In Court House Capital Pty Ltd v RP Data Pty Limited [2023] FCAFC 192 (8 December 2023) the Full Court of the Federal Court – Charlesworth, Sarah Derrington and Raper JJ – provided useful guidance as to the circumstances in which, under s 43 of the Federal Court of Australia Act 1976 (Cth) an order for costs may be made against a non-party – in this instance litigation funder of an applicant or plaintiff – in respect of whom the court concludes that an order for costs ought be made in favour of the respondent or defendant. The decision of the Full Court provides a useful analysis of the contrasting which might arise in the making, or refusing, of such an order. In particular, an applicant or plaintiff’s solicitor ought seek assurance that a funder is providing an indemnity against adverse costs order against the defendant, absent which a generous order for security for costs ought be sought. The decision at first instance, and on appeal, was successfully argued – for the respondent – by Mark Martin KC of the Queensland Bar. The Court wrote:
Charlesworth , Sarah Derrington and Raper JJ.
[1] The question in this appeal is whether the primary judge’s exercise of discretion miscarried when costs were awarded against a commercial litigation funder. The appellant, Court House Capital Pty Ltd, appeals from the judgment in Hardingham v RP Data Pty Ltd (Third Party Costs) [2023] FCA 480 ( primary judgment ), in which the primary judge ordered that Court House pay the costs of the respondent, RP Data Pty Limited, for proceedings commenced by funded parties against RP Data.
[2] Court House contends variously that the primary judge erred by “failing to soundly exercise” the Court’s discretion to award costs by giving no or insufficient weight to a variety of matters. Where an appeal involves an exercise of discretion, the Court will not interfere unless certain kinds of error exist: House v R (1936) 55 CLR 499 . For the reasons which follow, Court House has not established error and the appeal must fail.
[3] The relevant facts may be briefly stated as follows. Court House is a litigation funder that entered into a Funding Agreement with Mr Hardingham and Real Estate Marketing Australia Pty Ltd ( REMA ) on 20 June 2018. The primary judge described the commercial arrangements that formed the background to Mr Hardingham and REMA’s claim as follows (at J[4]):
The principal proceedings were commenced on 13 July 2018, a short time after the Funding Agreement was entered into. Mr Hardingham was a professional photographer. He was the sole director of REMA. REMA had been commissioned by various real estate agencies to produce photographs and floor plans for use in marketing campaigns for the sale or lease of properties, including by upload onto the realestate.com.au platform ( REA platform ). Mr Hardingham and REMA and the real estate agencies each knew that: (a) the photos and floorplans were maintained on the REA platform after completion of the sale or lease and were made available to subscribers; and (b) the photographs and floor plans were provided by REA under contract to RP Data for publication via its website, www.corelogic.com.au.
[4] Mr Hardingham and REMA brought proceedings against RP Data on the basis that the licence given to the agencies in respect of photographs taken and floor plans produced by REMA was limited, such that RP Data infringed copyright by publishing the photographs and floor plans on www.corelogic.com.au.
[5] The primary judge summarised the relevant terms of the Funding Agreement (with which no issue is taken on appeal) in the following way (at J[2]):
- By clause 2 of the Funding Agreement, Court House agreed to provide funding for the applicants’ solicitors, senior counsel, junior counsel and disbursements.
- By clause 3.1, Court House could provide further funding pursuant to a further funding agreement which could “include agreement to fund adverse costs orders”. The Funding Agreement did not provide for Court House to indemnify the applicants against an adverse costs order.
- Clause 3.2 provided that Court House “is under no obligation to provide any further funding or indemnity”.
- By clause 4, in the event of receiving an amount either by way of judgement or settlement, the applicants were required to repay the entire funding provided by Court House, together with an “additional sum” calculated as 15% of the “final amount”, being in essence the gross settlement or judgment amount.
- By clause 6.3, it was acknowledged that the solicitors for the applicants would continue to be instructed by the applicants in all matters relating to the proceedings and the applicants had the right to direct, conduct and conclude the proceedings by way of settlement.
- The entitlement in cl 6.3 was subject to clauses 6.4 and 6.5 which provided, in effect, that the applicants would consult with Court House on any issues arising from the conduct or progress of the proceedings and that they would not compromise the claim without prior consultation with and consent from Court House.
[6] The first instance judgment in the principal proceedings was handed down on 17 December 2019 ( Hardingham v RP Data Pty Ltd (No 2) [2019] FCA 2138 ) and included orders requiring Mr Hardingham and REMA to pay RP Data’s costs of the proceeding (excluding costs of a cross-claim filed by RP Data) on a party and party basis until 28 June 2019 and thereafter on an indemnity basis. Mr Hardingham and REMA appealed this decision to the Full Court and obtained a stay of the costs orders made at first instance: Hardingham v RP Data Pty Ltd (No 3) [2020] FCA 868 . The Full Court allowed the appeal on 8 September 2021: Hardingham v RP Data Pty Ltd [2021] FCAFC 148; 395 ALR 644 . The High Court reversed the Full Court’s decision on 14 December 2022: RP Data Pty Ltd v Hardingham [2022] HCA 39; 97 ALJR 40 . Following the High Court’s decision, the costs orders made on 17 December 2019 became operative.
[7] RP Data then made an interlocutory application, on 3 February 2023, seeking that Court House be ordered to pay RP Data’s costs on the basis ordered on 17 December 2019, and that Court House be jointly and severally liable with the applicants for such costs. The application was determined on the papers with the benefit of submissions and evidence. The primary judge, in exercise of the Court’s broad discretionary power under s 43 of the Federal Court of Australia Act 1976 (Cth) ( FCA Act ), found that Court House and its activities had a sufficient connection with the principal proceedings for it to be appropriate that a costs order be made against it: at J[33].
The grounds of appeal
[8] Court House advanced five grounds of appeal (not pressing at hearing the sixth ground), that the primary judge failed to soundly exercise his discretion by:
(1) giving no weight to RP Data’s failure to apply for security for costs;
(2) failing to sufficiently take account of his finding that, had RP Data made an application for security for costs after 25 March 2019, it was likely that security would have been ordered, Court House would have renegotiated its fee and increased its commission, noting that RP Data erroneously assumed (without adequate basis) that the Funding Agreement contained an indemnity against adverse costs orders;
(3) not sufficiently taking into account that, when the Funding Agreement was entered into, Hardingham and REMA only sought funding to prosecute the primary proceedings, their claim was bona fide and there was no evidence that Hardingham and REMA could not meet an adverse costs order, nor that Court House considered there to be a prospect that it would be ordered to pay RP Data’s costs;
(4) not sufficiently taking into account that Court House’s funding was limited to the fees of senior counsel when ordering that Court House meet the entirety of RP Data’s entitlement to recoverable costs, which was disproportionate to its connection with the proceedings and not fair; and
(5) failing to sufficiently take into account that Court House had no control over the conduct of the litigation and, but for the funding, the course of the proceedings would likely have been no different, having regard to the fact that Court House merely had the right to be consulted about the conduct of the proceedings, the funding provided was only in relation to the fees of senior counsel, and the appellate proceedings did not have the benefit of funding.
[9] At hearing, the appellant submitted that the primary judge’s discretion miscarried in two ways but without identifying how those two ways intersected with the appeal grounds as framed. Upon clarification from the Court, Court House maintained each ground of appeal (except ground six, as noted above) though did not address them in turn at the hearing. To the extent that we were able to decipher Court House’s argument, the two ways in which the primary judge’s discretion was said to have miscarried, were that the primary judge: (a) erred in law as to the degree of connection required as between the funder and fundee, such that there will be no relevant connection unless the funder “facilitated the proceeding” (which appears to arise in the context of ground four); and (b) erred in awarding costs where, because of RP Data’s assumption from the commencement of the proceedings that Court House had provided the applicants with an indemnity for an adverse costs order, RP Data made a forensic decision not to apply for security for costs (to which grounds one and two relate). Those issues are addressed in the context of the relevant grounds to which they appeared to relate.
Consideration
[10] Section 43 of the FCA Act empowers this Court with a broad, discretionary power to award costs where that discretion is to be “exercised judicially and in accordance with general principles pertaining to the law of costs” Knight v FP Special Assets Ltd (1992) 174 CLR 178 at 192 per Mason CJ and Deane J, citing Oasis Hotel Ltd v Zurich Insurance Co (1981) 124 DLR (3d) 455 at 462 per Lambert JA Whilst the usual order is made against a party and particularly an unsuccessful party, the power extends to making costs orders against non-parties. So much was uncontroversial below and remains uncontroversial. The primary judge correctly identified the issue: the power to order costs against a third party will only be exercised in circumstances where a non-party has a connection to the litigation which is sufficient to warrant the exercise of power, at J[19], citing Dunghutti Elders Council (Aboriginal Corporation) RNTBC v Registrar of Aboriginal and Torres Strait Islander Corporations (No 4) [2012] FCAFC 50; 200 FCR 154 at [89]; Skelin v Self Care Corporation Pty Ltd (No 2) [2022] FCA 50 at [21].
[11] Contrary to the implicit effect of a submission made by Court House, there is no rigid checklist of factors which may be taken into account. This is particularly so given that the determination of the nature and extent of the relevant connection will be informed by the character of the non-party. For example, whether the non-party is a receiver (see Knight at 192–3), a family member of a party (see Citrus Queensland Pty Ltd v Sunstate Orchards Pty Ltd (No 10) [2009] FCA 498 at [22]–[23]; KSMC Holdings Pty Ltd v Bowden (No 3) [2020] NSWCA 158 at [45], [50]), a union (see, eg, Traynor v Cunningham [2017] WASCA 125 at [39]–[45]; see, eg, in the context of the tort of maintenance, Hill v Archbold [1968] 1 QB 686 at 695) or a commercial litigation funder (see Gore v Justice Corporation Pty Ltd [2002] FCAFC 354; 119 FCR 429 at [64]), the authorities reveal that different considerations arise in each case.
[12] The primary judge described the legal principles which inform the Court’s discretion in the following way:
19 It is not in dispute that the power under s 43 extends to making costs orders against non-parties: Knight v FP Special Assets Ltd [1992] HCA 28; 174 CLR 178 . Plainly enough, the power to order costs against a third party would only be exercised in circumstances where a non-party has a connection to the ligation [sic] which is sufficient to warrant exercise of the power: Dunghutti Elders Council (Aboriginal Corporation) RNTBC v Registrar of Aboriginal and Torres Strait Islander Corporations (No 4) [2012] FCAFC 50; 200 FCR 154 at [89]; Skelin v Self Care Corporation Pty Ltd (No 2) [2022] FCA 50 at [21].
20 One example of where a connection is typically insufficient is where family members provide financial support to an applicant in litigation in which the supporting family member has no commercial interest in the outcome; such assistance is founded in family or social ties and directed at facilitating access to justice for the purpose of vindicating rights — see, for example: Citrus Queensland Pty Ltd v Sunstate Orchards Pty Ltd (No 10) [2009] FCA 498 at [22]; KSMC Holdings Pty Ltd (t/as Hubba Bubba Childcare on Haig) v Bowden (No 3) [2020] NSWCA 158 at [45]; Skelin at [20], [63] to [70].
21 It has been said that an “order for costs against a non-party is only made in exceptional circumstances”: Dunghutti at [90]; or that it is rare and exceptional: Vestris v Cashman (1998) 72 SASR 449 at 467; see also: FPM Constructions Pty Ltd v Council of the City of Blue Mountains [2005] NSWCA 340 at [214]; PMWorks Pty Ltd v Management Services Australia Pty Ltd (t/as Peak Performance PM) [2018] NSWCA 168 at [39]. This is not intended as more than an observation that the costs consequences usually fall on the parties to the litigation or that such an order is outside of the ordinary run of cases where parties pursue or defend claims for their own benefit and at their own expense — see: Dymocks Franchise Systems (NSW) Pty Ltd v Todd (No 2) [2004] UKPC 39 [2005] 4 All ER 195 at [25]; KSMC Holdings at [44]; Skelin at [19]. It is, accordingly, not particularly helpful to state that a third party costs order is rare and exceptional. When there is a sufficient connection between the litigation and a third party, and the circumstances are such that the making of a costs order is fair in all the circumstances, the making of a third party costs order is normal. Certainly, it is not exceptional to order costs against a litigation funder who facilitates litigation for their own commercial gain. Indeed, this has become increasingly common. As Hammerschlag J said in Mistrina Pty Ltd v Australian Consulting Engineers Pty Ltd — Costs [2020] NSWSC 633 at [26]:
… Dymocks was decided 16 years ago. Litigation funding is much more common now than it was then. It is an everyday feature of cases in this [Technology and Construction] List and the Commercial List in all types of claims, not only class actions. Applications of the present type are even less exceptional now than they were then.
22 There are many cases which recognise the fairness in ordering a party who funds litigation for their own commercial benefit to pay, if they fail, the successful party’s costs. This is so whether or not the funder has given an indemnity for the costs ordered against an unsuccessful applicant. Examples include: Dymocks Carborundum Abrasives Ltd v Bank of New Zealand (No 2) [1992] 3 NZLR 757 ; Gore v Justice Corp Pty Ltd [2002] FCAFC 83 119 FCR 429; Mistrina. In Dymocks at [26], the Privy Council quoted from the unreported judgment of 19 May 2000 of Fisher J of the High Court of New Zealand in Arklow Investments Ltd v McLean at [21]:
… [I]t is wrong to allow someone to fund litigation in the hope of gaining a benefit without a corresponding risk that that person will share in the costs of the proceedings if they ultimately fail.
23 In the context of ordering security for costs against a non-party, Hodgson JA observed in Green v CGU Insurance Ltd [2008] NSWCA 148 67 ACSR 105 at [51] that “the court system is primarily there to enable rights to be vindicated rather than commercial profits to be made” and that “courts should be particularly concerned that persons whose involvement in litigation is purely for commercial profit should not avoid responsibility for costs if the litigation fails”. Those observations are equally applicable to the present circumstances.
24 The beginning and end point is the terms of s 43 of the FCA Act. The power to order costs is discretionary. It must be exercised judicially, not arbitrarily or capriciously or on grounds unconnected with the litigation, having regard to relevant principle and the justice of the case in all the circumstances: Minister for Immigration, Citizenship, Migrant Services & Multicultural Affairs v Mukiza [2022] FCAFC 105 at [4].
[13] We discern no error in this distillation of the principles.
Grounds one and two: RP Data’s failure to apply for security for costs
[14] By grounds one and two, Court House seeks to challenge the primary judge’s discretionary exercise of the power to award costs on the basis that “no weight” was given to RP Data’s failure to apply for security for costs, nor was “sufficient” account given to the consequences if RP Data had made an application for security for costs after 25 March 2019, this being the date when the involvement of Court House (as a litigation funder) became known to RP Data (at J[29]).
[15] On the question of security for costs, the primary judge, when dealing with the purported failure of RP Data to bring an application at the commencement of the hearing, held at J[28], that:
RP Data cannot be criticised for not bringing an application for security for costs at or around commencement of proceedings in circumstances where: (a) the participation of a litigation funder was not known; (b) there was no grounds for suspecting an inability to meet an adverse costs order; (c) one of the applicants was an individual against whom an order for security for costs was unlikely to be successful even if he was impecunious; (d) the claims of the corporate applicant entirely overlapped with those of Mr Hardingham such that an order for security against REMA was also unlikely: Brecher v Barrack Investments Pty Ltd [2018] FCA 472 at [28], [29]; [2020] FCA 1062 at [9]. The applicants’ claim was genuine, even if adventurous. Indeed, it found favour with a majority of the Full Court.
[16] Court House took issue with his Honour’s finding that the involvement of a litigation funder was not known to RP Data at or around the commencement of the proceedings. It submitted that this conclusion was contradicted by RP Data’s evidence before the primary judge where its solicitors had said, in correspondence on 10 March 2020, “[y]ou cannot seriously expect us to believe that … Mr Hardingham launched highly ambitious Federal Court proceedings without an indemnity for adverse costs orders”. This, Court House contended, suggested that, at all relevant times since the beginning of the proceedings, RP Data had understood that the applicants were funded by a litigation funder and should have made an application for security for costs.
[17] We do not accept the premise that underlies this submission. The primary judge found that the involvement of Court House was not known until 25 March 2019, two days before the mediation. We do not accept that inter party correspondence sent a year later, on 10 March 2020, proves knowledge prior to 25 March 2019. This was not Court House’s submission below. Indeed, from Court House’s chronology below, it could be inferred that there was no issue as between the parties that it was not until 25 March 2019 that RP Data knew about Court House’s involvement in the proceedings. Such a finding was open to the primary judge.
[18] We can discern no error in the evaluative exercise undertaken by the primary judge in determining that the absence of an application for security did not preclude the making of the costs order. The fact that Mr Hardingham and the corporate applicant, REMA, had done nothing to contribute to this misapprehension does not preclude the primary judge from making the finding he did.
[19] The primary judge considered the alleged failure to make such an application at two points in time: the commencement of the hearing and after the existence of the funder became known. As to the latter point in time, Court House has not satisfied this Court that any of the four factors identified by the primary judge, extracted at [15] above, can be impugned. As to the former, again the primary judge considered a range of factors, including that the litigation had substantially progressed, RP Data had assumed that the Funding Agreement included an indemnity for an adverse costs order based on what Court House represented on its website, in circumstances where the Funding Agreement had not been provided and bringing an application after the mediation would only have increased costs and delay: at J[29] – – [30].
[20] Court House’s submission that RP Data had taken no steps to ascertain its truth, save perhaps for a cursory review of Court House’s website, misdescribes the circumstances and is rejected. RP Data had written to the applicants’ legal representatives on 4 April 2019 requesting production of that agreement. No agreement was provided and it was not until the applicants were applying for a stay of the adverse costs order pending their appeal, in correspondence dated 10 March 2020, that the applicants disclosed that they did not have the benefit of an indemnity from Court House.
[21] The fact that the primary judge acknowledged that if RP Data had made a successful application for security, Court House would likely have sought different arrangements, probably by giving an undertaking for an adverse costs order and renegotiating its 15% fee, indicates that the primary judge took into account, as part of the requisite balancing exercise, a consequence of such an application being made, and demonstrates no error in his Honour’s attending to the task: at J[30].
[22] Court Housealso made the perplexing submission that insofar as RP Data had made a forensic decision not to apply for security for costs (based on a misapprehension of the funding arrangements between Court House and the applicants), this militated strongly against the making of a third party costs order against it, citing Vestris v Cashman (1998) 72 SASR 449 at 467 per Lander J, cited with approval in Dunghutti at [89].
[23] However, there was no evidence nor any finding by the primary judge that RP Data made a “forensic decision” to not apply. Rather, all there was evidence of was the fact that RP Data had assumed (after the mediation) incorrectly that the Funding Agreement included an indemnity: at J[29]. Court House’s submission is made entirely without factual foundation and the cited authorities do not assist. Vestris describes a number of matters which may be taken into account when making a non-party costs order, none of which are decisive, and does not stand for the appellant’s proposition. Similarly, contrary to Court House’s submission, the purported passage was not “cited with approval” in Dunghutti . In that case, the Full Court referred to the requirement of a connection between the non-party, the unsuccessful party and the litigation, which appears at 467 in Vestris .
[24] In addition,Court Housesubmitted that the jurisdiction to award costs against a non-party is limited to persons who effectively instigate and maintain litigation at their own expense, or where there has been an abuse of process, citing Dawson J in Knight at 202. They submitted that it is clear that it was not an abuse of process to enter into a funding agreement, and nor is the continued prosecution of proceedings by a plaintiff who is unable to meet an adverse costs order an abuse of process, citing Jeffery & Katauskas Pty Ltd v SST Consulting Pty Ltd [2009] HCA 43 239 CLR 75 at [37] and relying on FPM Constructions v Council of the City of Blue Mountains [2005] NSWCA 340 at [210]. The submission appears to be premised on a misconceived notion that a third-party costs order should only be made where the conduct of the litigation was unreasonable or improper or comprised an abuse of process.
[25] We accept that impropriety or an abuse of process may be a basis for the making of such an order. However, we do not accept it forms a pre-condition for a third-party costs order to be made. None of the authorities referred to support this proposition.
[26] Court House’s reliance on Jeffrey & Katauskas exposes an important change in the law that applied to non-party costs orders in New South Wales. In 2010, r 42.3 of the U niform C ivil P rocedure R ules 2005 (NSW), which had operated to restrict the NSW Supreme Court’s power to make costs orders against non-parties (with limited exceptions including, relevantly, in cases involving abuses of process), was repealed. The effect of this change in NSW was that there is now no provision that restricts the making of costs orders against non-parties: Arena Management Pty Ltd (recs & mgrs apptd) v Campbell Street Theatre Pty Ltd [2011] NSWCA 128 80 NSWLR 652 at [25] per Campbell JA This change has no bearing on these proceedings, noting that they are brought in the Federal Court and take place several years after the repeal of r 42.3 of the UCPR. Nevertheless, it provides useful context to Court House’s reliance on Jeffery & Katauskas and FPM in these proceedings and, in particular, to submissions made about the necessity of impropriety or unreasonableness as a criterion for the imposition of non-party costs orders.
[27] In Knight , Mason CJ and Deane J conducted a review of the history of non-party costs orders awarded before the Judicature Acts . Their Honours concluded at 189–90 that:
Having regard to the variety and the nature of the circumstances in which an order for costs was made against a person who was not a party according to the record, we cannot accept that there was before the Judicature Acts a general rule that there was no jurisdiction to order costs against a non-party in the strict sense. It is plain enough that the courts from time to time awarded costs against a person who, not being a party on the record, was considered to be the “real party”. It may be that these cases are capable of being explained on various grounds, including the ground that the non-party ordered to pay costs was guilty of abuse of process, taking a very broad view of what constitutes an abuse of process, but to say that does not deny that there was jurisdiction to make an order for costs against a non-party even if the jurisdiction was exercised in limited circumstances only.
[28] Their Honours continued, at 192–3, holding that it was appropriate to recognise a category of cases in which orders for costs could be made against non-parties that did not appear to require a conclusion of abuse of process:
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.
[29] While the “unreasonable or improper” criterion has obvious overlap with the position that non-party costs orders can be available in cases involving an abuse of process, FPM and other cases in NSW and other jurisdictions show that it has continued to be acknowledged (but was never a pre-condition), even where non-party costs orders are not restricted by statute to cases involving (inter alia) abuses of process. In Vestris , decided before FPM , Lander J held at 467:
Whilst the circumstances to make an order for costs against a non-party will be both rare and exceptional such an order can be made without the moving party having to demonstrate any improper conduct of any kind on the part of the non-party. An order for costs against a non-party is not dependant upon any improper conduct on the part of any party. Of course in some cases improper conduct on the part of the non-party will be a relevant factor in the exercise of the discretion.
[30] In Brand2Content v Dalby [2019] NSWCA 16 , Simpson AJA observed at [66] that “[a]s expressed in FPM , the criterion is that ‘the conduct of the litigation was unreasonable or improper’. Generally speaking, in order to attract a non-party costs order, it would be necessary that the unreasonable or improper conduct be brought home to the non-party against whom the order is sought”. However, her Honour did not view the criterion as a necessary requirement before a non-party costs order could be made (at [71] and [84]):
71 There is no doubt that the obduracy demonstrated by the failure to cooperate in the security for costs request was the cause of additional expense incurred by Brand2. I would not categorise the conduct of the appellant companies as “unreasonable” or “improper”. However, as I have suggested above, those terms are not prescriptive. It is not necessary that Brand2 bring the conduct within that description before a non-party costs order can be made. As was stated in Knight, the task is to examine the whole of the conduct of the proceedings, in order to determine what is in the interests of justice. The manner in which the appellant companies, through Adam Dalby, dealt with the security for costs issue is one factor to take into account in evaluating the application. Alone, it would be insufficient to justify an order.
…
84 I do not consider the conduct of the appellant companies, or of Adam Dalby, attracts the description “unreasonable or improper”. Nor do I consider that conduct must satisfy the description before it can be taken into account on an application such as the present. It is conduct that has had the result of increasing costs, in circumstances where the parties bearing the primary obligation for payment of the costs, will be unlikely to be in a position to meet the costs. It is a factor in the overall consideration of what is in the interests of justice.
[31] These authorities demonstrate that unreasonable or improper conduct of proceedings is a relevant, but not necessary, criterion for the making of non-party costs orders and Court House’s submission in this regard must be rejected. Furthermore, and critically, these cases did not involve third-party costs orders against litigation funders, for which, as we advert to elsewhere in these reasons, different considerations arise.
Grounds three, four and five: Court House’s funding of and control over the principal proceedings
[32] Each of these grounds concerns Court House’s claimed lack of funding of, and degree of control over, the principal proceedings, such that Court House says the primary judge’s discretion miscarried in making a costs order against it.
[33] By ground three, Court House submitted the primary judge had failed to “sufficiently” take into account certain facts when Court House entered into the Funding Agreement, including that there was no evidence at the time that Court House entered into the Funding Agreement with the applicants that either of the applicants was impecunious. Ground three is buttressed by the four purported facts claimed to exist at the time Court House entered into the agreement, namely: (a) there was no evidence the applicants could not meet an adverse cost order; (b) the applicants sought funding only to prosecute the primary proceedings; (c) there was no evidence Court House considered there was a prospect that it would be ordered to pay RP Data’s costs if the applicants were successful; and (d) the applicants’ claim was bona fide. Court House put on no evidence as to its state of mind nor from the applicant to support any of these propositions before the primary judge. Accordingly, this ground is completely without foundation.
[34] The gravamen of ground four was that a funder will not have the requisite connection with and control over the proceedings unless it “facilitates” the proceedings. Court House submitted that the primary judge had erred in law in determining that for Court House to “facilitate” the proceedings, all that needed to be satisfied was that it “enabled” or made it “easier” when what was required, at law, was a finding that “but for” the funding, the proceedings would not have continued. Court House cited no authority supportive of this proposition and we reject that this reflects existing jurisprudence with respect to commercial litigation funding or is otherwise sound.
[35] The authorities have made clear that where a litigation funder has a commercial interest in proceedings, even if it has no control over the proceedings, the requisite connection may nonetheless be established and an adverse costs order made against the funder: Gore at [64]:
Justice Corporation, whilst not controlling the litigation, had a direct financial interest in the outcome of the case; it offered no explanation for its participation in the litigation and the only inference must be that it was a commercial investment. It was prepared to take a commercial risk, to meet Montague’s costs, to protect Montague against an order for costs in favour of Clayton Utz and, in return, it hoped to profit from its investment. No extenuating circumstances exist to save Justice Corporation from an order that it pay some of Clayton Utz’s costs. There was no question of it being involved through friendship or because of family ties; there was no question of public interest and no moral high ground that might have justified its involvement. It was a simple straightforward commercial arrangement. If Montague had been successful there was every likelihood that there would have been a costs order against Clayton Utz, thereby recouping to Justice Corporation much of what it had outlaid by way of expenditure on Montague’s costs. It seems to us, as a logical consequence of these circumstances, that in return for the chance of obtaining 8 per cent of the judgment debt and a recoupment of much of its outlay for costs, Justice Corporation should be expected to incur the risk of a costs order in the event of Clayton Utz being the successful party. Reaching that conclusion is made the easier because of the provision in the Litigation Agreement under which Justice Corporation agreed with Montague that it would pay Clayton Utz costs in the event of Montague losing the case. That factor should not, however, be treated as being the catalyst for the Court arriving at its decision. It was a matter of great significance that the existence of this clause was made known to Clayton Utz but it was still only one of the factors that has led this Court to its conclusion.
(Our emphasis added.)
[36] A similar argument to that raised by Court House was made in Wigmans v AMP Ltd (No 3) [2019] NSWSC 162 ; 366 ALR 594. In that case the funder had submitted that it was not a “real party” on the basis that it had not been entitled to control the conduct of the proceeding or give instructions, and was rejected, at [58]–[59]:
58 …In some circumstances, it may be that the mere fact that a non-party funds litigation is not a reason to make a costs order against them. Hypothetical examples in judicial commentary include circumstances where a family member provides funds out of affection (see Dymocks Franchise Systems at [34]) or a solicitor provides legal advice and services on a speculative basis (see the observations of Basten JA in FPM Constructions at [214]).
59 However, Therium’s interest went beyond the mere recovery of the funds it provided. It stood to make a significant profit from the fruits of the litigation. The same can be said about each of the litigation funders in this case.
[37] In any event, we do not accept the underlying premise that it could be inferred that the proceedings would have been prosecuted in any event, without Court House’s funding of senior counsel, as the case could have been presented by junior counsel. The Funding Agreement was entered into before the commencement of the proceedings and required Court House to fund all fees incurred by the legal representatives, senior counsel and junior counsel and disbursements. The fact that no-win no-fee arrangements were entered into with the solicitors and junior counsel which may reduce the potential funding says nothing about whether the proceedings would have been prosecuted in any event. Court House put on no evidence from the applicants to support this proposition before the primary judge. To the extent that it was also argued that it could be inferred that the proceedings would have continued, absent funding, given the applicants pursued subsequent appeals without senior counsel, this does not go to the issue that Court House is seeking to demonstrate — the proceedings to which the costs order relates, namely the initial trial not the subsequent appeals.
[38] Furthermore, we are of the view, in any event, 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 Court House on any issues arising from the conduct or progress of the proceedings and they could not compromise the claim without prior consultation with and consent from Court House. Consistent with the agreement, Court House attended the mediation.
[39] In addition, Court House contended, by ground five, that there was no such apparent facilitation of the proceedings because the funder only paid for senior counsel’s disbursements (a “bit part” in the proceedings) and the risk (of an adverse costs order against a funder) has to correspond with the degree of funding it provided. Court House relied upon no authority supportive of this proposition. The existence of such a mandate would offend the broad and discretionary power given to the Court under s 43.
[40] In response to this submission below, the primary judge observed (at J[32]):
…The point is that Court House decided to fund the litigation for its own commercial gain. The litigation was ordinary commercial litigation from the perspective of Mr Hardingham and REMA. It was plain from a statement of the essential facts that the claim was one which might well fail. It is fair that the [sic] Court House also wears the risk in seeking to profit from the litigation. Its level of funding was substantial. The Funding Agreement provided for Court House’s participation in settlement. A representative of Court House attended the mediation. There was no evidence to suggest that it was not consulted in relation to the circumstances giving rise to the indemnity costs order and the terms of the Funding Agreement suggest that it was.
[41] We can discern no error in his Honour’s reasons. Court House is a commercial undertaking which profits from, and sought in this case, to profit from litigation. Part of the suite of financial products it has offered on its website in 2020 included “complete funding for all legal and expert costs”, “security for costs funding” and “adverse costs fundings”. The level of funding it agreed to provide to the applicants in this case was substantial. It also sought to profit, not only by reimbursement of the funds it had outlaid in the proceedings but also for a 15% uplift on any damages obtained.
[42] We are of the view that there has been no miscarriage of the discretion to award costs in this case.
Conclusion
[43] For the foregoing reasons, the appeal must be dismissed with costs.
Order
- The appeal be dismissed.
- The appellant pay the respondent’s costs as agreed or taxed under r 40.12 of the Federal Court Rules 2011 (Cth).
