Court rules developer liable for costs

In a landmark ruling, the High Court has found Galway developer Brian Cunningham is personally liable for legal costs estimated at some €10 million.

The costs were awarded against companies in the Cunningham group to First Active arising from long-running litigation against the bank. The decision has significant implications for similar cases.

Mr Justice Frank Clarke today ruled Mr Cunningham should be held personally liable for the costs orders against the companies on grounds Mr Cunningham had funded and directed the relevant proceedings, the heavily insolvent companies could not have paid the costs and, had the cases succeeded, Mr Cunningham and his wife would have been the main beneficiaries.

The conduct of the proceedings by the Cunningham group had added significantly to the legal costs and the fact the court had dismissed their central claim of fraud by direction were also relevant factors in his decision, the judge said.

Another relevant factor was that Mr Cunningham was told by First Active at an early stage that it was considering applying to have him made personally liable, the judge added.

The judge's decision relates to costs orders made against companies in the Cunningham group in favour of First Active in certain cases in which only the companies, not Mr Cunningham, were parties. Various costs orders have already been made against Mr Cunningham in cases where he was a party or had provided a guarantee.

Mr Justice Clarke also directed Mr Cunningham must attend court to be cross-examined by lawyers for First Active about the extent of his income, assets and liabilities and should produce relevant documents to First Active prior to that cross-examination. A date for the cross-examination will be fixed later.

The Cunningham group action was initiated in 2003 and involved a claim for more than €150 million against First Active arising from allegations concerning its dealings with the group. The main proceedings ran for 67 days and also involved several linked cases and some 100 pre-trial applications.

In late 2008, Mr Justice Clarke dismissed the central claim of alleged fraud by First Active in its dealings with the group. He ruled the group had failed to establish a prima facie case against the bank or the receiver appointed to the group in 2003 as was required to allow the trial on alleged fraud continue.

The companies had alleged loans totalling some €30m were issued between 1999 and 2002 to the Cunningham Group for three projects, including a site in Salthill, Galway, and a revamp of Finglas town centre in Dublin. The group was put into receivership after defaulting on loans but Mr Cunningham claimed the debt could have been brought under control if flagship construction projects were completed.

Mr Cunningham claimed First Active acted as a shadow director of the Cunningham Group, extinguished his power over his companies and conspired to damage his personal interests and those of the group. First Active and the receiver denied the claims and argued the appointment of a receiver was triggered by fears the companies' debts would outstrip their assets.

After the rulings in its favour, First Active had asked the court to make Mr Cunningham personally liable for certain costs awarded against the companies.

In his judgment today, Mr Justice Clarke noted Mr Cunningham and his wife were the beneficial owners of the companies involved and Mr Cunningham was a director and "prime mover" in those companies.

When the litigation was initiated in 2003, the Cunningham group owed First Active just over €30 million and, by the time orders were made against certain companies in the group in July 2010, that sum had doubled to more than €60 million. It seemed the liabilities of the group to unconnected third parties was some €3.5 million, he added.

A central issue was whether the court had jurisdiction to make the type of order sought by First Active, he noted. He found there was a jurisdiction to join a non-party as a defendant to a case for the purposes of making that party liable for the costs that might ordinarily be ordered against a plaintiff or defendant.

Arsing from that finding, the judge said he must consider the criteria to be applied in making such a costs order and whether those criteria were met in this case.

It was reasonable to infer Mr Cunningham was the funder of the litigation and it was "abundantly clear" he was the moving party behind it, the judge found.

He also found there seemed no basis to believe any costs orders against the relevant companies could have been met by those companies and, if the case was successful, the main beneficiary would be Mr Cunningham and his wife. Mr Cunningham had therefore funded proceedings where he knew First Active, even if it won, would have to bear most of the costs but, if he group won, Mr Cunningham and his wife would benefit most, the judge said.

Those and other factors overwhelmingly favoured the making of the order that Mr Cunningham should be personally liable for the costs orders against the companies, he ruled.