The High Court has ordered Pebble Beach Owners Management Company Limited to provide security for the costs of two auditors defending a negligence claim. The amount and method of security are to be determined after further submissions by counsel.
In a judgment delivered on 29 July 2016, Ms Justice Baker found that the auditors had established a prima facie defence and that the management company was unlikely, in its current financial position, to meet their costs if they succeeded in defending the action. The ruling concerned only the application for security for costs; it did not decide the underlying negligence claim.
The management company alleges that the auditors failed to ensure proper accounting for management charges connected with holiday homes in Tramore, Co. Waterford. It says the common areas should have been transferred to it by December 2003 and that it should have received management charges from then. The company also claims that the accounts did not properly reflect its financial position and that charges collected by the holiday-home operator were not passed on to it. Those claims remain disputed.
The auditors deny liability. Their defence includes an argument that some claims are statute-barred. For the security application, they relied on evidence from a forensic accountant that the money collected during the relevant period was insufficient to meet the expenses of the holiday lettings and common areas. The judge considered there was objective evidence supporting several possible defences, including that the auditors’ conduct did not amount to professional misconduct, that the company had suffered no loss of income on the figures presented, and that responsibility for securing the transfer of the common areas may have rested with the company’s directors or solicitors. She did not decide whether those defences would succeed at trial.
The auditors’ cost estimate for defending the case was about €500,000. The company’s accounts for 2014 showed net current assets of €157,230 and net assets of €158,294. The judge also noted that 69 per cent of owners had either not paid their 2014 charge or had paid late, and that the company had brought proceedings against 13 per cent of owners over those charges. The company suggested it could raise a special levy, but had provided no resolution or owner agreement supporting that proposal.
The company argued that its financial difficulty resulted from the alleged wrongdoing and that delay in bringing the security application was prejudicial. The judge was not satisfied that the company had shown its inability to pay was caused to a significant degree by the alleged acts or omissions. She also found no evidence that the timing of the application had caused it to incur additional litigation costs. The court therefore directed that security be provided, while leaving its amount and form open for further submissions.