The Supreme Court has recently imposed personal liability on a Company Director for €750,000 in legal costs arising from proceedings brought by his Company. This is of significance because ordinarily the Directors of Companies have legal protection and insulation from the consequences of the Companies actions. The Company was usually considered a separate and distinct legal entity and Directors would not be found personally liable for legal costs ordered against the Company.
In this particular case the Company, WL Construction Limited sued well known publicans, Charles Chawke and Edward John Bohan for money due and owing for renovation works to a pub. The case ran for 28 days in the High Court and was appealed to the Court of Appeal before ending up in the Supreme Court.
The Company’s claim for €370,000 for renovations works was dismissed. The High Court Judge noted an abuse of the Courts process. Further, he noted the proceedings couldn’t have been processed without the Director, Mr. Loughnane’s input. The Company potentially hadn’t the resources to pay the costs of the proceedings. Mr. Chawke and Mr. Bohan applied after the case was dismissed to join in the Director and 99% Shareholder in the Company, Mr. Loughnane, as a party to the proceedings in order to apply for a costs order against him. They were successful in the High Court and this was confirmed by the Supreme Court.
From a Company’s perspective, one of the fundamental advantages of incorporation has been qualified and more importantly exposed to further chipping away.
The full written decision has not been published yet but it would seem if a Company commences proceedings that are not well founded and considered an abuse of process the Directors are leaving themselves exposed to being held personally liable for the cost of the proceedings if there is no prospect of recovering the costs from the Company. In many cases Companies are used for the purposes of operating a business but hold no assets that can be successfully pursued for costs.
In this specific case the Director of the Company was considered by the Court to have been the person “responsible for bringing the claim” and found he should be responsible for the result that followed from the misconduct associated with the brining of the proceedings.
Companies will have to look to expanding their Policies of Insurance to protect Directors from being held personally liable for their actions as Directors of the Company.