Builder personally liable for €10m First Active case costs

IN A landmark ruling, the High Court has found Galway developer Brian Cunningham is personally liable for some €10 million in legal costs connected to Cunningham group companies’ long-running litigation against First Active.

The decision has significant implications for similar cases.

Mr Justice Frank Clarke yesterday ruled Mr Cunningham should be held personally liable for the costs orders against the companies on grounds he 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 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 yesterday 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.

The group had been 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.

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.

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 were 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.