Supreme Court: Judge erred in reversing non-party costs order

The Supreme Court has said that the Court of Appeal erred in reversing a non-party costs order made against the principal shareholder of a company who was found to be solely responsible for directing and overseeing a fraudulent claim issued by his insolvent company.

Emphasising “the need to prevent persons litigating on a consequence-free basis with the aim of personal benefit”, Ms Justice Iseult O’Malley said the case was a clear example of the mischief that non-party costs orders were aimed at.

Grossly dishonest claim

In the High Court, WL Construction issued proceedings against Charles Chawke and Edward Joseph Bohan, in respect of payment for work done by it on foot of a building contract entered into in 2005 and completed in 2006.

In 2008, the original summons claimed €191,030; however, when the case was opened by counsel in 2015, the claim was set at €342,931. Throughout the proceedings, there were varying sums put forward by the quantity surveyor for WL Construction, and by time the case was concluded in the High Court in October 2016, Mr Justice Seamus Noonan estimated that 14 different versions of the figure had been presented to the court.

William Loughnane, who is the 99 per cent shareholder in WL Construction, was found to have altered documents which were submitted to the court in support of the various figures. Mr Justice Noonan was highly critical of Mr Loughnane, finding his evidence to have been “grossly dishonest in a number of respects”.

Before the defendants presented their evidence, Mr Justice Noonan struck out the claim, stating that the case was one of a “rare kind contemplated by the authorities where the court would be justified in striking it out to prevent further abuse of process and oppression of the defendants”. Mr Justice Noonan said that WL Construction had failed to establish a prima facie case that there was any sum owing to it, and justice required that the defendants should not have to proceed further with the trial.

Moorview order

In May 2017, Mr Justice Noonan joined Mr Loughnane to the proceedings for the purpose of making him liable for costs (Moorview Developments Limited & ors v First Active plc [2011] 3 IR 615 considered).

Mr Justice Noonan said “the entire case was permeated by Mr Loughnane’s dishonesty and he was solely responsible for directing and overseeing a claim that ultimately transpired to be fraudulent and a manifest abuse of process”. He said the case was “wholly exceptional in many ways”, that the “primary reasons for the failure of the claim were the abuses of process”, and that nobody other than Mr Loughnane was responsible for bringing the claim or for the result. As such, Mr Loughnane was held liable for the defendants’ costs.

In the Court of Appeal in 2018, Mr Loughnane was successful in his appeal against the order making him liable for costs. Mr Justice Gerard Hogan was concerned as to whether Moorview had been correctly decided. He said that, even if Moorview was to be accepted, “it must at a minimum be attended by appropriate procedural safeguards” – one of them being that “the non-party sought to be made liable for those costs must be put on notice (however informally) of the fact at some appropriate stage during the course of the litigation that those costs will be claimed against him by another party”.

As he was not given such notice, Mr Loughnane was “deprived of any opportunity of altering his circumstances in order to minimise a potential costs exposure”. In those circumstances, Mr Justice Hogan found that the order breached Mr Loughnane’s right to fair procedures and allowed the appeal.

In the meantime, the Supreme Court upheld the order made by the High Court judge in Moorview, finding that jurisdiction can validly be founded either on Order 15, Rule 13 of the Rules of the Superior Courts or section 53 of the Supreme Court of Judicature (Ireland) Act 1877 (Moorview Developments Limited & ors v First Active plc [2018] IESC 33). Delivering the Supreme Court judgment, Mr Justice William McKechnie set out a number of factors which should be taken into account when deciding to make such an order.

Supreme Court

Appealing against the Court of Appeal ruling setting aside the costs order, Mr Chawke and Mr Bohan argued that it was now clear from Moorview that the requirement to give notice was not mandatory.

Ms Justice O’Malley said that the jurisdiction to make an order for costs against a non-party was confirmed in Moorview in 2011, and that while Moorview was under appeal, it was the only case where the existence of the jurisdiction was in dispute. Stating that the jurisdiction was an established part of the law in relation to costs, Ms Justice O’Malley said it was incorrect to say that Mr Loughnane “could not have known” that he might be made liable for costs if the criteria were met.

Considering the possibility that Mr Loughnane could have withdrawn WL Construction’s claim in order to minimise his own exposure if he had been given some warning at an earlier stage of the proceedings, Ms Justice O’Malley said it was clear from Moorview that this was “no more than a factor to be taken into account in the exercise of the court’s discretion”. She also noted that Mr Loughnane chose to persist with the action even after it had been clearly signalled to him that he was at some risk of criminal prosecution.

Emphasising that the jurisdiction to make an order for costs against a non-party was one to be exercised only in exceptional cases, Ms Justice O’Malley reiterated the findings of Mr Justice Noonan, stating that “this was a truly exceptional case, permeated by the dishonesty of Mr Loughnane”.

Ms Justice O’Malley said that, through his litigation misconduct and failure to prove any debt was due, Mr Loughnane was found responsible for the exposure of the defendants to very significant legal costs in circumstances where it was clear that WL Construction would be unable to meet those costs. Furthermore, if WL Construction had been successful; Mr Loughnane would clearly have benefited to some extent. Stating that this was “a clear example of the mischief aimed at by the exercise of the jurisdiction”, Ms Justice O’Malley reiterated comments made by Mr Justice Frank Clarke in Moorview as to “the need to prevent persons litigating on a consequence-free basis, with the aim of personal benefit”.

Finding that the Court of Appeal erred in reversing the Mr Justice Noonan’s order, Ms Justice O’Malley allowed the appeal.

© Irish Legal News Ltd 2021

Other judgments by Ms Justice Iseult O'Malley