Supreme Court considers security for costs test

The Supreme Court recently recalibrated the applicable test for security for costs where the party pursuing the claim is insolvent.

In the case of Quinn Insurance Limited (Under Administration) v PwC, the Chief Justice  set out the test which will be relevant to any party defending a claim made by an insolvent entity.

Circumstances giving rise to security for costs

The well-publicised insolvent collapse of Quinn Insurance led to its administration and a sum of €1.1 billion being owed to the Insurance Compensation Fund. Following its collapse, Quinn Insurance (through its liquidators) brought a claim against PwC with respect to assurances provided in relation to its financial statements prior to its collapse.

As Quinn Insurance was an insolvent entity, PwC brought an application seeking security for its costs in the proceedings which had been estimated at €30 million. PwC submitted that it would be unduly onerous to expect it to bear the risk of having to meet costs of that magnitude where the party pursuing the claim was insolvent.

Quinn Insurance argued that it should not be required to pay security for the costs of PwC in circumstances where it says that its insolvency and inability to pay costs stemmed from PwC’s alleged wrongdoing.

Decision

The Supreme Court sat as a five-judge judicial panel and the judgment was delivered by the Chief Justice. The Court noted the judgments of the High Court, refusing the application for security for costs, and the decision of the Court of Appeal providing security for costs. The Supreme Court also noted that it was accepted that Quinn Insurance would be unable to meet the costs of PwC. It was also accepted that PwC had established that it had a defence to the proceedings.

Given the established facts, the Supreme Court considered whether there were special circumstances which might justify a refusal to award security for costs to PwC. The Court relied upon the test established in Connaughton Road Construction Ltd. v. Laing O’Rourke Ireland Ltd. [2009] IEHC 7. Here the Court held that an application for security for costs will be refused where there is a connection between the wrong at issue and the consequences for the claimant, and where the alleged loss is the difference between the claimant being in a position to meet the costs of the other party or not.

The Supreme Court confirmed the test in Connaughton Road but went further to consider the balance of justice where the high costs of litigation could be unfair to a Defendant who had no reasonable prospect of recovering from an insolvent Plaintiff and where security for costs could have the effect of obstructing or stifling litigation. It also held that Quinn Insurance had not established that the special circumstance that the proceedings were in the public interest.

Ultimately the Supreme Court found that Quinn Insurance had failed to establish that there was a likelihood that the proceedings would be stifled by security for costs ( as they would potentially be funded by the Insurance Compensation Fund) and concluded that Quinn Insurance should provide security for costs to PwC. The Supreme Court also suggested that, in complex cases, a staggered approach to security for costs and a guarantee from the persons who might ultimately hope to benefit from a successful conclusion of the proceedings may be appropriate.

Key Outcomes

The judgment of the Supreme Court provides a realignment of the test for security for costs to be provided by an insolvent claimant and gives helpful guidance for parties to proceedings where an application for security for costs may arise. The extended test for security for costs will be an important consideration for many litigants and the suggestions of a staggered payment approach may give rise to innovative solutions for litigants and practitioners alike.