted that while indemnities may sometimes suffice, the likelihood that Plaintiff could not satisfy the indemnity was high given Plaintiff's insolvency proceedings and lack of evidence supporting capacity to pay. Therefore, the court declined to accept the indemnity as a substitute for security for costs.

Regarding quantum, the court preferred the evidence of Company A's independent legal costs accountant over Plaintiff's evidence, which was not expert evidence. The court found Company A's estimate of a seven-day trial reasonable and adjusted the quantum to account for two plaintiffs and other factors, reducing it by 35%. The court refused to adjourn the hearing to allow Plaintiff to obtain a costs accountant's report, finding no good reason for delay and emphasizing efficient administration of justice.

The court concluded that an order for security for costs should be made, stayed the proceedings pending provision of security, and directed the parties to agree or submit calculations for the precise amount.

Holding and Implications

The court's final decision was to ORDER SECURITY FOR COSTS from Company B in the amount to be determined based on the court's directions and to stay the proceedings until such security is provided.

The court rejected the Plaintiff's offered indemnity as an adequate substitute for security for costs due to the high likelihood of non-payment. The ruling directly affects the parties by requiring Company B to provide security before the litigation can proceed further. No new legal precedent was established; the decision applies established principles concerning security for costs, prima facie defence, and the court's discretion in such matters.