Lifting the Corporate Veil – A Cautionary Ruling for Directors
By Darryl Broderick and Cliona Power
24 May, 2017
While the Court’s written judgement is awaited, it has been reported that on Friday last, William Loughnane, principal of W.L Construction Limited, was found personally liable for some €750,000 in costs after his previous High Court action had been dismissed. Directors and Insurers take note.
Loughnane’s case against well-known businessman Charlie Chawke was dismissed last year in circumstances where Mr Justice Noonan found Loughnane’s evidence “tainted by lies and dishonesty”. The company’s expert quantity surveyor was also found to be “confused… confusing … and quite unreliable”. The company had claimed that up to €370,000 was owed to it for renovation and extension works to Mr Chawke’s Lord Lucan pub – but later conceded that the value of its claim was no more than €28,691.
After 28 days at hearing, the defendants made an application for the case to be struck out. This was granted after Mr Justice Noonan found that the company had not established a prima facie case and there had been “the clearest abuse of the Court’s process”.
The defendants subsequently applied to join Mr Loughnane as a co-defendant for the purpose of making him personally liable for their costs. They argued that there was no prospect of recovering costs against the company. Furthermore, that Mr Loughnane should be personally liable for the costs in circumstances where he had orchestrated the “litigation misconduct”.
Traditionally, directors in companies are considered to be protected against costs liability as a result of ‘the corporate veil’. In what will be landmark case, Mr Justice Noonan rejected Loughnane’s arguments and joined him as a co-defendant, ruling that he should be liable for the costs arising from the company’s dismissed case. “Nobody other than Mr Loughnane was responsible for bringing the claim and nobody other than Mr Loughnane is responsible for the result”. A stay of 21 days applies to the decision.
The ruling reflects the Court’s intolerance of misconduct in litigation and serves as a warning to company directors that the protection afforded by the corporate structure can be lifted by the Court where the circumstances of the case warrant. It is however unlikely to lead to a flood of Court decisions lifting the corporate veil, which is likely only to happen in unusual cases such as this one. It remains to be seen if the decision will be appealed.