A company owned by a firm controlled by members of the Cosgrave developer family is not “entitled to inflict” a €3 million legal bill on individuals and firms in a dispute over a hotel development site in James Street, Dublin, the High Court has ruled.
James Street Hotel Ltd (JSHL), is a €1 “shelf company” owned by the Dublin Loft Company controlled by Una Cosgrave and her children Kelly, Mark and Andrew.
JSHL wanted to build the hotel but claimed the sellers never informed it of a “right to light” dispute with an adjoining property owner. Following a dispute with the neighbours over this issue, JSHL sold it at a loss of more than €2 million and then sued the former owners/vendors of the site.
Mr Justice Michael Twomey ordered JSHL to put up security for legal costs of €3 million should it lose its case against the previous owners/vendors, Mullins Investments Ltd, Delbourne Ltd (in liquidation) CMPDM Ltd, Carrowmore Property Ltd, and a number of directors of the companies, along with two law firms involved in the sale.
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The defendants brought the application for security of costs. JSHL claimed inability to pay due to special circumstances created by the wrongdoing of at least one of the defendants.
The judge said the issue of costs in the legal system, and in a case like this, is a “matter of considerable concern to anyone who wishes to ensure that true justice, as distinct from something less than justice, is administered by the Irish courts.
The judge, who has commented regularly on costs in cases, said the Supreme Court has already described as a form of blackmail the practice of impecunious plaintiffs taking certain actions.
The plaintiff with no resources may or may not win but a defendant will always lose because they cannot recover the cost of paying their own lawyers to defend the case from someone with no money.
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In this case, the judge said, JSHL was specifically set up as a shelf company to buy the James St site. This was the company’s only asset but it was offset by its loan liability from its parent, the Dublin Loft Company, to fund the purchase of the property, which meant it effectively had no funds.
The judge said the court was told during the security for costs hearing that the Dublin Loft Company is the only shareholder in JSHL.
He said these well-financed backers of JSHL — as Dublin Loft has some surplus assets of some €20 million — were “happy to finance” JSHL to pay its own lawyers to sue the defendants, presumably on the basis they would benefit if an award of €4 million was made.
However, he said, the backers resisted providing security for costs. This brought into sharp focus the “deliberate use” of €1 special purpose companies to insulate their backers from the downside of litigation.
The privilege of being a limited liability company, an idea first introduced to encourage enterprise and risk-taking, should not be used to impose massive irrecoverable costs on defendants, irrespective of the outcome of litigation, he said.
The judge also said the injustice for defendants sued by plaintiffs with no assets is exacerbated in Ireland by the fact that so much litigation can or must issue in the High Court.
There was now very much a flat, rather than a pyramid, structure, between the District, Circuit and High courts in Ireland, he said.
This is unlike the position in Ireland in the 1950′s when there was a ratio of seven High Court judges to 30 District Court judges. It compares with today when there are 45 High Court and 63 District Court judges — a ratio of around 2 to 3.
It is also unlike the current position in England and Wales where there are 400 District judges, some 600 Circuit judges and around 100 High Court judges.
The injustice is further exacerbated by the fact that proceedings, which are required or permitted to be instituted in the High Court, “generate enormous costs”, he said.
There is “literally a hundred times the difference between a plaintiff with little or no assets suing a defendant in the District Court and that plaintiff suing the same defendant in the High Court”, he said.
