In the recent case of Trouton v Trouton [2025] QCA 128 (18 July 2025) the Court of Appeal allowed an appeal in respect of a non-party cost order that had been made against the daughter of the plaintiff mother in a matter involving a claim of fraud relating to property transfer. In the underlying proceeding indemnity costs had been ordered against the plaintiff mother and upon application of the defendants such costs were sought and ordered as against one of the daughters of the mother, being a sister to the defendants.[1]
After considering recent developments relating to non-party cost orders, the Court of Appeal (comprising Mullins P and Flannagan and Brown JJA) said, inter alia:
The reasons
[24] There is no challenge to the primary judge’s determination (at [21] of the reasons) that the findings in the original decision and the original costs decision could be used for the non-party application, subject to relevance, context and any limitations apparent from the nature and content of the findings or evidence. In the original decision, the trial judge accepted (at [133]) the evidence of the respondents as credible and reliable and also accepted the evidence of Deanne. The trial judge found (at [134] of the original decision) that the appellant’s evidence was neither reliable nor credible in respect of the key areas relevant to the issues in dispute and found her account of how she first realised that the Harbut Street property had been transferred to the respondents was implausible.
[25] The question to be decided on the non-party application was whether the Court’s discretionary power to award costs against a non-party should be exercised to make a costs order against the appellant. The respondents submitted that the appellant was within that class of non-party described as “the person who has caused the action” referred to in Symphony Group Plc v Hodgson [1994] QB 179 at 191-192. The primary judge recognised (at [33] of the reasons) that all the circumstances had to be considered to see whether it was just and equitable that a non-party pay the costs of a party to the litigation and that the factors, criteria and the “classes” identified were not to be applied inflexibly. The primary judge then stated (at [34]) it was helpful to start with a consideration of the three criteria identified in Knight v FP Special Assets Ltd (1992) 174 CLR 178 at 192-193 by Mason CJ and Deane J (with whom Gaudron J agreed):
“For our part, we consider it appropriate to recognize a general category of case in which an order for costs should be made against a non-party and which would encompass the case of a receiver of a company who is not a party to the litigation. That category of case consists of circumstances where the party to the litigation is an insolvent person or man of straw, where the non-party has played an active part in the conduct of the litigation and where the non-party, or some person on whose behalf he or she is acting or by whom he or she has been appointed, has an interest in the subject of the litigation. Where the circumstances of a case fall within that category, an order for costs should be made against the non-party if the interests of justice require that it be made.”
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Grounds of appeal
[38] The grounds of appeal are lengthy but it is not necessary to set them out in full. Ground 1 is to the effect that the primary judge erred in exercising the discretion to order the appellant to pay the respondents’ costs of the mother’s claim by failing to take into account, or adequately take into account by giving sufficient weight to factors that are then set out, or by making findings as relevant or giving excessive weight to other matters that are then set out, or by making other findings that are characterised in the grounds as erroneous.
[39] One of the factors relied upon by the appellant to assert an error in the primary judge’s discretion to award costs against the appellant that was the focus of the submissions on the hearing of the appeal was paragraph (a) of ground 1:
“failing to take into account, or adequately take into account by giving insufficient weight to:
(i) the lack of any warning by the respondents that an application for non-party costs would be made against the appellant;
(ii) the conduct of the respondents in connection with their not warning the appellant that an application for non-party costs would be made against her; and
(iii) the likely effect that such a warning would have had on the appellant’s conduct if one had been given;”
The jurisdiction to award costs against a non-party
[40] There was no issue between the parties on the appeal that the Supreme Court has jurisdiction to award costs against the appellant as a non-party. The passage in Knight (at 192-193) set out above had been prefaced by the observations (at 192) that the prima facie general principle was that an order for costs is only made against a party to the litigation but “there are, however, a variety of circumstances in which considerations of justice may, in accordance with general principles relating to awards of costs, support an order for costs against a non-party”. The ultimate test applied in Knight (at 193) was whether it was in the interests of justice to make the costs order against the non-party where the circumstances fell within the category of case identified at 192-193. Mason CJ and Deane J had earlier explained (at 185) that “the court will and should develop principles governing the exercise of the discretion which will ensure that the jurisdiction is not exercised in such a way as to give rise to abuse”. A survey undertaken by Mason CJ and Deane J of cases where costs had been awarded against non-parties attracted the observation (at 188):
“The cases awarding costs against non-parties are more readily explicable on the footing that there was no absence of jurisdiction to order costs against non-parties in the strict sense and that the jurisdiction could be exercised against persons who were considered to be the ‘real parties’ to the litigation.”
[41] Mason CJ and Deane J referred in Knight (at 191) to the decision of the House of Lords in Aiden Shipping Ltd v Interbulk Ltd [1986] AC 965 as providing support for the conclusion they had reached about the jurisdiction to order payment of costs against a non-party. Subsequent to Aiden, the Court of Appeal in England in Symphony (at 191-192) summarised the categories of cases in which courts had been prepared to order a non-party to pay the costs of proceedings. It was observed (at 192) by Balcombe LJ (with whom Staughton and Waite LJJ agreed) that those categories were “neither rigid nor closed” and indicated “the sorts of connection” which had led courts to entertain a claim for costs against a non-party. Balcombe LJ then proceeded (at 192-193) to set out material considerations to be taken into account by way of guidance as to when a costs order should be made against a non-party. Relevant to this appeal were the observations that it would be “even more exceptional for an order for the payment of costs to be made against a non-party, where the applicant has a cause of action against the non-party and could have joined him as a party to the original proceedings” which was then followed by this consideration:
“Even if the applicant can provide a good reason for not joining the non-party against whom he has a valid cause of action, he should warn the non-party at the earliest opportunity of the possibility that he may seek to apply for costs against him. At the very least this will give the non-party an opportunity to apply to be joined as a party to the action …”
[42] The only question before the High Court in Knight was whether the Supreme Court had jurisdiction to make an order for costs against the receivers and managers of companies which were the unsuccessful parties in proceedings where the receivers themselves were not parties to those proceedings. Orders had been made against the receivers at first instance on the ground that the receivers had instituted, maintained and defended proceedings in the names of the relevant companies. The receivers’ appeals to the Full Court against the costs orders were dismissed. The appeal to the High Court on the existence of jurisdiction to order costs against the non-parties was also dismissed. No consideration was therefore given by the High Court in Knight to the relevance in the exercise of the discretion to order costs against a non-party of whether notice of intention to seek that order had been given to the non-party when that step was in contemplation.
[43] The constraints on the exercise of the jurisdiction to award costs against a non-party recognised in Knight have been frequently applied. The criteria listed by Mason CJ and Deane J in the passage in Knight (at 192-193) are apt for circumstances that are akin to those that resulted in the costs orders against the receivers in that case. There has never been a departure in the authorities subsequent to Knight from the ultimate test of what the interests of justice require. The criteria applied in a particular case to ascertain whether the interests of justice require that a costs order be made against a non-party depend on the circumstances of the case. As observed by the Full Court of the Federal Court in Kebaro at [69], “this is a fact-specific jurisdiction”. As a result, there are many authorities where more general statements have been made about the circumstances that may give rise to the exercise of the jurisdiction to award costs against a non-party but those statements must be considered in the context of the nature of the proceeding for which costs are sought against a non-party, the facts of the particular case, and the factors relevant to the application of the ultimate test in that case.
[44] The Full Court in Vestris v Cashman (1998) 72 SASR 449 dismissed an appeal from a District Court judge’s refusal to order costs against the non-parties who were the directors and shareholders of the company and beneficiaries of the trust of which the company was trustee and financed the company’s unsuccessful civil action (when the company was insolvent at all material times) on the basis there was no jurisdiction to make such an order. Vestris had sold a business to the company and the company’s claim was for damages in respect of an alleged misrepresentation relating to the sale of the business. No interlocutory application had been made by Vestris for an order for security for costs. For about a year prior to the dismissal of the company’s claim, Vestris knew of the company’s parlous financial situation. Two of the members of the Court made observations about the requirement for notice of the intention to make a claim for costs against the non-party, if there had been jurisdiction, and the third member of the Court (Doyle CJ) agreed with both judgments in that regard. Olsson J stated at 458:
“… common fairness dictates that a defendant seeking to place a non-party at risk of an order for costs must, either by bringing a timely application for security or, alternatively, at least by letter advising the defendant’s intention, place the non-party on notice of that risk, so that the non-party will not, in effect, be lulled into a false sense of security and ambushed, when it is too late for it to reflect as contemplated in Yates Property Corporation Pty Ltd v Bolan[d] …”
The reference to Yates was to a statement by Branson J in that case reported at [1997] FCA 760; (1997) 147 ALR 685 at 695 to the effect that if an application for security for costs against the plaintiff company was brought, those who stood behind the company may then decide as to whether to make the financial commitment necessary to allow the litigation to proceed. Vestris’ appeal challenged the District Court judge’s focus on the failure to take some timely earlier action in relation to protecting itself from the inability of the company to meet a costs order as the dominant consideration for the District Court judge’s decision. Olsson J concluded (at 459) that the District Court judge had not ignored other facts in exercising the discretion but that “in the final analysis, the question of a failure to raise the issue of a potential personal liability by the respondents for costs, in a timely manner, clearly became the dominant factor in the events which had transpired”.
[45] Lander J in Vestris referred (at 467-468) to Symphony and that in exercising the discretion to award costs against a non-party regard would be had to whether the non-party had any warning that an application for costs against that party would be made. Lander J observed (at 472) that if an application for security for costs had been bound to fail “then the defendant would advise the plaintiff and those the defendant knows to be backing the plaintiff and interested in the litigation that in the event that the plaintiff’s action fails they would be seeking an order for costs”.
[46] Branson J’s decision in Yates was upheld on appeal in Yates v Boland [2000] FCA 1895. The company Yates Property Corporation Pty Ltd had unsuccessfully sued its lawyers for professional negligence. Mr Yates was one of two directors and a majority shareholder and he gave all significant instructions on behalf of the company concerning the proceeding. The company did not have the means to pay the respondents’ costs. Branson J had ordered that Mr Yates was jointly and severally liable with the company to pay the indemnity costs of the respondents. Branson J found that the respondents did not know of the parlous state of the company’s finances until after the end of the trial. One of the grounds of appeal by Mr Yates was that he was not warned that he may be made liable for costs and the failure to warn was a material consideration to which Branson J failed to have regard and the discretion thereby miscarried. On the basis that the respondents were not in a position to warn the appellant during the trial as they were unaware of the state of the company’s finances, the Court (at [39]) held that the failure to give a warning which was a material consideration in Symphony and Vestris was not a material consideration in the subject case. The Court stated (at [34]):
“The discussion concerning Symphony and Vestris in pars 18 to 32 of these reasons shows that the question of warning has been treated as a material consideration in certain circumstances. Whether such a requirement arises in a particular case depends on the facts and circumstances of the individual case. The necessity to warn a non-party of an intention to claim costs is not a principle applicable in every case in which costs are sought against a non-party. Rather it may be a material consideration depending on the situation disclosed in the case under consideration.”
[47] In Gore v Justice Corporation Pty Ltd (2002) 119 FCR 429, a mining company (Montague) had succeeded in proving the liability of the Gore parties (Gore) for professional negligence. Montague entered into a litigation agreement with Justice Corporation Pty Ltd (the respondent) for financial assistance to Montague in litigating the assessment of its damages against Gore. In return, the respondent was to receive, effectively, eight per cent of any award of damages that Montague might obtain. The existence of the litigation agreement was disclosed by Montague’s solicitors to the solicitors for Gore soon after it was made. The recitals recorded that the respondent had agreed to pay necessary litigation costs in relation to the claim on the terms set out in the litigation agreement. It was a provision of the litigation agreement that Montague was to retain control of the litigation. When Gore’s request that the respondent provide security for Gore’s costs of the assessment of quantum was refused, Gore applied unsuccessfully to the Court for an order for security for those costs.
[48] Montague obtained judgment on the assessment against Gore in an amount that was less than an offer to settle made by Gore soon after the decision on the question of liability. The costs order in favour of Montague was therefore limited to the costs incurred up to the date when Montague rejected Gore’s offer to settle but there was no order that Montague pay any of Gore’s costs. Both Montague and Gore appealed against the quantum and costs decision. The appeal by Gore was successful, Montague was awarded nominal damages of only $20, and Montague was ordered to pay Gore’s costs from the date that Montague had rejected the settlement offer. Three days before the hearing of the appeal Montague and the respondent had executed a new agreement which was called the loan agreement that purported to assert that the litigation agreement was “void ab initio and of no effect”. As a result of the parties making the litigation agreement void, Montague and the respondent then agreed that the moneys provided by the respondent to Montague had been lent to Montague to prosecute the litigation. After the publication of the Full Court’s reasons, Gore called upon the respondent to pay their costs because of the provision in the litigation agreement that the respondent would pay Montague’s costs and Gore’s costs. It was then that Montague and the respondent informed Gore that the litigation agreement had been cancelled and replaced with the loan agreement.
[49] When the respondent refused to pay Gore’s costs pursuant to the order, Gore applied for an order that the respondent (as a non-party) pay their costs. That application was unsuccessful and that resulted in the appeal in Gore. The Court in Gore referred (at [46]-[47]) to Symphony and Vestris as cases that suggest an applicant for a costs order against a non-party may be unsuccessful if no prior notice of an intention to claim costs has been given to the non-party. The Court noted (at [48]) that it was not necessary for it to express a view on the need to give notice in the terms suggested by Olsson J in Vestris, as Gore had put the respondent on notice when it unsuccessfully sought security from it for Gore’s costs and Montague’s solicitors had provided Gore with a copy of the litigation agreement between Montague and the respondent from which Gore would have read of the respondent’s commitment to Montague to pay any costs that Montague might be ordered to pay to Gore. The Court refused (at [63]) to allow the respondent to rely on the cancellation of the litigation agreement as it was reasonable to infer that Gore relied upon its content. The Court noted (at [64]) that the respondent had a direct financial interest in the outcome of the quantum assessment, even though it did not control the litigation. The Court concluded (at [64]) that in return for the chance of obtaining eight per cent of the judgment debt and recoupment of much of its outlay for costs, the respondent should be expected to incur the risk of a costs order in the event of Gore being the successful party. The appeal was allowed in part and the respondent was ordered to pay a specified portion of Gore’s costs.
[50] The non-party in Kebaro was unsuccessful in its appeal to the Full Court in showing error in the primary judge’s exercise of discretion to order the non-party to pay the costs of some of the respondents in the proceeding. It was complex litigation and the involvement of the non-party with the applicants in the proceeding was substantial, as found by the primary judge and summarised in Kebaro at [37]. The financier of the property that was the subject of the proceeding had entered into a deed with the non-party and some of the applicants to the proceeding and, relevantly, the parties to the deed recognised the potential for the respondents to seek security for the costs of the proceeding and potentially a non-party costs order against the financier should the proceeding fail. The non-party agreed to indemnify the financier in respect of any amount for which it was required either to give security or to pay costs to the respondents in the proceeding. One of the grounds of appeal (set out at [47]) was that the failure of the respondents to give notice of their intention to claim costs against the non-party should disentitle the respondents to any costs order against the non-party. The primary judge had rejected that defence for the reasons summarised in Kebaro (at [42]-[46]) primarily because the primary judge was not satisfied that the respondents were equipped with sufficient information about the non-party’s interest in the litigation to have realised that its role in the litigation brought it into the category of case of a person liable for a non-party costs order. The Full Court rejected (at [140]) the contention that the absence of a warning deprived the respondents of the non-party costs order in the factual context of that litigation.
[51] The respondents who were successful in Citrus Queensland Pty Ltd v Sunstate Orchards Pty Ltd (No 10) [2009] FCA 498 in defending the applicants’ claim were unsuccessful in seeking the award of costs against the non-party who was the wife of the second applicant. The factors relied on by the respondents included the following. The first applicant had granted a charge over its assets to the non-party who had borrowed funds secured over her house property to advance loans to the first and third applicants to purchase the orchard properties from the respondents. The non-party had assisted in providing security for costs that the applicants had been ordered to pay and was a beneficiary of the trust of which the first applicant was the trustee. The first and second respondents had given notice of intention to seek costs of the proceeding against the non-party. Contrary factors relied on by the non-party included that any benefits the non-party would have received, if the applicants’ claim had been successful, would accrue only by virtue of her securities and not by virtue of any action by her concerning the proceeding. It was apparent during the proceeding that the second applicant played a pivotal role in all matters concerning the applicants and the actual authority to make all decisions with respect to the conduct of the litigation remained with the second applicant.
[52] Collier J set out (at [20]) the principles in Knight and those developed or applied in the Federal Court subsequent to Knight as guidance to the exercise of the jurisdiction to award costs against a stranger to the litigation. The first principle that is listed that there must be “a real link between the non-party and the proceedings, which is material to the issue of costs” is then qualified by the subsequent principles including that the mere fact a person may benefit from litigation will not, without more, suffice to justify an award of costs against a non-party.
[53] Collier J made a finding (at [29]) that any financial support provided by the non-party to the applicants’ case was motivated by her natural affection for the second applicant rather than any financial interest she may have had in the outcome of the proceedings. Collier J inferred (at [31]) that the regular attendance by the non-party at the trial was, not unreasonably, to support the second applicant because the outcome of the trial was important to him. In relation to the assistance of the non-party in providing security for costs which the applicants were ordered to pay, Collier J considered (at [32]) that was explicable “by the natural inclination of a wife to support her husband in litigation to which he is a party and does not constitute an active part played by [the non-party] in the conduct of the litigation”. In addition, Collier J was not persuaded (at [33]) that financial arrangements of the non-party resulted in her having a “real link” with the applicants’ proceedings which was material to the issue of costs.
[54] The test to be applied on an application for a costs order against a non-party was expressed in general terms in Court House Capital Ltd v RP Data Pty Limited [2023] FCAFC 192 at [10] as whether a non-party has a “connection to the litigation” which is sufficient to warrant the exercise of the power to order costs against the non-party. An order for costs had been made against the non-party litigation funder Court House which appealed against the order. Under the funding agreement, Court House agreed to provide funding for the applicants’ solicitors, senior and junior counsel and disbursements and could provide further funding pursuant to a further funding agreement which could include agreement to fund adverse costs orders but Court House was under no obligation to provide any further funding or indemnity. No-win no-fee arrangements with the solicitors and junior counsel reduced the potential funding. In the event the applicants received an amount by way of judgment or settlement, they were required to repay the entire funding provided by Court House together with an additional sum calculated as 15 per cent of the gross settlement or judgment amount. Even though the solicitors for the applicants were to continue to be instructed by the applicants relating to the proceeding, the applicants were required to consult with Court House on any issues arising from the conduct or progress of the proceeding and could not compromise the claim without prior consultation with, and consent from, Court House. The appeal was unsuccessful. The Court rejected (at [37]) the submission that the proceeding could have been funded in any event without Court House’s funding of senior counsel. The Court concluded (at [38]) that Court House did “facilitate” the litigation for its own personal gain: it agreed to fund the litigation and funded senior counsel’s fees; the applicants were required to consult with it on the conduct of the proceeding and could not compromise the claim without its consent; and it attended the mediation.
[55] In MC Wholesaling Pty Ltd v Zheng [2024] VSCA 248, the first and second applicants (the applicants) were in the business of distributing milk powder products. The third applicant (who was referred to as Andy) was their sole director. The first respondent (who was referred to as Rocky) was the director and shareholder of the second respondent which provided delivery services to the first applicant. In June 2020 the applicants applied ex parte for, and obtained, a freezing order against Rocky and other parties alleging their involvement in a fraudulent scheme through which they had profited at the applicants’ expense. The minimum amount of assets that Rocky and the others were each required to retain under the freezing order was $402,887. The applicants commenced the proceeding against Rocky and his alleged co-conspirators for breach of contractual and/or fiduciary duties. There were two unsuccessful mediations (in September 2020 and April 2021) and the applicants rejected a Calderbank offer made in February 2021 from Rocky to settle the claim on the basis that each party walk away and bear their own costs. Six requests for the freezing order to be discharged were refused by the applicants. In April 2022, the applicants conceded their claim against Rocky and the second respondent did not exceed $60,000. Ultimately the applicants discontinued the proceeding against the respondents in November 2022. The applicants were ordered to pay the respondents’ costs of the proceeding on an indemnity basis and Andy was also ordered to pay the costs of Rocky and the second respondent on an indemnity basis. Andy’s appeal against the non-party costs order was dismissed.
[56] The primary judge had based the decision to make the non-party costs order on the finding that Andy was the “driving force” behind the litigation and the unfounded claims of fraud and serious misconduct and whether the applicants would choose to meet very substantial adverse costs orders depended on Andy (the control finding). Macaulay JA emphasised (at [89]-[90]) “that pronouncements by previous courts of factors that have or have not been taken into account in the exercise of the discretion are not to be treated as some sort of fixed list of ‘ingredients’ or prohibited factors”. Macaulay JA concluded (at [94]) that the non-party costs order was the result of the proper exercise of a judicial discretion. Matters not in dispute were set out by Macaulay JA (at [101]) that Andy:
“(a) gave all instructions on behalf of the applicant companies in relation to the proceeding;
(b) swore the initial affidavits upon which the freezing orders were obtained;
(c) attended the hearings and mediations;
(d) instructed the applicant companies’ solicitors to refuse the Calderbank offer;
(e) gave instructions not to release or modify the freezing order in response to the six letters from Rocky’s solicitors requesting that the applicant companies do so; and
(f) ultimately, gave instructions to abandon the claims that he had caused to be instituted.”
In addition, Andy gave the undertaking as to damages upon which the freezing orders were obtained. There was no evidence that Andy himself funded the proceeding. The second applicant had a net deficiency of assets. The first applicant had more than sufficient funds to meet the estimated costs.
[57] Macaulay JA found (at [111]) that the primary judge was justified in finding that whether the first applicant had the financial capacity to pay the costs ordered against it came down to Andy’s choice. Macaulay JA therefore concluded (at [115]) that there was no error by the primary judge in considering that it was in the interests of justice to make an order that Andy pay the costs of Rocky and the second respondent, having regard to the role Andy played in the litigation, the unlikely prospect that the first applicant could pay the adverse costs order without Andy choosing to put in funds, and the cause for doubt that he would do so.
[58] Lyons and Orr JJA agreed with Macaulay JA that the appeal by Andy against the non-party costs order should be dismissed. Lyons JA (at [137] did not agree with the control finding made by the primary judge without a finding that Andy would deal with the assets of the first applicant in a way to defeat the rights of Rocky and the second respondent as judgment creditors as to their costs. Both Lyons and Orr JJA considered (respectively at [134] and [155]-[156]) that the primary judge was entitled to make the non-party costs order against Andy on the basis he was the driving force behind the institution and maintenance of claims of fraud and serious misconduct.
[59] Even though not necessary for the decision in MC Wholesaling, Lyons JA observed (at [146]):
“Although it was not relied upon in the proposed grounds of appeal, I consider it desirable that a party who may seek a costs order against a non-party associated with a party to a proceeding should put that non-party on notice as soon as reasonably practicable. In my view, providing such notice serves two purposes. First, it ensures fairness to the non-party. Second, such notice is likely to cause the non-party to review his or her role in the proceeding and/or may make a real difference as to how that non-party conducts the litigation.”
[60] In practical terms, the prospects of the opposing party being able to pay an adverse costs order and the anticipated costs of remaining a party to litigation are important considerations for any party on whether to endeavour to compromise the litigation. Even though (as the above survey of authorities shows) there are many different circumstances in which the jurisdiction to order costs against a non-party has been exercised, the dominant reason for that jurisdiction is to ensure that the non-party who is the real litigant or for whose benefit the litigation is being conducted (and therefore facilitated the commencement and/or continuance of the litigation for that purpose) is also vulnerable to an adverse costs order. If the non-party is truly controlling or influencing the actual party with whom the non-party is associated, the prospect of a costs order against the non-party may be the incentive to the non-party to exercise that control or influence, so that the party considers whether to compromise or otherwise bring the proceeding to an end. As observed by Lyons JA in MC Wholesaling,the giving of the warning by the party who may eventually seek a non-party costs order, if successful in the litigation, is a matter of procedural fairness to the non-party. What is relevant is the opportunity that is given by the warning to the non-party to consider the non-party’s position in relation to the relevant proceeding and the non-party’s support of, or influence over, the party with the whom the non-party is associated. The issue is not whether the non-party would take up the opportunity to exercise the influence over the party with whom they are associated. If the warning is not given and costs are subsequently sought against the non-party, it may raise an argument that the successful party failed to mitigate its costs of the litigation for the benefit of the non-party.
[61] Where the circumstances were patent to all connected to the litigation (including the non-party) that the non-party is the real litigant or the driving force for the litigation (as was the case in MC Wholesaling) or for whose benefit the litigation was being conducted (as in Knight) or for other reasons which made the giving of a warning of the intention to seek a non-party costs order unnecessary (as in Gore), the failure by a party to give a warning on the intention to seek a non-party costs order may have no consequences for the application. Where it is marginal (or not so obvious) as to whether a non-party would be liable for an order to pay the successful party’s costs of the proceeding, a warning to the non-party of the intention to hold them liable for the costs of the proceeding (if the party with whom they are associated is unsuccessful) has much greater significance. It is not merely a factor to be considered in those circumstances on an application for a non-party costs order, but it is a factor which may, in an appropriate case, determine whether it is in the interests of justice for a costs order to be made against the non-party.
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Did the primary judge err in the approach to the failure to warn?
[66] Even though Knight was the seminal case in Australia for exercising the jurisdiction to make an order for costs against a non-party, the decision in Knight made clear that the criteria identified (at 192-193) for making such a costs order were appropriate for that type of case but there were “a variety of circumstances in which considerations of justice may, in accordance with general principles relating to awards of costs, support an award for costs against a non-party”. The primary judge’s approach in the reasons of focusing mainly on the three criteria in Knight and then dealing briefly with other relevant factors when considering whether the interests of justice required that an order for costs be made against the appellant distorted the identification, and weighing up, of the factors that were relevant to the exercise of the discretion in the circumstances of this particular case.
[67] Based on relevant findings made by the primary judge, the factors to be taken into account in deciding whether to make the non-party costs order against the appellant were:
(a) it was the appellant’s real property searches of the Dagmar Street property and the Harbut Street property in March 2017 that precipitated the letter of demand dated 12 April 2017 sent by the appellant’s solicitors on behalf of the mother to the respondents that led to the mother’s commencing the proceeding ([132](h) and (j) of the reasons);
(b) the appellant at the initial stage and at various stages in the proceeding had considerable influence over the mother ([132](a), (b), (i) and (o));
(c) the mother, to the appellant’s knowledge, had no assets to meet any costs order, if the mother was unsuccessful in the proceeding ([132](c));
(d) the appellant was involved in discussions with the first respondent who outlined that the Harbut Street property had been transferred to the respondents intentionally by the mother ([142](d));
(e) the appellant may not actually have known that the mother’s allegations of fraud against the respondents were false, as the mother had on at least one occasion not been full and frank with the appellant ([142](g)(i));
(f) the conduct of the litigation by the mother was unreasonable and improper ([132](e)) (but this factor must be qualified by the factor identified at [142](g)(i));
(g) the appellant counselled and encouraged or otherwise influenced the mother to continue the proceeding making the serious fraud allegations with at least reckless disregard by the appellant to the matters which had been outlined to her by the respondents ([142](g)(ii)) (but this factor must also be qualified by the factor identified at [142](g)(i));
(h) the appellant made a minimal contribution to the legal costs and outlays incurred by the mother in respect of the proceeding and was otherwise not the source of the funds for the litigation ([51](b) and (d)(i), [107] and [132](f));
(i) the appellant had no direct interest in the proceeding but her conduct in making the initial demand for a payment of $1.75m, being involved in negotiations and maintaining that initial demand “tended” to support the conclusion that she had an “agenda” or “motive” in the litigation being pursued which was for her mother to get a negotiated settlement of $1.75m from the respondents ([132](g) and [142](h));
(j) there was no warning by the respondents to the appellant during the course of proceeding before the parties to the proceeding embarked on a trial that took 16 days of the respondents’ intention to seek a non-party costs order against the appellant, if the respondents succeeded in defending the mother’s proceeding ([133]);
(k) the appellant played an active part in the proceeding but did not exclusively control the conduct of the proceeding and the specific examples given by the primary judge of the appellant’s involvement were the investigations and demands on behalf of the mother prior to the commencement of the proceeding, her influence over the mother in settlement negotiations, giving “at least to some extent” instructions to the mother’s lawyers, and in pressing the respondents to settle with the mother in October/November 2019 ([132](d), (j), (k), (l) and (m) and [142](c)).
[68] There were factors in favour of and against making the non-party costs order against the appellant.
[69] The primary judge did not address directly the undisputed evidence given by Mr Hansen that all instructions were given to him by the mother but Margo’s evidence supported the inference that the appellant influenced the instructions which the mother did give to her lawyers. The appellant’s text messages in October/November 2019 showed how the appellant aligned herself with the mother’s interests in the proceeding (at least at that stage).
[70] It is notable that the primary judge’s findings about the appellant’s involvement focused on the conduct that precipitated the proceeding and the appellant’s role in pursuing a settlement for the mother of a significant payment from the respondents at least up until November 2019. It was significant that almost all the funds for the mother’s conduct of the litigation came from sources other than the appellant. It was a significant finding made by the primary judge (at [201] of the original decision) that the mother was not full and frank with the appellant when she returned home after signing the transfer in favour of the respondents on 19 June 2007 which resulted in the conclusion of the primary judge (at [142](g)(i) of the reasons) that the appellant may not actually have known the mother’s allegations of fraud against the respondents were false. That finding was mitigated by the additional finding (at [142](g)(ii)) that the appellant counselled and encouraged or otherwise influenced the mother to continue the proceeding with reckless disregard to the matters which had been outlined to her by the respondents (but which had to be considered in the context of the mother’s lack of frankness with the appellant about the circumstances of the mother’s execution of the transfer).
[71] When (to the respondents’ knowledge) it was not apparent to the appellant when she made the threat to the respondents in November 2019 that the mother had nothing to lose by continuing with the proceeding that the appellant herself may be at risk of a non-party costs order in favour of the respondents on their successful defence of the mother’s claim, the failure of the respondents to warn the appellant at any time thereafter up to at least the commencement of the trial of the respondents’ intention to seek a non-party costs order against the appellant was a critical factor in whether the non-party costs order should be made against the appellant.
[72] As explained at [34] above, despite the primary judge’s listing the failure to warn (at [133] of the reasons) as a relevant factor in deciding whether to make the non-party costs order, there was no assessment of the significance of the respondents’ failure to warn the appellant in the circumstances of the case. If that had been undertaken, there was only one conclusion which could be reached. The failure to warn the appellant was a determinative factor in the circumstances of this otherwise marginal case for making the non-party costs order where it was not obvious before the trial of the proceeding that such an order would ultimately be sought against the appellant. The primary judge’s reasons show that there was no real consideration of the significance of the failure to warn.
[73] The appellant succeeds on ground 1(a) in showing that the primary judge erred in exercising the discretion to make the non-party costs order against the appellant by failing to assess the significance of, and therefore take into account in a meaningful way, the lack of any warning by the respondents that such an order would be sought against the appellant. That failure is sufficient to dispose of the appeal.
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Orders
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[79] The orders which should be made are:
- Application filed on 26 November 2024 for leave to adduce evidence refused with costs.
- Application for leave to file the further amended notice of appeal dated 3 February 2025 refused with costs.
- Appeal allowed.
- Orders made by the primary judge on 11 and 18 April 2024 are set aside.
- Application filed by the respondents in the Trial Division on 31 October 2022 (the non-party application) is dismissed.
- Subject to orders 1 and 2, the respondents must pay the appellant’s costs of the appeal (excluding the costs of the preparation of the second and third versions of the supplementary record books), the appellant’s costs of the non-party application and the costs reserved in the order of the primary judge made on 12 June 2024.
The link to the full decision is here.
[1] Hearsay Issue 92 (June 2023, Advocacy) considered the Federal Court appellant decision involving a non-party costs order against the litigation funder in the Court House Capital case in ‘Third Party Costs Order against Litigation Funder – “Not motivated by Access to Justice”. The link to that article is here.
