Supreme Court rules that developer Brian Cunningham is personally liable for €10m legal costs

The Supreme Court has upheld a landmark ruling that Galway developer Brian Cunningham is personally liable for an estimated €10 million in legal costs awarded to First Active plc against companies in the Cunningham Group arising from their long-running litigation against the bank. First Active is now part of Ulster Bank.

The decision has significant implications for similar cases. Mr Justice William McKechnie, giving the three judge court's unanimous judgment, ruled the High Court, when making the disputed costs orders in 2011, had jurisdiction under the Rules of the Superior Courts or under the Supreme Court of Judicature (Ireland) Act 1877 to do so.

The matters taken into account by the then High Court judge, Mr Justice Frank Clarke, in exercising his discretion to make the costs orders were “entirely appropriate” and it was “just”, in all the circumstances of the case, to make those costs orders, he ruled.

In 2011, Mr Justice Clarke, now the chief justice, ruled Mr Cunningham should be held personally liable for the costs orders granted to First Active against the eight companies involved in the litigation.

He did so on grounds that 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 it was considering applying to have him made personally liable, he added.

The decision related to costs orders made against the companies in favour of First Active in certain cases in which only the companies, not Mr Cunningham, were parties. Various costs orders were previously made against Mr Cunningham in cases where he was a party or had provided a guarantee.

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 66 days, 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 €30million 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. Mr Justice Clarke noted, when the litigation was initiated in 2003, the Cunningham group owed First Active more than €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 while liabilities of the group to unconnected third parties were apparently some €3.5 million.

He held he had jurisdiction to join a non-party, Mr Cunningham, 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.