THE HIGH COURT
									1997 No. 14043P
BETWEEN
WEXFORD ROPE AND TWINE COMPANY LIMITED
								PLAINTIFF
AND
LIAM GAYNOR AND BRIAN MODLER
								DEFENDANTS
JUDGMENT delivered by Mr. Justice Barr on the 6th day of March 2000
	The plaintiff is an Irish registered limited liability company of modest proportions which was incorporated in 1989 and at all material times carried on business in Wexford comprising the purchase of rope and twine products from various manufacturers for sale to its customers.   The founders and original directors were the defendants.    The first defendant is a practising chartered accountant who worked for the company part time and managed its financial affairs.    The second defendant was employed full time and he had responsibility for conducting the business of the company in purchasing and selling stocks of rope and twine.   The only other employee was a secretarial assistant.    One of the manufacturers from whom the plaintiff purchased a substantial part of its product was a Northern Ireland registered company called Steve Orr Limited.
	For reasons about which there is controversy between the defendants on the one hand and the plaintiff and Steve Orr Limited on the other, the latter entered into an agreement on or about 2nd October, 1993 with the company and the defendants to take a 75% controlling interest in the company and to purchase the requisite shares out of profits.   A loan of £30,000.00 was advanced to the plaintiff in circumstances about which there is also controversy between the parties.    In all events within a few years the loan was duly repaid.  The purchase price of the shares by Orr Limited remains outstanding.    Under the agreement the latter was entitled to appoint an additional director of the company but did not do so and the defendants remained as sole directors.    It was also agreed that Steve Orr Limited would sell its products to the plaintiff at basic wholesale prices.     The new regime appears to have proceeded satisfactorily until in or about 1996 in which year there was a substantial down turn in business.     It became apparent that the new relationship was not working out in practice.     Each side blamed the other in that regard.    Events came to a head in October, 1996 when at the behest of Northern Fibres (Holdings) Limited, a nominee company acting for Orr Limited, three new directors were appointed to the board of the company and restrictions were placed on the defendants in the matter of signing cheques.     They were not prepared to accept the changed situation.    They offered to buy out the Orr interest in the company and when that failed both resigned their directorships and left the employment of the company.    The first defendant is no longer engaged in the rope and twine business and now devotes himself to his practice as a chartered accountant.     The second defendant has established a new rope and twine business in competition with the plaintiff save that the new firm does not deal in agri products which was a substantial part of the plaintiff's business until Orr Limited ceased to supply that product at a competitive price in 1996.    That point does not seem to be in dispute.     The secretary/book-keeper has also resigned and now works for the second defendant's new business.     The end result is that the plaintiff company presently carries on business from Messrs. Orr's premises in Northern Ireland.    It continues to trade in this state and it is contended that the down-turn in business is in the process of being reversed, though substantial loss was suffered by the company through the alleged wrongdoing of the defendants which both of them vehemently deny.
	The plaintiff company has brought proceedings against the defendants in which it claims, inter alia, injunctive relief and damages for breach of fiduciary duty;  breach of contract;  fraud;  passing off; against the first defendant damages for professional negligence and against both damages for conspiracy.    The defendants reject totally the allegations of wrong doing made against them and contend that all of them are untrue.    Both sides have filed voluminous affidavits in support of their respective versions of relevant events.
	Three motions are presently before the court.    Each defendant has brought a motion for security for costs against the plaintiff company pursuant to section 390 of the Companies Act, 1963 and the plaintiff has brought a motion for judgment in default of defence against the second defendant.

THE LAW AS TO AN APPLICATION FOR SECURITY FOR COSTS BROUGHT AGAINST A LIMITED LIABILITY COMPANY
	I have been referred to the following authorities on this topic:-
1.	Peppard & Co. Ltd. and Another -v- Bogoff and Others [1962] I.R. 180 (S.C.)
2.	S.E.E. Co. Ltd. -v- Public Lighting Services Ltd. [1987] I.L.R.M. 255 (S.C.)
3.	Jack O'Toole Ltd. -v- MacEoin Kelly Assoc. and Another [1986] I.R. 277 (S.C.)
4.	C.P.R. Keogh -v- Údarás na Gaeltachta and Others [1991] I.R. 320 (S.C.)
5.	Lough Neagh Exploration -v- Morrice [1998] 1 I.L.R.M. 205 (Laffoy J.)
6.	Lismore Homes Ltd. -v- Bank of Ireland Finance Ltd. and Others [1999] 1 I.R. 501 (S.C.)
7.	Beauross Ltd. -v- Paul Kennedy 18th October, 1995 unreported (Morris J.)
 	Section 390 of the Companies Act, 1993 is in the following terms:-

	"Where a limited company is plaintiff in any action or other legal proceeding, any judge having jurisdiction in the matter, may, if it appears by credible testimony that there is reason to believe that the company will be unable to pay the costs of the defendant if successful in his defence, require sufficient security to be given for those costs and may stay all proceedings until the security is given."

	Principles of law derived from the foregoing authorities in the context of the problem under review establish the following propositions:-

1.		The plaintiff must be a limited liability company (as in the present case) to come within section 390.
2.		There must be a proven or admitted inability to discharge its liability to the defendants for costs should it fail in its action and an order for costs is made against it. This point is conceded on behalf of the plaintiff.    It appears that at no stage would it ever have been in a position to fund out of its own resources a substantial unsuccessful plenary action in the High Court.    The present action seems likely to continue for upwards of a week if it proceeds to finality at trial.     It also seems likely that Orr Ltd. or some other third party will be required to fund all or part of the plaintiff's costs if it is unsuccessful.   No evidence has been adduced that an order for security for costs in favour of the defendants would stifle the action.    There is evidence, however, that the second defendant is a man of limited means (his salary while working for the company supports that contention) and it is submitted that if he fails in his application for security for costs and subsequently succeeds in the action, he is unlikely to recover all or any of his costs against the plaintiff and he has no redress in that regard against Orr Ltd. or anyone else.   It is submitted on his behalf that the effect of a successful defence of the action by him without security for costs would be a pyrric victory resulting in disastrous loss to him.    These are factors which are, inter alia, relevant to the exercise by the court of its discretion in granting the reliefs sought.
3.		The defendants must establish that they have a prima facie defence to the plaintiff's claim.    In the light of the evidence adduced by them on affidavit I am satisfied that they have met that condition.    Their explanation of the circumstances which they allege in connection with the break down of their relationship with the plaintiff company has the appearance of credibility.   On the other hand, there are some allegations made against them on behalf of the plaintiff which lack reality.    In this regard I have in mind in particular the contention made against the first defendant regarding his alleged failure to hand over the company cheque-book;  leaving the meeting at which that request was made and not handing it over for forty minutes thereafter.    It is not alleged that Mr. Gaynor issued any cheque during that period.    His explanation is that he did not wish to part with the cheque-book until he had first arranged with the plaintiff's bankers that he would not have any responsibility for cheques subsequently drawn by the company.    That patently reasonable explanation is now accepted.    It is also contended on behalf of the plaintiff that shortly before their resignations as directors the defendants improperly favoured particular customers and issued cheques to them in discharge of accounts due by the company and, furthermore, that outstanding professional accountancy fees due by the company to the first defendant and an outstanding pension fund payment relating to the second defendant were also discharged by cheques drawn by Mr. Gaynor on the company bank account.    It is now conceded that all such payments were properly due by the company at the time the relevant cheques were drawn,  and that it was then and still is solvent.  Where it is established, as in the instant case, that the defendants appear to have a prima facie defence to the claim or claims made against them the onus passes to the plaintiff company to satisfy the court on the balance of probabilities that there are special circumstances which the court should take into account and accept in exercising its discretion whether or not to accede to the defendant's application for security for costs.	                                                                                                                               Special circumstances relevant to the incident case are:-
	(i) that the inability of the plaintiff company to discharge an award of costs which might be made in favour of the defendants if the plaintiff's action fails was allegedly caused by wrongs committed by the defendants and each of them which are the subject - matter of the action.
	Voluminous affidavits with supporting documentation have been put before the court on both sides which indicate substantial conflict on aspects of the dispute which lead to the resignation of the defendants as directors of the company.    Some specific contentions made on behalf of the plaintiff to which I have already referred are without substance.    Others do not go sufficiently far as to establish a prima facie case of fraud, deceit or negligence against the defendants or either of them.    Furthermore, the plaintiff does not appear to contest some important aspects of the defendants' response to such allegations.  In particular I have in mind the defendants' contention that a major cause of the down-turn in the company's business in 1996 was the failure or inability of Orr Ltd. to supply agri product to the company at an economic price thus stifling that aspect of the business which previously amounted to more than 50% of the entire.    Furthermore, one of the principal arguments put forward by the plaintiff in support of its allegations of fraud and deceit against the defendants relates to their combined offer to purchase the company's shares held by the nominee of Orr Ltd. at a nil valuation.    The defendants' response, if ultimately accepted by the trial court, is a credible explanation which reflects no discredit on them.
	It is also argued on behalf of the plaintiff that there is no tenable explanation for the second defendant setting up his new business.    The inference is drawn that the reality is he and his co-director set about wrecking the company's business with a view to supplanting it by the new enterprise.    The defendants contend that the failure to supply the company with agri product at cost as provided in the agreement to which I have referred and the deteriorating relationship between them and the Orr interest (allegedly not caused by them) which came to a head with the appointment of three new directors had the effect of creating two alternatives.    First, that the defendants would buy out the Orr interest in the company or, alternatively, that they would terminate their connection with it.    The latter event having come about, the first defendant reverted solely to his practice as a chartered accountant and there is no evidence that he has any interest in or derives any benefit from the new business set up by the second defendant other than fees for the provision of professional accountancy services for that business.    It is not in dispute that the second defendant has always been in the rope and twine business in Wexford and therein lies his particular expertise.    He contends that he had no plans to set up in business in competition with the plaintiff and that that possibility did not arise until the joint offer to purchase the shares held by the Orr nominee was rejected.
	Another contention raised against the second defendant is that as a director of the company he was obliged in law to give appropriate notice of the termination of his executive position and that he could not summarily terminate his employment with the company.    His response to that argument is that he did not refuse to give notice of termination of employment and was not asked to do so by the company.    The attitude of all parties at the time of the second defendant's resignation is an issue which the trial court will examine and determine in due course.     On the evidence before the court it remains an open question.
	In summary on this issue it is now well settled law that on an application for security for costs it is no part of the function of the court to evaluate the prospects of the success of the respective cases put forward on behalf of the plaintiff and the defendants.    The essence of the law is summarised in the following passage from the judgment of Barron J. in Lismore Homes Ltd. -v- Bank of Ireland Finance Ltd. (Supra) at pp 529 - 530.

	".....in the sense that once an arguable case was being presented it mattered not what the strength of that case was.    This is something which has been made quite clear in the judgment of Murphy J., in Bula Ltd (in receivership) -v- Tara Mines Ltd. [1987] I.R. 494, as approved in C.P.R. teo -v- Údarás na Gaeltachta [1990] 1 I.R. 320.   Once an arguable case has been established the strength of that case is immaterial unless it leads to showing that in reality the defendant has no real defence."

	In the instant case the plaintiff has failed to establish the latter proposition.

	(ii) It was also argued on behalf of the plaintiff that another well recognised exception in the nature of a special circumstance which the court should take into account would arise if the plaintiff made out a prima facie case that its inability to give security for costs is derived from the wrong doing of the defendants of which complaint is made in the action.    I am not satisfied that such a case has been established.    As already stated, the evidence suggests that the company would not at any stage in its existence have been in a position to discharge the defendants' costs of a lengthy plenary action in the High Court if in the ultimate it failed and costs were awarded against it.    The financial circumstances of the company declined in 1996 and 1997, but the plaintiff's evidence on affidavit does not go sufficiently far as to establish a prima facie case that the fall in profits was caused by wrong doing on the part of the defendants or either of them.    The alternative case which they put forward is at least equally credible.

	(iii)  The remaining special circumstance relied upon by the plaintiff relates to alleged unreasonable delay on the part of the defendants in bringing their application for security for costs.    After the trial was commenced and before service of the statement of claim an interim motion was brought by the plaintiff which raised several issues which were resolved between the parties and an order was made on consent.    It is alleged by the defendants that they thought that that was an end to the matter and that the action would not proceed any further.    The first defendant states that he was surprised by the service of the statement of claim and that correspondence relating to the matter of security for costs was put in train soon after that.     The second defendant did likewise but a little later.    There is no evidence to suggest mal fides on the part of either defendant nor any harm done to the plaintiff by reason of the minor delay of which complaint is made.   An application for security for costs may be refused by the court if the delay on the part of the applicant is detrimental to the party against whom the order is sought.     In S.E.E. Co. Ltd. -v- Public Lighting Services Ltd. [1987} I.L.R.M. 255 the Supreme Court dealing with an application under section 390 of the Companies Act, 1963 considered that among the circumstances to be taken into account in exercise of the court's discretion in deciding to grant security for costs, the delay of the defendant in bringing the application was a significant factor.    That judgment was followed by Morris J. in Beauross Ltd. -v- Kennedy (unreported) 18th October 1995 where it was held on the facts of the case that there was an undue and unnecessary delay in bringing the application whereby the other party had incurred considerable costs which would not have been incurred if the application had been made without delay.    Morris J. held that if the party seeking security has delayed to such an extent as could admit the other party to an amount or a level of costs which it would never have become committed to had it known that it was to be required to provide security for costs and thereby alter its position to its detriment then the court should not make the order.
	In that case although the time lapse of a little more than three months was of itself insufficient to demand a refusal of security, substantial legal costs had been incurred in that period which included an oral hearing and a cross examination of the defendant before the Master.    It seems to me that in the present case it was reasonable for the defendants to await the statement of claim in order to ascertain what precisely was being alleged against them before putting in train an application for security for costs.     The interim application which was made in the meantime relating to matters at issue which lead to an order on consent was another factor which might be regarded as justifying postponement of the application for security.    It seems that the only additional costs which the plaintiff might point to in the context of the defendants alleged delay in bringing their motions for security for costs is the expense of preparing and serving the statement of claim which in the overall context of the litigation is a comparatively modest item of expense for the plaintiff.    In all events, as I have already stated, it was not unreasonable for the defendants to await the statement of claim before putting in train the applications for security for costs.
	All in all, I am satisfied that the defendants are entitled to the orders which they seek.