Security for Costs Applications

Introduction
In circumstances where a Defendant believes, or has reasons to believe, that a Plaintiff who instituted proceedings against them does not have the means to cover the Defendant’s costs of successfully defending those proceedings, a Security for Costs Application can be brought.

If the Application brought is successful, the Security for Costs Order granted by the Court would require the Plaintiff to lodge a sum of money into the Court so that the Defendant’s costs, or a portion of those costs, would be met should the Plaintiff’s action prove unsuccessful.

The sum of money to be lodged into Court is entirely at the Court’s discretion, though certain influencing factors can include the nature of the case, the jurisdiction of the Court, the strength of the arguments put before the Court, and whether the Plainitff is an individual or body corporate.

Companies Act 2014
The right of a Defendant to seek a Security for Costs Order against an Irish registered company Plainitff is provided for under Section 52 of the Companies Act 2014 (the “2014 Act”):

“Where a company is Plaintiff in any action or other legal proceeding, any Judge having jurisdiction in the matter may, if it appears by credible testimony that there is reason to believe that the company will be unable to pay the costs of the Defendant if successful in his or her defence, require security to be given for those costs and may stay all proceedings until the security is given.”

Principles to Apply
The Supreme Court summarised in Usk and District Residents Association v EPA¹ the following principles which apply to a Security for Costs Application brought against an Irish registered company Plainitff:

1. The Defendant must establish that they have a prima facie defence to the Plaintiff’s claim.
2. The Defendant must establish that the Plaintiff will not be able to pay the Defendant’s costs if the Defendant is successful in the main action.
3. If the above facts are established, the Security for Costs Order should be made unless it can be shown that there are specific circumstances which ought to cause the Court to exercise its discretion to not make the Order. In this regard, it is for the Plaintiff to show such specific circumstances.

Inability to Pay
For any client considering bringing a Security for Costs Application, it must be flagged that if it is proved that their actions caused the Plaintiff’s inability to pay the costs of the proceedings, the Court may exercise its discretion and refuse to grant a Security for Costs Order.

The Plaintiff would bear the onus of proving this evidential point, but it is an important consideration for Defendant clients, nonetheless.

Conclusion
A Security for Costs Application is a worthwhile exercise if a Defendant feels strongly enough, and has the evidence to justify that feeling, that a Plaintiff does not have the ability to fund the proceedings instituted and / or pay the Defendant’s potential defence costs.

Unfortunately, situations do arise whereby Plaintiffs institute proceedings against Defendants to simply frustrate them or perhaps stall the sale of a property or a business. In these circumstances, bringing a Security for Costs Application is very much a worthwhile exercise so as to try and quash those spurious proceedings before they gain any momentum.

Contact
If you would like to discuss any aspect of the above with a member of our Commercial Litigation Team, please contact Liam Collins or Harry Caulfield for more information.

¹ [2006] ILRM 363, p. 368.