The Court of Appeal has ordered James Patrick Flannery and Lexington Services Limited to provide security for costs, overturning the High Court’s refusal to make that order. The court found that Lexington’s financial statements raised a significant risk that it would be unable to pay the defendants’ costs if they succeeded.
In a judgment delivered on 8 July 2015, Ms Justice Finlay Geoghegan said the High Court had erred by focusing on Lexington’s positive net asset position, reported as about €4.5 million, without considering whether the company could realise its assets or otherwise pay the costs. The appeal arose from two High Court decisions on applications for security for costs; the Court of Appeal addressed each appeal separately.
The defendants’ evidence and submissions pointed to Lexington’s lack of trading income, cash generated from operations, and accessible assets. Its statements described its main asset as an investment in an unquoted Spanish subsidiary and related-party receivables that were unsecured, interest-free and had no fixed repayment term. The statements also said the company had written off a receivable of about €7.25 million from West Global Limited following that company’s liquidation, while the impairment might be reconsidered depending on the liquidation outcome.
The Court of Appeal noted that Lexington’s accounts described losses and uncertainty about its ability to generate profits and continue as a going concern. It concluded that, without an explanation from Lexington, the statements supported “a significant risk” that it could not meet the defendants’ costs if successful. The court therefore found reason to believe the statutory security-for-costs test was met. Because Flannery lived outside the EU and Lexington could not be considered able to meet those costs, the court said security was also due from him under Order 29 of the Rules of the Superior Courts.
The appeal court said it would hear the parties on consequential orders, including the amount. If they could not agree, it said the amount should probably be remitted to the High Court. The judgment does not set an amount for Flannery and Lexington.
The court dismissed Catharsis Technologies Limited’s separate appeal against an order requiring it to provide security for costs on its counterclaim. It upheld the finding that the counterclaim went beyond a defence, including by adding two counterclaim defendants and making new claims against them. It also upheld the finding that Catharsis’s financial position gave reason to believe it could not pay their costs if they successfully defended the counterclaim.
The court further upheld the High Court’s decision to set security at the full estimated amount rather than one third, finding no error in its exercise of discretion. It rejected Catharsis’s request for phased security, concluding that the case disclosed no major “watershed event” that would justify phasing.