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High Court of Ireland Decisions
You are here: BAILII >> Databases >> High Court of Ireland Decisions >> Lough Neagh Exploration Ltd. v. Morrice [1998] IEHC 92; [1999] 4 IR 515 [1999] 1 ILRM 62 (12th June, 1998)
URL: http://www.bailii.org/ie/cases/IEHC/1998/92.html
Cite as: [1999] 4 IR 515 [1999] 1 ILRM 62, [1998] IEHC 92

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Lough Neagh Exploration Ltd. v. Morrice [1998] IEHC 92; [1999] 4 IR 515 [1999] 1 ILRM 62 (12th June, 1998)

THE HIGH COURT
1997 No. 4828 P
BETWEEN
LOUGH NEAGH EXPLORATIONS LIMITED
(FORMERLY KNOWN AS ULSTER NATURAL RESOURCES LIMITED)
PLAINTIFFS
AND
SUSAN MORRICE, S MORRICE AND ASSOCIATES LIMITED,
PRIORITY OIL AND GAS LIMITED
AND THE MINISTER FOR TRANSPORT, ENERGY AND COMMUNICATIONS
DEFENDANTS

JUDGMENT of O'Sullivan J. delivered the 12th June, 1998

1. In this judgment I am dealing with two motions, one on behalf of the first two Defendants and the second on behalf of the third Defendant for an Order pursuant to Order 27 Rule 1 of the Rules of the Superior Courts striking out the Plaintiffs' case for want of prosecution by reason of the Plaintiffs' failure to deliver a Statement of Claim or, in the alternative, by reason of the Plaintiffs' failure to provide security for costs in accordance with the Orders of Miss Justice Laffoy dated the 27th August, 1997 and the Master dated the

23rd January, 1998.

2. Miss Justice Laffoy has already delivered two judgments in these proceedings on the 8th and 27th August, 1997 respectively. In the first of these the general background and relationship between the parties is comprehensively set out and the second of these deals specifically with an application by the three Defendants aforesaid for security for costs.

3. In the first of these judgments Miss Justice Laffoy refused to grant an Interlocutory Injunction to the Plaintiffs restraining the fourth Defendant ("The Minister") from granting a petroleum prospecting licence to any of the said Defendants, an Injunction restraining the said Defendants from taking steps to obtain such a licence and also a further Injunction restraining the first Defendant from breaching her contract with the Plaintiffs. The second part of that application dealt with the Minister's application for a mandatory Interlocutory Order requiring the Plaintiffs to deliver seismic field tapes in its possession and this application was also refused. The basis for refusal of the first of these applications will have some bearing on the matter which I have to deal with in this judgment and accordingly I will return to it later.

4. It is clear from the second of the two judgments referred to that an argument was advanced on behalf of the Plaintiffs in resisting the application for security for costs that the granting of same would stifle the proceedings. In the course of dealing with that submission Miss Justice Laffoy at page 8 stated as follows:-


"There is no evidence that the consequence of an Order for security for costs would be to stifle these proceedings. As I outlined in my Judgment of the
8th August, 1997, James F. Kenny, directly and indirectly through Ulster Natural Resources Limited, is the beneficial owner of the majority of the equity of the Plaintiff and the first Defendant indirectly through Ulster Natural Resources Limited is the beneficial owner of the minority stake. In an Affidavit sworn by her on the 28th July, 1997 the first Defendant averred that Mr. Kenny, on whose sole initiative the Plaintiff has instituted the present proceedings, is a person of some substance while the Plaintiff is effectively devoid of any assets from which to satisfy an Order for costs. This averment has not been controverted".

5. From the foregoing it seems to me apparent that my learned colleague considered relevant the personal assets of Mr. Kenny in the context of the provision by the Plaintiff of funding to comply with a security for costs Order. In the present application

6. Mr. Kenny has sworn that he did not in fact institute the present proceedings but accepted that he is now maintaining them in the circumstance that those shareholders in the Plaintiff (hereinafter "LNE") who did institute these proceedings have withdrawn from the company.

7. In these circumstances even if I accept that Mr. Kenny did not himself institute the present proceedings, I consider that he is maintaining them and that such maintenance of the proceedings is as relevant to the question whether the Order for security is stifling same as would have been his institution thereof from the beginning. I note also that not only has the averment not been controverted as stated by Miss Justice Laffoy but neither of her two judgments of August 1997 have been appealed nor has the subsequent Order of the Master limiting the amount and time within which such amount shall be furnished as security.

8. The Plaintiff has not furnished the security directed. Instead he says that the first named Defendant has frustrated his ability so to do. This argument is made in the following circumstances.

9. The shareholding in LNE is 10% owned by the Plaintiff and 90% owned by Ulster Natural Resources (hereinafter "UNR") the company referred to in the extract from the second of the judgments of Miss Justice Laffoy referred to above. The shareholding in UNR is, in turn, owned 50% by Mr. Kenny and 50% by the first Defendant.

10. In dealing with the allegation made on behalf of the first two Defendants that the Plaintiff was guilty of gross and wilful delay in the prosecution of the proceedings the Defendant in his Affidavit sworn on the 24th April, 1998 sets out the following steps to show that the Plaintiff has made what he describes as vigorous efforts to comply with the Master's Order (limiting the amount and time for provision of security) dated the 23rd January, 1998.


1. On the 10th February, 1998 an agenda for an LNE Board Meeting and share offer document were circulated.

2. A meeting was held on the 18th February but was adjourned because

11. Ms. Morrice was not present.


3. On the 25th February, 1998 the meeting went ahead again in the absence of Ms. Morrice but in compliance with the Company's Articles.

4. At this meeting it was resolved that the company should proceed to raise funds to meet the security for Costs Order by way of an offer to be made to shareholders in accordance with the share offer document.

5. This meeting also decided to hold an Extraordinary General Meeting of the Plaintiff on the 12th March, 1998 for the purpose of passing a resolution authorising the directors to allot shares on the terms set out.

6. Ms. Morrice resigned from her position as director of both LNE and UNR and this was accepted on the 27th February, 1998. On the 28th February, 1998 the directors of LNE approved the share offer.
7. On the 6th March, 1998 the Plaintiff's solicitors received from the Defendants' solicitors a letter indicating that the first named Defendant was prepared to hand over to the Plaintiff and to UNR any documents to which they were lawfully entitled. On the 12th March, 1998 the EGM of LNE authorised the directors to allot shares under the approved document.

8. On the 14th March 1998 a notice was given of a meeting of directors of UNR to be held on the 30th March, 1998 and on the same date Mr. Kenny sent a fax to Ms. Morrice in connection with the UNR share offer. On the 23rd March, 1998 Ms. Morrice's solicitors wrote seeking further information about the proposed EGM and making a number of complaints and this was followed by further communication between the respective solicitors.

9. A subsequent fax was sent to Ms. Morrice clarifying a later date for the EGM.

10. On the 31st March, 1998 the proposed day of the EGM the first named Defendant's solicitors wrote to say that she would not attend the EGM because of the Plaintiff's failure to address issues raised in their earlier letter. The EGM of UNR went ahead but because of Ms. Morrice's failure to attend it was inquorate and could not proceed and the financial proposals could not be considered. The matter is under review.

12. The non-attendance of Ms. Morrice at the EGM of UNR was, as stated, because of the Plaintiff's failure to address certain queries raised by her solicitors. These queries relate to Ms. Morrice's apprehension that Ms. Kenny was seeking to inject funds into UNR which would subsequently be subscribed for shares in LNE thus providing LNE with funds to comply with the Order for Security for Costs. As she was a 50% shareholder of UNR this would constitute a dilution of her interests therein and give Mr. Kenny control of the company because clearly she would not subscribe to a rights issue for the purpose of raising security to enable the Plaintiff to continue to sue her. Furthermore in her solicitor's letter of the 21st March, 1998 she maintains that if Mr. Kenny as sole director constituted himself as chairman of UNR he could then exercise a casting vote in the event of a 50/50 deadlock. All of this would be able to happen if the EGM of UNR became quorate by reason of

13. Ms. Morrice's attendance thereat. Her solicitors in the letter of the

21st March, 1998 make the point that such a course of conduct on behalf of Mr. Kenny would be in breach of the agreement between Mr. Kenny and

14. Ms. Morrice of the 19th November, 1992 and moreover would inter alia constitute unfairly prejudicial conduct under Northern Irish law. That letter goes on to stress that notwithstanding, Ms. Morrice was not preventing LNE from raising funds to meet the Security for Costs Order.


15. It will be recalled that at the interlocutory stage Miss Justice Laffoy refused to grant the Plaintiff an injunction restraining the first Defendant from breaching her contract with the Plaintiff and breaching her fiduciary duties as director of the Plaintiff.


16. In an Affidavit sworn on the 27th April, 1998 on behalf of the first Defendant by her solicitor Declan Black at paragraph 10 it is asserted that monies could be raised by the Plaintiff by way of loan subordinated or otherwise. In response to this Mr. Kenny in an Affidavit of the 1st May, 1998 swore at paragraph 11 as follows:


"I entirely agree that a subordinated loan is one course which could have been followed. However, if an investor, whether UNR 2 (sic) and/or myself, prefers to adopt a shareholding route there is no reason why such an investor should be compelled to follow the one and only route which Mr. Black and Ms. Morrice suggest."

17. In a subsequent Affidavit, however, dated the 10th June, 1998 at paragraph 6 he seems to resile from this position when he swears:


"The Plaintiff's failure to provide security for costs is not because of my insistence that it is entitled to raise monies necessary for the furnishing of security for costs in a manner of my choosing but for the reasons that the company cannot raise the monies in any other way. In fact, the position is that the Plaintiff company can only obtain monies either by a rights issue or by an unsecured loan. If the Plaintiff company were to approach me for an unsecured loan I would not be in a position to do so nor would I do so. The Plaintiff company is unable to raise money by means of an unsecured loan. The only other option for the company is a rights issue. It is therefore completely incorrect for Ms. Susan Morrice and Mr. Declan Black to keep asserting, as they have done, that the Plaintiff company is wilfully choosing the rights issue route rather than putting up money by means of an unsecured loan. The fact is that no prudent investor, shareholder or lender would ever lend money to a company purely for the purposes of meeting costs incurred or to be incurred in litigation without some form of security in return.

At the hearing before me I gave liberty to the Plaintiff to file the Affidavit from which the foregoing extract is cited subject to the right of Counsel for the Defendants to cross-examine Mr. Kenny. Mr. Kenny was cross-examined accordingly and in response to the suggestion that he could himself subscribe 100% to a rights issue in LNE and that therefore it was possible for LNE to raise funds to satisfy the security for costs Order he said that in theory this was possible but only upon the basis that he would himself subscribe entirely 100% to the LNE rights issue. He was only a 10% shareholder in LNE, however, and his Counsel subsequently submitted that it would be inappropriate and inequitable so to arrange matters that Mr. Kenny would as an individual effectively have to provide the entire security himself.

It was put to him that the alternative which he was suggesting would effectively give him control of UNR because Ms. Morrice would not subscribe or co-operate if so to do would enable that company to provide funds to LNE to continue to maintain an action against herself so that if any funds were subscribed they would be subscribed by Mr. Kenny thereby giving him a controlling interest in UNR. Mr. Kenny's response was that he did not see this as a benefit to himself but merely the removal of an obstacle (by which he meant what he described as the frustration by Ms. Morrice of LNE's attempts described above to provide funds to satisfy the Security for Costs Order) in the way of LNE's providing security for costs. Mr. Kenny went on to insist that he had not instigated the proceedings (as stated by Miss Justice Laffoy) but did accept that he was now the person who was responsible for maintenance thereof given that the original shareholders (being the beneficiaries of 55% of the shareholding) who had in fact instigated the proceedings were no longer involved.

Counsel for the Plaintiff says that the jurisdiction which the Defendants are seeking to invoke is a discretionary one given that there is no explicit rule in the Rules of the Superior Courts providing for the striking out of an action where a Plaintiff fails to comply with a Security for Costs Order. Accordingly I must look at all the circumstances and balance the justice as between the parties. Counsel insists that the first Defendant is clearly "frustrating" the ability of the Plaintiff to satisfy the security for costs Order and points in particular to her assertion that she considers that her investment in LNE is worthless. This assertion is made in her letter of the 24th September, 1997 which is exhibited to Mr. Kenny's Affidavit of the 1st May, 1998. The only asset of UNR is its interest in LNE and accordingly it follows, submits Counsel, that she must consider her investment in UNR as worthless also. This being the case she can suffer no dilution of anything of worth by co-operating with the rights issue and the method of raising funds suggested by Mr. Kenny and her failure to co-operate with that is clearly not in her own eyes an attempt to protect an asset of value and must therefore be merely for the purpose of frustrating the Plaintiff in its attempts to raise money to satisfy the Security for Costs Order.
Secondly, Counsel for the Plaintiff submits that it would not be fair if things work out in such a way that Mr. Kenny as an individual would be effectively compelled to take up the whole rights issue thereby indirectly providing out of his own personal assets the entire of the amount required to satisfy the Security for Costs Order.
Counsel for the Defendant says that the latter argument is absurd. Why should the Defendant who has the benefit of a Security for Costs Order facilitate the Plaintiff in raising the money in order to continue to sue her? He further submits that the argument in relation to the alleged frustration by the first Defendant of the rights issue process in relation to UNR is clearly a smokescreen because the only asset of UNR is its shareholding in LNE and therefore if money can be raised by a rights issue in UNR it can also be raised in the same manner in relation to the shareholding in LNE. This particular argument is resisted by Counsel for the Plaintiff who says that a subscriber to any new shares in LNE would be put off once informed that the 90% shareholder is split 50/50 between Mr. Kenny and
Ms. Morrice. Counsel for the Defendant further asserts that the method chosen by
Mr. Kenny, who is directing the conduct of this litigation by the Plaintiff, is in reality an attempt by Mr. Kenny to gain control of UNR and is thereby an abuse of the processes of this Court.

CONCLUSION
I accept that the jurisdiction which I am asked to exercise is discretionary. This appears to me to be the case where there is no specific rule in the Rules of the Superior Courts providing for an Order striking out the Plaintiff's action in the event of the Plaintiff failing to comply with a Security for Costs Order.
I also accept that the discretion should be sparingly used and only in clear cases.
I have been referred to Murphy -v- Donohoe Limited (1996: 1: IRLM:
481 FF.) where the Supreme Court judgment was delivered by Barrington J. on the
13th February, 1996. Although Murphy was dealing with non-compliance with an Order for Discovery Counsel for the Plaintiff submitted that the same principles applied to non-compliance with an Order for Security for Costs. He refers to the passage at p. 488 where Mr. Justice Barrington says that it may be necessary to dismiss the Plaintiff's claim or to strike out the Defendant's defence (for failure to comply with an Order for Discovery) "But such cases will be extreme cases" . He refers to an observation of Hamilton C.J. in Mercantile Credit Company of Ireland -v- Healon (Supreme Court: 14th February, 1995) where the Chief Justice says:

"The powers of the Court to secure compliance with the rules and Orders of the Court relating to discovery should not be exercised so as to punish a party for failure to comply with an Order for Discovery within the time limited by their Order."

18. These powers, I further accept, must not be used to punish but only for the purpose of ensuring compliance with Orders of the Court.

In Barry -v- Buckley (1981: IR: 306 FF.) Costello J. (as he then was) in dealing with an application to stay proceedings (as distinct from striking out proceedings) says (at page 308) as follows:

"This jurisdiction shall be exercised sparingly and only in clear cases; but it is one which enables the Court to avoid injustice, particularly in cases whose outcome depends on the interpretation of a contract or agreed correspondence."

19. I was also referred to "The White Book" (1991 Edition) where the following appears in relation to default in giving security (page 422) in dealing with the Courts inherent jurisdiction:


"The Court has power to dismiss the action where it is satisfied that
(i) the action is not being pursued with due diligence,
(ii) there is no reasonable prospect that the security will be paid, and
(iii) the time limit prescribed by the Court for the giving of security has been disregarded."

20. From the foregoing authorities it appears that the jurisdiction must be exercised only sparingly and in clear cases, not for the purpose of punishing the defaulter but for the purpose of ensuring that the Court Orders are complied with.

21. In relation to the extract from the White Book Counsel for the Plaintiff submitted that the three tests which I have referred to above are cumulative and that each must be satisfied.

22. In regard to this submission I note that the authority cited in the text of the White Book is Speed Up Holdings Limited -v- Gough & Co. (Handly) Limited (1986:

23. FSR: 330). I have been furnished with a copy of the report in Speed Up Holdings Limited and it is clear from that report that the tests are not cumulative but alternates.

24. Counsel for the Defendants says that by holding up the proceedings by its failure to provide for Security for Costs if I were simply to allow the proceedings to be stayed for an indefinite period the Plaintiff would be achieving at least in part some of the advantages which were refused at the interlocutory stage. He points to the fact that the Defendants are suffering ongoing damage because petroleum licences issued to the first three Defendants in the North of Ireland and also in this jurisdiction mean that it is necessary for these Defendants to raise money to fund exploitation of those licenses. At the moment the prospects of raising such funds are paralysed until these proceedings are determined. If these proceedings are stayed indefinitely the funds will not be raised and the benefit of these licences in the North of Ireland and in this jurisdiction will be lost. In reaching my conclusions I cannot avoid taking note of the fact that there is clearly a deep and comprehensive division between Mr. Kenny as an individual and the first named Defendant Ms. Morrice. I also note that in dealing with the interlocutory applications Miss Justice Laffoy was prepared to take into the reckoning in the context of deciding on the Security for Costs issue the fact that Mr. Kenny as an individual was a person of some substance.

25. Even if I accept that Mr. Kenny was not the person who instituted the present proceedings I consider that he is now the person who is maintaining them in all real senses of that word. His personal finances are therefore relevant to the exercise of the discretionary jurisdiction of the Court in this application. I consider that in taking this approach I am adopting the same approach as was adopted by my colleague Miss Justice Laffoy in dealing with the initial application for security for costs.

26. Taking the Plaintiff's case at its highest it amounts to saying that the proceedings should not be struck out because the Plaintiff's ability to satisfy the Security for Costs Order is being frustrated by the first named Defendant. This in turn means that the Plaintiff is suggesting that it would be able to satisfy the Order if the first Defendant attended at the EGM of UNR, co-operated therewith and permitted the rights issue in that company to proceed. In those circumstances it is clear that she would not herself subscribe and this would mean that Mr. Kenny would himself have to subscribe or persuade some outsider to subscribe. Given that his personal beneficial interest in the Plaintiff amounts effectively to 55% (namely 10% directly and half the remaining 90% owed by UNR of which he is a 50% shareholder) I can see nothing particularly inequitable about his having to be responsible for the amount required to satisfy the Security for Costs Order. To a certain extent, this appears to be indirectly the consequence of his own suggested scheme. Is he correct in insisting that Ms. Morrice should not frustrate (or perhaps more benignly should facilitate) the provision of additional or any funding? I think there is something inherently contradictory about an approach which requires a Defendant who is the beneficiary of a Security for Costs Order against a Plaintiff being required to facilitate that Plaintiff in providing funds to enable it to continue to sue that Defendant. In the present case the individuals concerned are loggerheads with each other. The Plaintiff has not complied with the Master's Order. I am not impressed with arguments advanced to this Court whereby the Plaintiff seeks to justify non-compliance and lay the blame for this at the door of the first named Defendant. As a matter of principle I do not think that this approach is correct and as a matter of practice there is nothing to show and there is no evidence to show that UNR would be able to raise additional funding by means of a rights issue given that its only asset is its shareholding in LNE. There may be some difference in marketing terms between a rights issue in UNR and a rights issue in LNE but I do not think the Plaintiff has given sufficient or any evidence to satisfy the Court that as a matter of practice (and leaving aside for the moment the question of principle) that it definitely has the capacity to raise the necessary funding through the medium suggested by Mr. Kenny.

27. In these circumstances I consider that the Plaintiff is in breach of the Order of the Court and has not advanced a sufficient or any justification for such breach. I accept that the Plaintiff should not be punished by any Order that I would make and in this context I did ask Counsel for the Plaintiff whether he was requesting a stay for the purpose of compliance with the Order of Security for Costs in the event that I held against him. He declined to ask for such a stay and in those circumstances I must deal with the position as deadlocked and take it that in reality if I were to refuse a striking out Order it would mean that the proceedings would remain stayed for an indefinite period with the result that the Defendants would continue to suffer the harm indicated above. I do not think that non-compliance with an Order of the Court should be permitted to have such an outcome and accordingly I accede to the application on behalf of the first three Defendants and make an Order striking out the proceedings by reason of the Plaintiff's failure to provide for security for costs in accordance with the Order of this Court dated the 27th August, 1997 and the Order of the Master of this Court dated the 23rd January, 1998.

© 1998 Irish High Court

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