The High Court has ruled that an insolvent property company must provide security for the costs of solicitors defending its negligence claim. The court did not determine the underlying negligence claim or set the amount of security. It directed that further submissions be heard on whether that amount should be reduced because of delay in bringing the application.
Demeray Limited alleges that the solicitors failed to ensure binding contracts for four apartment sales at its Aubrey Court development in Bray, Co Wicklow. It says the buyers withdrew as property prices fell and that receivers later sold the apartments for substantially less. The solicitors deny liability and raised, among other matters, whether the company had instructed them to use conditional contracts and whether construction was advanced enough for the sales to complete.
The judgment records that the company’s insolvency and inability to pay the defendants’ costs if they succeeded were not disputed on the security application. Under section 52 of the Companies Act 2014, the court considered whether the defendants had a bona fide defence and whether special circumstances justified refusing security.
Justice Ní Raifeartaigh found the defence threshold was met. She noted factual issues for trial, including what instructions the company gave about the contracts and whether the development was sufficiently advanced for completion. The court made no finding on those issues or on the merits of the negligence claim.
Demeray argued that the alleged negligence damaged its relationship with its lender, Bank of Scotland, and contributed to the company’s eventual failure. The judge said affidavit evidence could support a prima facie link between the lost sales or the bank’s understanding of the contracts and a change in the lending relationship. But that wider loss was not pleaded in the substantive case, which claimed losses from the four sales. The alleged misleading communications to the bank were also absent from the pleadings, and no application had been made to amend them. The court therefore declined to refuse security on the basis that the alleged wrongdoing caused the company’s insolvency.
The court also declined to refuse security because of delay. It considered there had been delays on both sides and said any costs incurred by Demeray during the interim period could be addressed later or potentially reflected in the security amount. The judge invited submissions on whether, and by how much, the amount should be reduced. No figure was fixed in the judgment.