The Supreme Court has ruled that the effective owner of a building company is personally liable for the €735,000 costs of his firm’s dismissed action over works to a Co. Dublin bar co-owned by well-known publican Charlie Chawke.
The jurisdiction to make such an "exceptional" costs order exists, including for reasons to prevent persons litigating on a "consequence free-basis", Ms Justice Iseult O'Malley said when giving the five-judge court's unanimous judgment.
The High Court, she noted, had found this case "truly exceptional", "permeated by the dishonesty of William Loughnane".
The action by Mr Loughnane’s company, W. L. Construction Ltd (WLC), was dismissed in 2016 by the High Court, at the end of WLC’s 28-day evidence, as an abuse of process and due to being tainted by “fraud and dishonesty” of Mr Loughnane.
Mr Loughnane, despite not being a party to his company's case, was later held personally liable for the costs incurred by the defendants - Mr Chawke and Edward Joseph Bohan, as co-owners of the Lord Lucan pub in Lucan.
The costs decision was overturned by the Court of Appeal but the defendants got a further appeal to the Supreme Court.
Today, the five-judge court unanimously allowed their appeal.
Its decision is significant concerning the exercise of the courts’ jurisdiction to make costs orders against non-parties.
The costs order against Mr Loughnane was believed to be the first of its kind in a case not involving a personal injuries claim.
Legal sources have speculated it could have a “chilling” effect on litigation by companies as directors are normally considered protected against costs liability.
In its High Court proceedings, WLC claimed sums were outstanding for renovation and extension works to the pub, which were completed at the end of 2006.
The owners said payments of some €700,000 had been made to WLC for the works and disputed any further monies were due.
WLC's original summons claimed €191,030 but when the case was opened in 2015, the claim was set at €342,931. At one stage, the evidence of the company's quantity surveyor put the value as low as €28,691 but on his final figure it was €152,220.
The High Court's Mr Justice Seamus Noonan estimated some 14 different versions of the figure were presented to the court.
In October 2016, he granted a defence application to dismiss the case at the close of the WLC evidence after finding no prima facie case was made out and on the basis of “deliberate dishonesty” by Mr Loughnane.
The defendants later got a costs order against Mr Loughnane, who was 99% shareholder in WLC.
The Court of Appeal overturned that costs order as unfair, saying he was not a party to his company's case and had no prior warning costs might be personally sought against him.
Such personal costs orders are generally referred to as "Mooreview orders" after a 2011 High Court decision - Mooreview Developments v First Active plc - made the first explicit recognition of a jurisdiction to make a costs order against a third party.
Ms Justice O'Malley said it was clear the COA had concerns whether the Mooreview case was correctly decided.
However, since the COA judgment in the WLC case, the Supreme Court had upheld the Mooreview decision on jurisdiction to make such an order and had also set out key factors for the exercise of the courts' wide discretion in that regard.
As the 2011 High Court Mooreview decision had confirmed the jurisdiction to make costs orders against non-parties, it was "incorrect" to say Mr Loughnane could not have known he might be held liable for costs if the relevant criteria were met.
A party to litigation is not obliged to notify their opponent in advance of the course of action it will adopt in relation to "all possible eventualities" during a trial.
While an earlier costs warning to Mr Loughnane might have minimised his costs exposure, it was his choice to persist with the action even after it was clearly signalled to him he was at risk of some form of criminal prosecution, she also said.