On 19 May 2017, Mr Justice Noonan lifted the corporate veil and agreed to join the director of the Plaintiff company to proceedings for the purpose of making him personally liable for the costs associated with High Court proceedings which had been dismissed by him. He found that the original proceedings were “tainted with fraud and dishonesty.”
Facts of Substantive Matter – Principal Judgment
By way of background the Plaintiff’s claim was for sums allegedly due on foot of a building contract entered into between the parties in late 2005. The Plaintiff in this instance was engaged to carry out renovation works to the Defendants’ licensed premises known as the Lord Lucan at Finnstown Shopping Centre, Lucan. In 2005, the Defendants obtained planning permission for renovation works to be carried out to the public house including the construction of an extension. The Architect engaged by the Defendant, Mr. Solan, invited the Plaintiff company to tender for the job. This tender became known as Phase 1 of the project. The Plaintiff’s provisional estimate of €583,000 plus VAT was accepted by the Defendants with work commencing on 1 February 2006.
Shortly after the commencement of the works, relations between Mr Solan and the Plaintiff company became strained as a result of difficulties encountered on the project. By August 2006, Phase 1 was close to completion with the premises being ready to be fitted out (Phase 2). After some discussion the Plaintiff company and Mr Solan agreed that the Plaintiff would undertake Phase 2 for the sum of €120,150 plus VAT. These works were to be completed by October 2006. However the project was not completed until the end of 2006.
The Plaintiff issued proceedings for sums allegedly due to it as a result of the work undertaken on the Lord Lucan pub. The matter went to hearing with the Plaintiff claiming the amount owed was €370,000. However it subsequently came to light that the correct sum was no more than €28,691. During the hearing it became apparent that invoices were amended so as to inflate the Plaintiff’s claim. In his Judgment delivered on 3 October 2017, the Judge concluded that there had been an abuse of process and that the Plaintiff had failed to establish a prima facie case. Costs were awarded to the Defendants.
Lifting of the corporate veil
The Defendants subsequently sought to join William Loughnane, a director of W.L. Construction Limited (the Plaintiff) to the proceedings as the company was insolvent. Counsel for the Plaintiff submitted inter alia that it was reasonable to bring the proceedings in the circumstances and that Mr Loughnane was “not going to be the main beneficiary if the proceedings were successful”. Therefore the Defendants’ application should be denied.
Mr Justice Noonan acknowledged the proceedings on the face of it appeared to be reasonable. He noted that the Defendants were willing to meet “any legitimate debt due provided it was properly vouched and proved”. However Noonan J. ultimately refused to accept Counsel’s argument as to the legitimacy of the claim as the “underlying reasonableness” was based on invoices which were fraudulently altered “in an effort to show liability on the part of the Defendants which never existed.”
Mr Justice Noonan when addressing the issue of whether Mr Loughnane was to benefit substantially from the proceedings referred to Moorview Developments Limited v First Active Plc1, wherein the decision of the New Zealand High Court in Carborundum Abrasives Limited v the Bank of New Zealand (No.2) 2 was followed. This decision confirmed even in the absence of mala fides, a non party could become liable for costs where proceedings were initiated and controlled by a person who had a “direct personal financial interest in their result”. Mr Justice Noonan was satisfied that Mr Loughnane “stood to benefit substantially in a personal capacity”. As dishonesty “permeated” the entire proceedings the court undoubtedly had jurisdiction to join Mr Loughnane for the purpose of making a costs order against him.
Issues for Insurers
Insurers should take note that if proceedings mounted by a company are successfully defended, it may be appropriate to attempt to a fix a director of the Plaintiff company with the costs where the Director stands to benefit in a personal capacity from the claim made. In this instance it was the court’s finding as to Mr Loughnane’s actions which ultimately led to the judge’s decision to lift the corporate veil. The decision is a reflection of the courts’ unwillingness to tolerate misconduct and deceptive behaviour when engaged in the court process. This decision is limited to the unusual facts of the case.