Supreme Court: Developer personally liable for costs in proceedings brought by his companies 

About this case:

• Citation:
  [2018] IESC 33
• Judgment:
  External link
• Court:
  Supreme Court
• Judge:
  Mr Justice William McKechnie

Background

Mr Brian Cunningham brought the present appeal against a High Court order making him liable for costs incurred by First Active plc, which was made on the grounds that Mr Cunningham funded the litigation brought by the plaintiff companies (of which he is a director and/or a shareholder). Mr Cunningham had, in a ground-breaking judgment, been made personally liable for costs in four connected cases.

Mr Cunningham denied that he was the funder, and argued that that the Court did not have jurisdiction to make such an order, or that even if it did have such jurisdiction it was exercised wrongly in this case.

High Court

In the High Court, First Active brought an application seeking to have Mr Cunningham made personally liable to pay costs awarded in favour of First Active in proceedings involving the Cunningham Group, which were ‘hopelessly insolvent’. First Active submitted that the Court had jurisdiction to make such a direction, considering:

• Byrne v John S. O’Connor & Co.[2006] IESC 30, [2006] 3 IR 379, in which it was found that the High Court had jurisdiction to make the order sought pursuant to Order 15, Rule 13 of the Rules of the Superior Courts
• Or in the alternative, section 53 of the Supreme Court of Judicature (Ireland) Act 1877

Justice Clarke was satisfied that, considering Byrne v John S. O’Connor, ‘a non-party could be joined as a defendant to a counterclaim in respect of substantive relief, and it would therefore be strange if a non-party could not be joined as a defendant at all simply for the purposes of seeking a costs order’.

Satisfied that jurisdiction existed under the RSC to join Mr Cunningham as a defendant in order to make him personally liable for costs, Justice Clarke found that it was clear from Byrne v John S. O’Connor that ‘a non-party can be joined in order to seek a costs order against him in favour of a plaintiff; unless the wording of the Rule so demanded, it would be absurd if a non-party could be joined to make them responsible for costs which would ordinarily be awarded against a defendant yet could not joined to make them responsible for costs that would ordinarily be awarded against a plaintiff’.

Justice Clarke was also satisfied that jurisdiction existed pursuant to s.53 of the Supreme Court of Judicature (Ireland) Act 1877.

In finding that the jurisdiction should be exercised, Justice Clarke took the following factors into account:

1. There was no basis to believe the costs orders could be met within the resources of the relevant companies
2. Mr Cunningham and his wife would have been the main beneficiaries if the litigation had been successful
3. The way in which the proceedings were pursued by the Cunningham Group significantly added to the costs

Supreme Court

Justice McKechnie said that two major issues arose for the consideration: firstly, whether there exists a jurisdiction to make costs orders against a non-party. If so, the Court must then consider the second question, which concerns the factors which are relevant to the exercise of that jurisdiction both generally and on the facts of this case in particular.

Justice McKechnie’s judgment also addressed a number of subsidiary issues raised by Mr Cunningham.

On the jurisdictional issue, Justice McKechnie was satisfied that the High Court judge was ‘entirely correct’ in finding that there was jurisdiction based on s.53 of the Supreme Court of Judicature (Ireland) Act 1877 and pursuant to Order 15, Rule 13 of the Rules of the Superior Courts. While emphasising that the general rule must remain that an order for costs will only be made against a party to the litigation, Justice McKechnie said that Mr Cunningham’s arguments based on ‘the principle of finality, piercing of the corporate veil and security for costs’ did not compel a different conclusion.

Considering whether the order for costs should have been made, Justice McKechnie set out a non-exhaustive list of relevant factors found in the case law, which should be taken into account when making an order for costs of this type:

1. The extent to which it might have been reasonable to think that the company could meet any costs if it failed 
2. The degree to which the non-party would benefit from the litigation if successful, including whether it had a direct personal financial interest in the result
3. The extent to which the non-party was the initiator, funder and/or controller of, and moving party behind, the litigation 
4. Any factors which may touch on whether the proceedings were pursued reasonably and in a reasonable fashion; the required assessment of the conduct of the proceedings may of course lean either in favour of or against the making of the order sought 
5. There is no requirement that there be a finding of bad faith, impropriety or fraud, though of course the same, if present, will support the ordering of costs against the non-party
6. Whether the non-party was on notice of the intention to apply for a non-party costs order; at what point in the litigation such notice was communicated will also be a relevant consideration, as will the extent of the notice so provided
7. Whether the successful party applied for security for costs in advance of the trial 
8. The Court’s discretion is a wide one, but it must be exercised judicially and, in all the circumstances, must give rise to a just result.

Stating that the final factor in this list was the most important, Justice McKechnie said that he was satisfied that it was just to make an order for costs against Mr Cunningham. In all the circumstances, Justice McKechnie was satisfied that all such relevant matters were taken into account by the High Court judge.

• by Seosamh Gráinséir for Irish Legal News