HIGH COURT OF AUSTRALIA
FRENCH CJ
GUMMOW, HAYNE, HEYDON AND CRENNAN JJMatter No S167/2009
JEFFERY & KATAUSKAS PTY LIMITED APPELLANT
AND
SST CONSULTING PTY LTD & ORS RESPONDENTS
Matter No S168/2009
JEFFERY & KATAUSKAS PTY LIMITED APPELLANT
AND
RICKARD CONSTRUCTIONS PTY LIMITED
(SUBJECT TO DEED OF COMPANY
ARRANGEMENT) & ORS RESPONDENTSJeffery & Katauskas Pty Limited v SST Consulting Pty Ltd
Jeffery & Katauskas Pty Limited v Rickard Constructions Pty Limited
(Subject to deed of company arrangement)
[2009] HCA 43
13 October 2009
S167/2009 & S168/2009ORDER
Matter No S167/2009
Appeal dismissed with costs.
Matter No S168/2009
Appeal dismissed with costs.
On appeal from the Supreme Court of New South Wales
Representation
D F Jackson QC with J A Steele for the appellant in both matters (instructed by Colin Biggers & Paisley)
B W Walker SC with T G R Parker SC and R E Steele for the respondents in S167/2009 and for the fourth to seventh respondents in S168/2009 (instructed by J Biady & Associates)
No appearance for the first respondent in S168/2009
Submitting appearance for the second and third respondents in S168/2009
Notice: This copy of the Court's Reasons for Judgment is subject to formal revision prior to publication in the Commonwealth Law Reports.
CATCHWORDS
Jeffery & Katauskas Pty Limited v SST Consulting Pty Ltd
Jeffery & Katauskas Pty Limited v Rickard Constructions Pty Limited (subject to a deed of company arrangement)Practice and procedure – Costs – Order against non-party – Where non-party, for a contingency fee, funded impecunious corporate plaintiff without providing plaintiff with indemnity against adverse costs orders – Whether power of Supreme Court of New South Wales to order costs against non-party enlivened – Whether non-party had committed abuse of process of the court within the meaning of Uniform Civil Procedure Rules 2005 (NSW), r 42.3(2)(c).
Words and phrases – "abuse of process of the court", "occasioned by".
Uniform Civil Procedure Rules 2005 (NSW), r 42.3.
Civil Procedure Act 2005 (NSW), s 98(1).FRENCH CJ, GUMMOW, HAYNE AND CRENNAN JJ.
Introduction
The costs of civil proceedings in the Supreme Court of New South Wales are "in the discretion of the court". Section 98(1)(a) of the Civil Procedure Act 2005 (NSW) ("CP Act") so provides. Power expressed in those terms extends to the award of costs against non-parties[1]. However, the power given by s 98(1)(a) of the CP Act is expressed to be "[s]ubject to rules of court"[2]. One of those rules, r 42.3(1) of the Uniform Civil Procedure Rules 2005 (NSW) ("UCPR"), provides that "the court may not, in the exercise of its powers and discretions under section 98 of the [CP Act], make any order for costs against a person who is not a party"[3]. A qualification to that prohibition follows immediately in r 42.3(2), which provides:
"This rule does not limit the power of the court:
…
(c)to make an order for payment, by a person who has committed contempt of court or an abuse of process of the court, of the whole or any part of the costs of a party to proceedings occasioned by the contempt or abuse of process …"
These appeals raise the question whether the Supreme Court of New South Wales has power to order costs against a non-party which, for a contingency fee, has funded an impecunious corporate plaintiff without providing the plaintiff with an indemnity for adverse costs orders. Whether the Court has the power depends upon whether the litigation funder has "committed … an abuse of process of the Court", thus attracting the application of r 42.3(2)(c).
[1]Knight v FP Special Assets Ltd (1992) 174 CLR 178 at 190 per Mason CJ and Deane J, 203 per Dawson J, 205 per Gaudron J, McHugh J contra at 217; [1992] HCA 28.
[2]CP Act, s 98(1).
[3]This is expressed to be subject to r 42.27 which is not material to this appeal.
For the reasons that follow, the power of the Court to make an order for costs against a litigation funder who is not a party to the proceedings was not enlivened in this case.
Factual and procedural history
On 23 April 1998, Rickard Constructions Pty Limited ("Rickard Constructions") and SST Consulting Services Pty Ltd ("SST") (then Port Botany Container Park Pty Ltd) entered into a contract for the construction of pavement at a container terminal at Port Botany. The pavement was designed by Rickard Hails Moretti Pty Ltd. Jeffery & Katauskas Pty Ltd ("Jeffery & Katauskas") provided geotechnical services. SST assigned its interest in the contract to Mayne Nickless Ltd ("Mayne Nickless") as part of the sale of its business to Mayne Nickless and MPG Logistics Pty Limited ("MPG Logistics"). The pavement failed on 29 August 1999, three days after practical completion. On 3 May 2000, Rickard Constructions agreed to undertake rectification works in consideration of an assignment from Mayne Nickless and MPG Logistics of any rights they might have against parties involved in the design of the pavement and the supervision of its construction[4].
[4]Two subsequent assignments were made in order to perfect Rickard Constructions' rights. Their efficacy is not in issue.
Rickard Constructions commenced proceedings against Jeffery & Katauskas and others in the Supreme Court of New South Wales on 5 September 2000. On 13 October 2000, Rickard Constructions entered into a deed of charge over all of its assets and undertaking in favour of SST. The deed recited a debt of $200,000 owed by Rickard Constructions to SST "arising from a loan to fund litigation concerning failed pavement and working capital". The loan was said to have been "on the date of this Deed". The charge nevertheless secured payment of a sum of $930,000 and interest.
On 19 October 2000, an administrator was appointed to Rickard Constructions by resolution of the directors. On 22 December 2000, a deed of company arrangement ("DOCA") was entered into between Rickard Constructions, its director (Charles Rickard), the administrator and two companies together designated "the Secured Creditor", namely SST and SST Services Pty Ltd.
Upon execution of the DOCA, control of Rickard Constructions was to revert to its director[5]. The administrator was to establish a fund designated "the Fund"[6]. The administrator was to appropriate to the Fund the property of the company, defined as "the whole of the assets and undertaking"[7], together with part of a sum advanced to the company by Mr Rickard and the Secured Creditor[8]. The administrator was also to appropriate to the Fund "the amount of any settlement or verdict obtained by [Rickard Constructions] in the Construction List proceedings in accordance with clause 15.7"[9].
[5]DOCA, cl 2.2.
[6]DOCA, cl 4.
[7]DOCA, cl 1.1.
[8]DOCA, cll 4, 7.
[9]DOCA, cl 4.
Clause 15.1 of the DOCA provided that Mr Rickard and SST would "jointly covenant and agree to pay all legal fees and expenses incurred in the conduct of the Construction List proceedings by [Rickard Constructions]". This was expressed to be subject to a limit not defined in terms, but to be inferred from cl 15.2, which provided:
"The Director and the Secured Creditor will fund the Construction List proceedings to an amount of $150,000 or until 31 March 2001, whichever first occurs. The Director and Secured Creditor may at any time source litigation insurance or other funding to further fund the continued conduct of the Construction List proceedings. Such litigation insurance or other funding shall be subject to the agreement or approval of the Administrator which shall not be unreasonably withheld. Fees and expenses incurred in consequence of an increase in the monetary limit or the extension of the period of the conduct of the Construction List proceedings will form part of the amount payable under sub-clause 6.1.2 of this Deed."
In the event that the monetary or time limits prescribed in cl 15.2 were exceeded, the administrator could decide, in his "complete discretion", whether or not to accept litigation insurance "to further fund" the proceedings[10]. The company was to report to the administrator on the conduct of the proceedings[11] and not to "capitulate in, settle or compromise" the proceedings without the prior written approval of the administrator, which was not to be unreasonably withheld[12]. Mr Rickard undertook to provide all reasonable assistance to the company and to its legal advisers in prosecuting the Construction List proceedings[13].
[10]DOCA, cl 15.3.
[11]DOCA, cl 15.4.
[12]DOCA, cl 15.5.
[13]DOCA, cl 15.6.
Clause 15.7 provided:
"15.7The Company will pay into the Fund all amounts recovered by way of settlement or a verdict in the Construction List proceedings. The Company shall only be obliged to pay into the Fund the net amount actually received by the Company after deducting:
15.7.1the amount of any cost order made against the Company in the Construction List proceedings
15.7.2the amount of any legal costs or other costs incurred in the conduct of the Construction List proceedings in addition to the funding by the Director and the Secured Creditor under clause 15.2
15.7.3the amount paid to any litigation insurance funder or other funder agreed or approved by the Administrator under clause 15.3."
SST was prohibited from enforcing its charge during the currency of the DOCA[14]. It was to surrender its security[15] on the basis that it would receive payment of $350,000 in priority to unsecured creditors but after payment, inter alia, of the fees and expenses incurred in the conduct of the proceedings and the administrator's fees and expenses. Its entitlement to the further sum of $300,000 was to rank equally with other creditors. Payment of the balance secured by the charge was to be deferred until after payment of other creditors.
[14]DOCA, cl 20.1.
[15]DOCA, cl 20.2.
Jeffery & Katauskas obtained orders for security for costs of the trial, as to $47,750 by order of Rolfe J on 15 December 2000 and as to $140,000 by order of the trial judge (McDougall J) made on 6 October 2004, the day after commencement of what became a 19 day trial. An order for security in the amount of $50,000 in favour of another defendant, Allianz Australia Insurance Ltd ("Allianz Australia") had been made by McClellan J on 15 November 2002. During the trial, on 11 October 2004, the trial judge dismissed an application by Allianz Australia for further security.
The action was dismissed[16]. The shortfall between the costs of Jeffery & Katauskas of the trial and the security provided was in excess of $450,000.
[16]Rickard Constructions Pty Ltd v Rickard Hails Moretti Pty Ltd (2004) 220 ALR 267.
Rickard Constructions appealed against the judgment dismissing its action, but the appeal was dismissed[17]. Orders for security for the costs of the appeal were also made.
[17]Rickard Constructions Pty Ltd v Rickard Hails Moretti Pty Ltd [2006] NSWCA 356.
Meanwhile, the successful defendants in the proceedings sought from the trial judge, McDougall J, orders for the costs of the trial against SST and its directors under UCPR, r 42.3(2)(c). Allianz Australia also sought an order for costs against Mr Rickard. The applications were dismissed[18].
[18]Rickard Constructions Pty Ltd v Rickard Hails Moretti Pty Ltd (2006) 66 NSWLR 724.
It is necessary to say something further about the arrangements made between SST and Rickard Constructions for the prosecution of the primary proceedings against Jeffery & Katauskas and others. It is convenient to do that by the reference to findings made by the primary judge on the applications by the successful defendants for costs orders against SST and its directors (and by Allianz Australia against Mr Rickard). The primary judge found that the principal of $930,000 referred to in the deed of charge, which SST and Rickard Constructions made soon after commencement of the primary proceedings, included advances made to the date of that deed and "a balance unexplained by any advances"[19]. There was evidence that the sum actually advanced by SST to Rickard Constructions was $300,000, rather than the $200,000 loan recited[20]. If the advance was $300,000 there remained an unexplained balance of $630,000. This unexplained balance was characterised before his Honour as a "success fee"[21]. This characterisation reflected an arrangement that the balance of the "unadvanced principal" would be paid to SST by Rickard Constructions in the event that it was successful in the litigation.
[19]Rickard Constructions Pty Ltd v Rickard Hails Moretti Pty Ltd (2006) 66 NSWLR 724 at 733 [37].
[20]The submissions for Jeffery & Katauskas in this Court proceeded on the basis, said to be favourable to the respondents, that the larger figure was correct.
[21]Rickard Constructions Pty Ltd v Rickard Hails Moretti Pty Ltd (2006) 66 NSWLR 724 at 733 [35].
His Honour made a number of other findings of fact, not in issue on the appeals. They included the following[22]:
[22]Rickard Constructions Pty Ltd v Rickard Hails Moretti Pty Ltd (2006) 66 NSWLR 724 at 736 [51].
1.Mr Rickard and SST funded the proceedings until 31 March 2001 on the basis and subject to the monetary limits set out in cl 15.2 of the DOCA. SST funded the litigation thereafter.
2.Mr Rickard gave instructions on behalf of Rickard Constructions in relation to the litigation and there was no evidence that SST was involved in the decision-making in that regard. Nor was there any evidence that Mr Rickard was trammelled in giving instructions by any agreement or arrangement between him or Rickard Constructions and SST.
3.SST could have brought the litigation to an end at any time after 31 March 2001 by ceasing to provide further funding.
The decisions of the Court of Appeal
Jeffery & Katauskas and the other successful defendants sought leave to appeal to the Court of Appeal of New South Wales. That Court granted leave to appeal but dismissed the appeals and also a motion by the successful defendants for an order that SST and its directors pay the costs of the appeal brought by Rickard Constructions against the substantive decision of the primary judge[23].
[23]Rickard Constructions Pty Ltd v Rickard Hails Moretti Pty Ltd [2008] NSWCA 283.
As refined before the Court of Appeal, the submission on behalf of Jeffery & Katauskas and the other defendants in the primary proceedings was that[24]:
"an abuse of process would occur where a non-party with a commercial interest in the fruits of the litigation funds proceedings by an insolvent plaintiff without providing the plaintiff with an indemnity against cost orders in favour of successful defendants".
[24][2008] NSWCA 283 at [44].
Gyles AJA, with whom Giles and Tobias JJA agreed, rejected this proposition[25].
[25][2008] NSWCA 283 at [67].
On 19 June 2009, this Court granted one of the defendants, Jeffery & Katauskas, special leave to appeal against the orders of the Court of Appeal dismissing its appeal, and against the orders dismissing its motion seeking orders in respect of the costs of the appeal against the substantive decision of the primary judge. The notices of appeal subsequently filed named "SST Consulting Pty Ltd" as first respondent in the first of these matters and fourth respondent in the second. Leave was sought, and is granted, so that the relevant respondent in each matter is SST. Allianz Australia was a respondent in the second matter but took no active part in the proceedings in this Court.
The issue on the appeals
In this Court the grounds of appeal identified the abuse of process which it is said ought to have been found by the Court of Appeal thus:
"by funding the proceedings and/or by assisting the assignment and prosecution of invalidly assigned bare causes of action in negligence and under s 82 of the Trade Practices Act by an insolvent plaintiff without provision to the plaintiff of an indemnity against a costs order in favour of successful defendants."
As presented, however, the argument on the appeals did not rely upon any alleged invalidity of the assignment to Rickard Constructions of the causes of action in respect of the pavement design and construction. The abuse of process was reformulated by reference to two elements:
1. The success fee arrangement.
2.The failure by SST and its directors to provide Rickard Constructions with an indemnity for the costs of any successful defendants.
The questions for determination
The power of the Supreme Court of New South Wales to make an order for costs against SST and its directors depended upon the answers to two questions:
1.Whether they had committed an abuse of process of the Court.
2.Whether some or all of the costs of Jeffery & Katauskas in the proceedings had been occasioned by that abuse of process.
The Rules of Court
The precursor of UCPR, r 42.3 was to be found in Pt 52, r 4 and later in Pt 52A, r 4 of the Supreme Court Rules 1970 (NSW). They contained provisions almost identical in terms to UCPR, r 42.3.
There is a dispensing power in respect of the UCPR. Section 14 of the CP Act provides:
"In relation to particular civil proceedings, the court may, by order, dispense with any requirement of rules of court if satisfied that it is appropriate to do so in the circumstances of the case."
This Court raised with counsel for Jeffery & Katauskas whether the general power given by s 14 of the CP Act could not have been engaged in this case. Counsel's response made it clear that the case advanced was based entirely on UCPR, r 42.3(2)(c). It is no doubt arguable that the reference to "any requirement of rules of court" in s 14 limits its application to rules imposing some duty on parties and does not extend it to a rule imposing limitations on the power of the court to order costs. The parties did not pursue the matter in these appeals. They fall to be decided on the construction and application of UCPR, r 42.3.
The rule-making powers conferred by the Supreme Court Act 1970 (NSW) and by the CP Act, authorised the making of rules which may limit the powers conferred by those Acts to award costs[26]. The purpose of Pt 52A, r 4 was the same as its precursor, Pt 52, r 4, which was introduced by amendment to the Supreme Court Rules in 1993[27]. That purpose was "to restrict the power of the Court in making a costs order against a person who is not a party"[28]. It applies also to UCPR, r 42. As was said in Wentworth v Wentworth[29], the effect of the amendment was "to abolish several traditional categories of jurisdiction to order costs against non-parties" which had been discussed by this Court in Knight v FP Special Assets Ltd[30].
[26]Wentworth v Wentworth (2000) 52 NSWLR 602 at 607-608 [12] per Fitzgerald JA; see also Knight v FP Special Assets Ltd (1992) 174 CLR 178 at 183-184 per Mason CJ and Deane J, 205 per Gaudron J.
[27]Supreme Court Rules (Amendment No 274) 1993 (NSW).
[28]New South Wales Government Gazette, No 65, 25 June 1993 at 3296; and see Wentworth v Wentworth (2000) 52 NSWLR 602 at 635-636 [162] per Heydon JA.
[29](2000) 52 NSWLR 602 at 635-636 [162] per Heydon JA.
[30](1992) 174 CLR 178 at 182-193 per Mason CJ and Deane J, 205 per Gaudron J.
Abuse of process
The history of sanctions for abuse of process dates back to Anglo-Saxon times when the focus was largely on false accusations[31] and the sanctions included loss of the accuser's tongue. By the time of Edward I, there was provision made by the Statute of Champerty for remedies against "Conspirators, Inventors and Maintenors of false Quarrels, and Partakers thereof, and Brokers of Debates"[32]. It seems that combination was not necessary to the action[33]. Champerty, maintenance and barratry also featured prominently as early species of abuse of process[34].
[31]Winfield, The History of Conspiracy and Abuse of Legal Procedure, (1921) at 4.
[32]33 Ed I Stat 3.
[33]Winfield, The History of Conspiracy and Abuse of Legal Procedure, (1921) at 60.
[34]Winfield, The History of Conspiracy and Abuse of Legal Procedure, (1921) at 131.
The common law offences and torts of maintenance and champerty were abolished in the United Kingdom in 1967[35] and in New South Wales in 1995[36]. The New South Wales legislation expressly provides[37] that the Act "does not affect any rule of law as to the cases in which a contract is to be treated as contrary to public policy or as otherwise illegal, whether the contract was made before, or is made after, the commencement of this Act". And the abolition of the offences and torts did not preclude the possibility that non-party funding of legal actions for reward or otherwise might give rise to an abuse of process. But to acknowledge that possibility is not to hold non-party funding of a litigant for reward to be an abuse of the process of the court. That proposition could not stand with the decision of this Court in Campbells Cash and Carry Pty Ltd v Fostif Pty Ltd[38].
[35]Criminal Law Act 1967 (UK), ss 13, 14.
[36]Maintenance and Champerty Abolition Act 1993 (NSW) which came into force on 12 May 1995 and was later renamed the Maintenance, Champerty and Barratry Abolition Act 1993 (NSW). See also Abolition of Obsolete Offences Act 1969 (Vic), s 4(2); Statutes Amendment and Repeal (Public Offences) Act 1992 (SA), s 10.
[37]Maintenance, Champerty and Barratry Abolition Act 1993, s 6.
[38](2006) 229 CLR 386; [2006] HCA 41.
An early statement of the power of any court to prevent abuse of its processes is found in an 1841 case, Cocker v Tempest[39]:
"The power of each Court over its own process is unlimited; it is a power incident to all Courts, inferior as well as superior; were it not so, the Court would be obliged to sit still and see its own process abused for the purpose of injustice."
That statement foreshadowed the contemporary approach in the United Kingdom[40] and Australia[41] which takes no narrow view of what can constitute "abuse of process". Nevertheless, certain categories of conduct attracting the intervention of the courts emerged in the 19th and 20th centuries and included[42]:
"(a)proceedings which involve a deception on the court, or are fictitious or constitute a mere sham;
(b)proceedings where the process of the court is not being fairly or honestly used but is employed for some ulterior or improper purpose or in an improper way;
(c)proceedings which are manifestly groundless or without foundation or which serve no useful purpose;
(d)multiple or successive proceedings which cause or are likely to cause improper vexation or oppression."
[39](1841) 7 M & W 502 at 503-504 per Alderson B [151 ER 864 at 865].
[40]For example, in the United Kingdom, Hunter v Chief Constable of the West Midlands Police [1982] AC 529 at 536; Bhamjee v Forsdick (Practice Note) [2004] 1 WLR 88 at 92-93 [11]-[15] and cases cited therein.
[41]Hamilton v Oades (1989) 166 CLR 486 at 502; [1989] HCA 21; Jago v District Court of New South Wales (1989) 168 CLR 23 at 25-26; [1989] HCA 46; Walton v Gardiner (1993) 177 CLR 378 at 393-394; [1993] HCA 77; Rogers v The Queen (1994) 181 CLR 251 at 255, 286-287; [1994] HCA 42; Ridgeway v The Queen (1995) 184 CLR 19 at 74-75; [1995] HCA 66; Batistatos v Roads and Traffic Authority (NSW) (2006) 226 CLR 256 at 265 [9], 266-267 [14]; [2006] HCA 27.
[42]Jacob, "The Inherent Jurisdiction of the Court", (1970) 23 Current Legal Problems 23 at 43.
The term "abuse of process", as used in Australia today, is not limited by the categories mentioned above or those which constitute the tort. It has been said repeatedly in the judgments of this Court that the categories of abuse of process are not closed[43]. In Walton v Gardiner[44] the majority adopted the observation in Hunter v Chief Constable of the West Midlands Police[45] that courts have an inherent power to prevent misuse of their procedures in a way which, although not inconsistent with the literal application of procedural rules of court, would nevertheless be "manifestly unfair to a party to litigation … or would otherwise bring the administration of justice into disrepute among right-thinking people". This does not mean that abuse of process is a term at large or without meaning[46]. Nor does it mean that any conduct of a party or non-party in relation to judicial proceedings is an abuse of process if it can be characterised as in some sense unfair to a party. It is clear, however, that abuse of process extends to proceedings that are "seriously and unfairly burdensome, prejudicial or damaging" or "productive of serious and unjustified trouble and harassment"[47].
[43]See n 41, above.
[44](1993) 177 CLR 378 at 393.
[45][1982] AC 529 at 536.
[46]Oceanic Sun Line Special Shipping Company Inc v Fay (1988) 165 CLR 197 at 247; [1988] HCA 32; Ridgeway v The Queen (1995) 184 CLR 19 at 75 per Gaudron J; Batistatos (2006) 226 CLR 256 at 267 [14].
[47]Batistatos (2006) 226 CLR 256 at 267 [14] (footnotes omitted).
In Campbells Cash and Carry Pty Ltd v Fostif Pty Ltd[48], Gummow, Hayne and Crennan JJ (with whom Gleeson CJ agreed in this respect[49]) declined to formulate an overarching rule of public policy that would, in effect, bar the prosecution of an action involving an agreement to provide money to a party to institute or prosecute the litigation in return for a share of the proceeds of the litigation. Nor would they accept that there should be a rule which would bar the prosecution of some actions according to whether the agreement met some standards relating to the degree of control or the amount of the reward the funder might receive under the agreement[50]. It was not shown that apprehensions that the funder might improperly interfere with the conduct of the proceedings could not sufficiently be addressed by "existing doctrines of abuse of process and other procedural and substantive elements of the court's processes"[51].
[48](2006) 229 CLR 386 at 434 [91].
[49](2006) 229 CLR 386 at 407 [1].
[50](2006) 229 CLR 386 at 434 [91].
[51](2006) 229 CLR 386 at 435 [93].
It follows that an agreement by a non-party, for reward, to pay or contribute to the costs of a party in instituting and conducting proceedings is not, of itself, an abuse of the court's processes.
Does the failure by a funder to provide an indemnity for the costs awarded against the party funded constitute an abuse of process? The question is not answered for present purposes by reference to cases, such as those cited by the appellant, in which orders have been made that non-party funders, who have not indemnified the funded party, pay the successful party's costs. Those cases were decided in the exercise of the general discretion of the court to award costs against non-parties which was discussed in Knight v FP Special Assets Ltd. Mason CJ and Deane J recognised a general category of case in which such orders should be made[52]:
"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."
[52](1992) 174 CLR 178 at 192-193.
In a decision relying in part on what was said in Knight, the Privy Council in Dymocks Franchise Systems (NSW) Pty Ltd v Todd held that[53]:
"generally speaking, where a non-party promotes and funds proceedings by an insolvent company solely or substantially for his own financial benefit, he should be liable for the costs if his claim or defence or appeal fails."
[53][2004] 1 WLR 2807 at 2817 [29]; [2005] 4 All ER 195 at 206.
These authorities and the cases cited in them did not require characterisation of non-party funding arrangements, which attracted the discretion to award costs against the non-party, as an abuse of process. The requirement for that characterisation in this case is imposed by UCPR, r 42.3.
It was submitted for Jeffery & Katauskas that prima facie a funding arrangement involving a "success fee" where the funder fails to provide an indemnity will constitute an abuse of process. A number of authorities were cited which did not give definitive support to the submission. They began with 19th century cases in which an impoverished nominal party was used by a non-party to bring proceedings in the non-party's interests. The cases all concerned the power of the courts to order that the "real party" pay the costs[54]. The only direct reference to the characterisation of such arrangements as an abuse of process appeared in Hutchinson v Greenwood, a case involving a nominal defendant. Lord Campbell CJ said[55]:
"The principle is that the individuals who order an appearance to be entered in ejectment, in the names of those not really defending the suit, abuse our process, and that, as they substantially are the suitors, we have jurisdiction to make them pay the costs."
Wightman J agreed. Bowen LJ also made reference to the position of the nominal plaintiff in Cowell v Taylor[56] when he qualified the common law rule that poverty is no bar to a litigant referring to "an exception introduced in order to prevent abuse, that if an insolvent sues as nominal plaintiff for the benefit of somebody else, he must give security"[57]. He referred to the nominal plaintiff as "a mere shadow". Observations by Megarry VC in Pearson v Naydler[58] and by Ipp JA in Project 28 Pty Ltd v Barr[59], invoked on behalf of Jeffery & Katauskas, were to like effect.
[54]Doe Dem Masters v Gray (1830) 10 B & C 615 [109 ER 579]; R v Greene (1843) 4 QB 646 [114 ER 1042]; Hutchinson v Greenwood (1854) 4 El & Bl 324 [119 ER 125].
[55](1854) 4 El & Bl 324 at 326 [119 ER 125 at 126].
[56](1885) 31 Ch D 34.
[57](1885) 31 Ch D 34 at 38.
[58][1977] 1 WLR 899 at 902; [1977] 3 All ER 531 at 533.
[59][2005] NSWCA 240 at [115].
In Green v CGU Insurance Ltd, a case concerned with security for costs, Hodgson JA said[60]:
"Although litigation funding is not against public policy, the court system is primarily there to enable rights to be vindicated rather than commercial profits to be made; and in my opinion, 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." (citation omitted)
This does not amount to a characterisation of such arrangements or the absence of an indemnity for costs as an abuse of process.
[60](2008) 67 ACSR 105 at 120-121 [51].
Whether there was an abuse of process
The aspects of the funding arrangement between SST and Rickard Constructions, said to constitute the abuse of process in this case, had no bearing on the merits of the proceedings, nor the way in which those proceedings were conducted. Rickard Constructions was not in any sense a nominal plaintiff and it was not suggested that the proceedings were conducted by or in the name of that company for any improper purpose. Rather, the abuse of process was identified in the combination of two circumstances:
. a plaintiff unable to meet an adverse costs order;
.the provision of that plaintiff with funds to litigate by a person who would not be liable to meet an adverse costs order.
These circumstances were said to render the prosecution of the proceedings "seriously and unfairly burdensome, prejudicial or damaging"[61]. Particular emphasis was given to the notion of "unfairness".
[61]Oceanic Sun Line Special Shipping Company Inc v Fay (1988) 165 CLR 197 at 247; Ridgeway v The Queen (1995) 184 CLR 19 at 75; Batistatos (2006) 226 CLR 256 at 267 [14].
Two points may be made at once. Neither was controverted. First, the bare fact that a plaintiff may be unable (even will be unable) to meet an adverse costs order does not mean that further prosecution of proceedings by that plaintiff is an abuse of process. Secondly, the fact that, absent a finding of abuse of process or contempt of court, the funder of the litigation would not be liable to meet an adverse costs order is a product of the applicable rules of court (UCPR r 42.3) cutting down the otherwise general power given to the courts in New South Wales by s 98(1) of the CP Act.
The difficulties presented for a defendant by a plaintiff's impecuniosity have led to the identification of an inherent jurisdiction[62], and the development of rules of court and statutory powers, under which a plaintiff may be ordered to provide security for costs.In general, the bare fact of impecuniosity is not of itself reason to order a plaintiff who is a natural person to provide security for costs[63]. But a corporate plaintiff may be ordered to provide security where it is shown that it will not be able to meet the defendant's costs[64]. It is neither necessary nor appropriate to consider the extent to which those two general propositions should be elaborated or qualified. Neither is intended as a comprehensive or definitive statement of the applicable principles. What is presently important is that by providing for security for costs[65] the UCPR (and in this case the applicable provisions of the Corporations Act 2001 (Cth)[66]) deal directly with at least some part of the first element of what was said to be the relevant unfairness. The reference to "some part" of the first element should be explained.
[62]See, for example, J H Billington Ltd v Billington [1907] 2 KB 106 at 109.
[63]See, for example, Melville v Craig Nowlan & Associates Pty Ltd (2002) 54 NSWLR 82 at 101-109 [80]-[101] per Heydon JA.
[64]Corporations Act 2001 (Cth), s 1335(1).
[65]UCPR, r 42.21.
[66]Corporations Act, s 1335(1).
Because security for costs will not always be ordered against an impecunious plaintiff, it cannot be said that a defendant, faced with proceedings by such a plaintiff, can always obtain the protection of security for costs. There are cases where successful defence of an action will come at a considerable cost to the defendant. But the extent to which that possibility exists and the extent to which there is a resultant "unfairness" to a defendant is a product of the provisions and principles that govern security for costs. Neither the existence of the possibility nor its scope suggest that there is some more general rule that to prosecute proceedings without reasonable prospects of being able to meet an adverse costs order is an abuse of process. Whether or to what extent the possibility that a defendant will succeed in defending proceedings only at a cost not recoverable from the plaintiff suggests some need to revisit the provisions or the principles governing security for costs is a large question. It was not the subject of argument and is a question about which no view is expressed.
The second element of the unfairness alleged in this case was that the proceedings would not have been prosecuted to trial without their being funded by a non-party on terms giving possible profit to that non-party, but without it assuming one of the central risks ordinarily attending litigation: the risk of having to meet an adverse costs order. Here the plaintiff was a corporation and security for costs could be ordered. Orders were made in the sequence described earlier in these reasons, and the defendants' inability to recover the shortfall in costs from the plaintiff was a product of the ways in which the applicable provisions and principles governing security for costs had been engaged. Although the defendants in the proceedings pointed to the fact that the provision of funds permitted the proceedings to be prosecuted to trial when otherwise they would not, the defendants' ability to recover the costs of the successful defence of that litigation from the plaintiff was neither greater nor less than it would have been had there been no funding arrangement. Capacity to recover from the plaintiff depended upon the amount of security that was provided. And, as has already been noted, the capacity of the defendants to recover costs from the non-party was governed by the UCPR.
In deciding whether there has been an abuse of process, proper weight must be given to the fact that under the UCPR the general rule is that costs are not to be ordered against a non-party. In deciding whether prosecution of the proceedings was in this case an abuse of process, it is, of course, not sufficient to point to the fact that, but for the engagement of r 42.3(2)(c) of the UCPR, costs cannot be recovered from a non-party. Nor is it sufficient to point to the fact that the plaintiff is and was impecunious. This last fact was relevant to the provision of security for costs.
Once it is recognised first, that the UCPR precludes ordering costs against a non-party save in exceptional cases, and secondly, that the plaintiff's inability to pay costs goes only to questions of security, the appellant's contention that prosecution of the proceedings constituted an abuse of process can be seen to depend upon one of two propositions:
.a general proposition condemning the funding for reward of another's litigation;
.a proposition that despite the provisions and principles governing security for costs and the UCPR's general inhibition against ordering costs against non-parties, those who fund another's litigation for reward must agree to put the party who is funded in a position to meet any adverse costs order.
As discussed earlier in these reasons, a general proposition of the kind first mentioned is not consistent with what was decided in Campbells Cash and Carry Pty Ltd v Fostif Pty Ltd. The second, more particular, proposition should not be accepted.
The proposition that those who fund another's litigation must put the party funded in a position to meet any adverse costs order is too broad a proposition to be accepted. As stated, the proposition would apply to shareholders who support a company's claim, relatives who support an individual plaintiff's claim and banks who extend overdraft accommodation to a corporate plaintiff. But not only is the proposition too broad, it has a more fundamental difficulty. It has no doctrinal root. It seeks to take general principles about abuse of process (and in particular the notion of "unfairness"), fasten upon a particular characteristic of the funding arrangement now in question, and describe the consequence of that arrangement as "unfair" to the defendant because provisions and principles about security for costs have been engaged in the case in a particular way and the rules will not permit the ordering of costs against the funder unless the principles of abuse of process are engaged. For the reasons stated earlier, that proposition is circular. And to point to the particular feature of a funding arrangement that the funder is to receive a benefit in the form of a success fee or otherwise, adds nothing to the proposition that would break that circularity of reasoning or otherwise support the conclusion that there is an abuse of process.
Conclusion
SST was not shown to have committed an abuse of process of the court. The power of the Supreme Court of New South Wales to order costs against SST or its directors was not enlivened. The appeals should be dismissed with costs.
HEYDON J. The circumstances are fully set out in the majority judgment.
The essential facts
On 5 September 2000 Rickard Constructions Pty Ltd ("the plaintiff") commenced proceedings against various defendants. The appellant was the second of these defendants ("the defendant"). Monies were advanced by SST Consulting Pty Ltd ("the funder") for the purpose, inter alia, of prosecuting those proceedings. Those advances, or some of them, took place before 13 October 2000, when a Deed of Charge was granted by the plaintiff to the funder to secure those and other advances[67]. At all material times, the plaintiff was unable to meet any order which might be made that it pay the defendant's costs of the proceedings[68]. The funder had not given any indemnity to the plaintiff against any liability that the plaintiff might come to have to the defendant under an order of that kind. The financial arrangements between the plaintiff and the funder appeared to be neither fully nor clearly evidenced before the primary judge. On one view of the murk, the funder had advanced $300,000 on terms that if the litigation succeeded it would be repaid that sum, together with a further $630,000 "success fee", to use the defendant's mild expression. On another view, the advance was only $200,000 and the success fee $730,000. The defendant succeeded in some aspects of its applications for security for costs but not in others: in total it obtained security for $187,750. The plaintiff failed at the trial. The plaintiff was ordered to pay the defendant's costs of the trial, which totalled $653,470.71. That left the defendant out-of-pocket, once the security had been realised, in an amount of over $450,000. The defendant sought an order pursuant to r 42.3(2)(c) of the Uniform Civil Procedure Rules 2005 (NSW) ("UCPR") that the funder pay it that shortfall[69].
[67]Rickard Constructions Pty Ltd v Rickard Hails Moretti Pty Ltd (2006) 66 NSWLR 724 at 733 [34]-[35].
[68]See [74]-[75] below.
[69]See [1] above.
Two errors in the Court of Appeal
Mr D F Jackson QC, who appeared for the defendant in this Court, contended that there were two key errors in the reasoning of the Court of Appeal. It is desirable to deal with them at the outset.
Is abuse of process limited to the actual conduct of the proceedings? The primary judge proceeded on the basis that r 42.3(2)(c) only applied to an abuse of process arising by reason of some aspect of the actual conduct of the proceedings. Thus he saw it as "dispositive" to inquire: "how can there be an abuse of process if there were no relevant abuse in the conduct of the proceedings?" He took as examples of relevant abuse "lack of restraint, excess in the conduct of the litigation, unscrupulous manipulation, or careless or irresponsible actions."[70] The Court of Appeal shared that view. It said that the primary judge was "correct in holding that an actual abuse of process must have been committed in order for an order for costs to be made against the third party."[71] Mr Jackson QC submitted that it was incorrect to hold that the defendant's application must fail merely because there had been no relevant abuse of process in the actual conduct of the proceedings. That submission is sound. No doubt r 42.3(2)(c) extends to particular instances of abuse in the actual conduct of proceedings. But it goes further. Rule 42.3(2)(c) provides that the court has power to make an order in relation to not only part of a party's costs of the proceedings, but the whole of them. As the primary judge said himself: "An abuse of process may infect the whole of proceedings, or some part only."[72] The rule assumes that the institution of the proceedings and the totality of their conduct thereafter can be an abuse of process, and that "abuse of process" is not limited to particular instances of lack of restraint, excess in the conduct of the litigation, unscrupulous manipulation, or careless or irresponsible actions. Grants of power to a court are not to be construed as subject to a limitation not appearing in the words of the grant[73]. The funder contended that this issue only arose because, it said, the defendant had conducted its case more narrowly in the courts below. In oral argument the funder seemed to retreat from this contention. Is that contention correct? Although it is unnecessary to decide the issue, its correctness seems very doubtful. But whether or not that contention is correct, Mr Jackson QC's submission remains sound. The funder also argued that the defendant had exaggerated the distinction which it attributed to the primary judge and the Court of Appeal. To the contrary, Mr Jackson QC's construction of the reasons for judgment is correct. The error is significant because the unduly narrow approach to the construction of r 42.3(2)(c) that it explicitly betokens appears implicitly to underlie the Court of Appeal's conclusion in other ways too.
[70]Rickard Constructions Pty Ltd v Rickard Hails Moretti Pty Ltd (2006) 66 NSWLR 724 at 743 [94]. See also 743-744 [96] and 744 [100]. The courts below considered but rejected various allegations by one of the other persons sued by the plaintiff of particular abuses in the conduct of proceedings. These were not relied on in this Court.
[71]Rickard Constructions Pty Ltd v Rickard Hails Moretti Pty Ltd [2008] NSWCA 283 at [75].
[72]Rickard Constructions Pty Ltd v Rickard Hails Moretti Pty Ltd (2006) 66 NSWLR 724 at 740 [72].
[73]Knight v FP Special Assets Ltd (1992) 174 CLR 178 at 205; [1992] HCA 28.
Is the Campbells case fatal? The Court of Appeal stated that even if the widest view of r 42.3(2)(c) were taken, the decision of this Court in Campbells Cash and Carry Pty Ltd v Fostif Pty Ltd[74] "makes success on an argument that litigation funding with or without control constitutes an abuse of process extremely difficult if not impossible"[75]. That statement overlooks two things. First, the statement overlooks distinctions between particular types of litigation funding. The arrangements under which the litigation funding in the Campbells case was made available included a contractual promise by the funder to indemnify the plaintiffs against adverse costs orders; there was no reason to doubt the funder's capacity to meet the indemnity[76]. Further, it was not shown that the plaintiffs were insolvent. This Court in the Campbells case was not directing its attention to cases like the present, where there was no indemnity for costs should the defendant succeed, and where the plaintiff was at all times incapable of paying the defendant's costs. Secondly, the Court of Appeal's statement overlooks the express recognition by the majority in the Campbells case that misconduct by litigation funders could be met by "existing doctrines of abuse of process"[77]. One of those existing doctrines is found in r 42.3(2)(c). How, then, did the Court of Appeal reach its conclusion that the decision in the Campbells case made success in an argument about litigation funding in this case extremely difficult or impossible? The Court of Appeal relied on three matters.
[74](2006) 229 CLR 386; [2006] HCA 41.
[75]Rickard Constructions Pty Ltd v Rickard Hails Moretti Pty Ltd [2008] NSWCA 283 at [79].
[76]Fostif Pty Ltd v Campbells Cash & Carry Pty Ltd (2005) 63 NSWLR 203 at 216 [52], 219 [70], 235 [135] and 237 [148].
[77]Campbells Cash and Carry Pty Ltd v Fostif Pty Ltd (2006) 229 CLR 386 at 435 [93] per Gummow, Hayne and Crennan JJ.
First, the Court of Appeal pointed to certain passages in the Campbells case[78]. But these do not support the conclusion it reached.
[78]Campbells Cash and Carry Pty Ltd v Fostif Pty Ltd (2006) 229 CLR 386 at 432‑436 [83]-[95] and 451-452 [146]-[148].
Secondly, the Court of Appeal said that the indemnity in the Campbells case "is not referred to by any of the judges who considered the matter" in this Court[79]. That statement is incorrect. As Mr Jackson QC pointed out, Gummow, Hayne and Crennan JJ, in summarising the offer from the funder to the potential plaintiffs, said "if costs were awarded against the retailer, [the funder] would bear those costs."[80] Gleeson CJ agreed with that part of their judgment[81]. Kirby J referred to the description given by Mason P in the Court of Appeal to the terms of funding which included reference to the costs indemnity and asserted that it was not possible to understand that Court's conclusions "without a full appreciation of the entire project, as described by Mason P". Kirby J incorporated that description in his own reasons, and said that the facts required the most careful examination[82]. In the dissenting judgment the indemnity was quoted in full[83] and discussed[84]. It would have been truer for the Court of Appeal in this case to have said that the indemnity was not referred to by the majority judges as a factor central to their conclusion that the proceedings did not involve an abuse of process merely by reason of the litigation funding arrangement. It does not follow from the silence of the majority judges in that respect that the absence of an indemnity may not be significant in assessing whether there is an abuse of process in another type of case.
[79]Rickard Constructions Pty Ltd v Rickard Hails Moretti Pty Ltd [2008] NSWCA 283 at [81].
[80]Campbells Cash and Carry Pty Ltd v Fostif Pty Ltd (2006) 229 CLR 386 at 413 [26].
[81]Campbells Cash and Carry Pty Ltd v Fostif Pty Ltd (2006) 229 CLR 386 at 407 [1].
[82]Campbells Cash and Carry Pty Ltd v Fostif Pty Ltd (2006) 229 CLR 386 at 439 [109].
[83]Campbells Cash and Carry Pty Ltd v Fostif Pty Ltd (2006) 229 CLR 386 at 477 [239].
[84]Campbells Cash and Carry Pty Ltd v Fostif Pty Ltd (2006) 229 CLR 386 at 489 [270].
Thirdly, the Court of Appeal in this case said of the indemnity in the Campbells case: "such an undertaking or indemnity is for the protection of the plaintiff participants not for the benefit of the defendants."[85] But the protection which the indemnity gave to each plaintiff in the Campbells case as a matter of practical substance enured for the benefit of the defendants.
[85]Rickard Constructions Pty Ltd v Rickard Hails Moretti Pty Ltd [2008] NSWCA 283 at [81].
The funder eventually accepted that the Campbells case did not produce victory for it; said that it did not enlist it in its argument; and said that what was said about it in the Court of Appeal was surplusage, was not "central" to its reasoning, was "inconclusive", was beside the point and did not matter. However, it does matter in this different sense: the Court of Appeal's error is more than a passing one, and this suggests that it had at least some influence on the erroneous conclusion to which that Court came. That remains true despite the funder's desire, by taking a blue pencil to the Campbells passages, to create a new judgment it feels it can defend in place of the actual judgment which it abjures in part.
The funder advanced another flawed submission about the Campbells case: that it "contains no support for the [defendant's] contention." That is not correct. Although the present controversy did not arise in the Campbells case, Mason P (with whom Sheller and Hodgson JJA agreed) said: "Defendants … may obtain special costs orders against funders if the proceedings fail."[86] The "special costs orders against funders" can only be orders under r 42.3(2)(c): Mason P is thus assuming that the stance of the defendant in these proceedings on the construction of that rule, even in cases where there is an indemnity by the funder, is correct.
[86]Fostif Pty Ltd v Campbells Cash & Carry Pty Ltd (2005) 63 NSWLR 203 at 230 [120].
Entitlement to costs
Some systems of law, including some common law systems, deal with questions of costs in civil proceedings differently from our own. But in our system, an "important principle" of justice between the parties in civil litigation has been stated by McHugh J in Oshlack v Richmond River Council as follows[87]:
"subject to certain limited exceptions, a successful party in litigation is entitled to an award of costs in its favour. The principle is grounded in reasons of fairness and policy … The primary purpose of an award of costs is to indemnify the successful party. If the litigation had not been brought, or defended, by the unsuccessful party the successful party would not have incurred the expense which it did. As between the parties, fairness dictates that the unsuccessful party typically bears the liability for the costs of the unsuccessful litigation."
He continued[88]:
"As a matter of policy, one beneficial by-product of this compensatory purpose may well be to instil in a party contemplating commencing, or defending, litigation a sober realisation of the potential financial expense involved. Large scale disregard of the principle of the usual order as to costs would inevitably lead to an increase in litigation with an increased, and often unnecessary, burden on the scarce resources of the publicly funded system of justice."
[87](1998) 193 CLR 72 at 97 [67]; [1998] HCA 11 (footnote omitted). McHugh J was dissenting, but not on this point.
[88]Oshlack v Richmond River Council (1998) 193 CLR 72 at 97 [68].
Abuse of process: general principles
In Hunter v Chief Constable of the West Midlands Police[89] Lord Diplock said that the court had inherent power "to prevent misuse of its procedure in a way which, although not inconsistent with the literal application of its procedural rules, would nevertheless be manifestly unfair to a party to litigation before it, or would otherwise bring the administration of justice into disrepute among right‑thinking people." That statement has been approved in this Court by Mason CJ, Deane and Dawson JJ as stating the law "correctly"[90]. They also said that abuse of process arises in "all those categories of cases in which the processes and procedures of the court, which exist to administer justice with fairness and impartiality, may be converted into instruments of injustice or unfairness."[91] They quoted certain statements by Richardson J pointing to two aspects of the public interest. One was that the "public interest in the due administration of justice necessarily extends to ensuring that the Court's processes are used fairly"[92]. The second aspect of the public interest lay "in the maintenance of public confidence in the administration of justice. It is contrary to the public interest to allow that confidence to be eroded by a concern that the Court's processes may lend themselves to oppression and injustice."[93] "Abuse of process" extends to proceedings that are "seriously and unfairly burdensome, prejudicial or damaging"[94] or "productive of serious and unjustified trouble and harassment."[95] There is a "general principle empowering a court to dismiss or stay proceedings which are … an abuse of process and the rationale for the exercise of the power to stay is the avoidance of injustice between parties in the particular case."[96] A stay or dismissal prevents abuse of process: "[t]he counterpart of a court's power to prevent its processes being abused is its power to protect the integrity of those processes once set in motion."[97]
[89][1982] AC 529 at 536.
[90]Walton v Gardiner (1993) 177 CLR 378 at 393; [1993] HCA 77. See also Rogers v The Queen (1994) 181 CLR 251 at 256; [1994] HCA 42; D'Orta-Ekenaike v Victoria Legal Aid (2005) 223 CLR 1 at 28 [74]; [2005] HCA 12; Batistatos v Roads and Traffic Authority of New South Wales (2006) 226 CLR 256 at 264 [6]; [2006] HCA 27. The last named case was one which the funder went to considerable lengths to distinguish as concerned, not with third party costs orders, but with a stay of proceedings from the outset. That there are differences between the two procedures does not negate the significance of the width given by the discussion in cases like Batistatos's case to the words "abuse of process".
[91]Walton v Gardiner (1993) 177 CLR 378 at 393.
[92]Moevao v Department of Labour [1980] 1 NZLR 464 at 481.
[93]Moevao v Department of Labour [1980] 1 NZLR 464 at 481. This passage was quoted in Walton v Gardiner (1993) 177 CLR 378 at 394 and Jago v District Court (NSW) (1989) 168 CLR 23 at 30; [1989] HCA 46. See also Williams v Spautz (1992) 174 CLR 509 at 520; [1992] HCA 34.
[94]OceanicSun Line Special Shipping Company Inc v Fay (1988) 165 CLR 197 at 247 per Deane J; [1988] HCA 32, approved in Hamilton v Oades (1989) 166 CLR 486 at 502; [1989] HCA 21; Ridgeway v The Queen (1995) 184 CLR 19 at 75; [1995] HCA 66; and Batistatos v Roads and Traffic Authority of New South Wales (2006) 226 CLR 256 at 267 [14].
[95]Oceanic Sun Line Special Shipping Company Inc v Fay (1988) 165 CLR 197 at 247 per Deane J, approved in Hamilton v Oades (1989) 166 CLR 486 at 502; Ridgeway v The Queen (1995) 184 CLR 19 at 75 and Batistatos v Roads and Traffic Authority of New South Wales (2006) 226 CLR 256 at 267 [14].
[96]Voth v Manildra Flour Mills Pty Ltd (1990) 171 CLR 538 at 554 per Mason CJ, Deane, Dawson and Gaudron JJ; [1990] HCA 55.
[97]CSR Ltd v Cigna Insurance Australia Ltd (1997) 189 CLR 345 at 391 per Dawson, Toohey, Gaudron, McHugh, Gummow and Kirby JJ; [1997] HCA 33 (emphasis in original).
The power of a court to deal with abuse of its process is one aspect of its more general power to control its own process. The exercise of the power to deal with abuse of process "is not restricted to defined and closed categories, but may be exercised as and when the administration of justice demands."[98] Further, the power to control abuse of process by granting a permanent stay "should be seen as a power which is exercisable if the administration of justice so demands, and not one the exercise of which depends on any nice distinction between notions of unfairness or injustice, on the one hand, and abuse of process, on the other hand."[99] There is no reason why any nice distinction of that kind should be drawn in relation to r 42.3(2)(c) either.
[98]Jago v District Court of New South Wales (1989) 168 CLR 23 at 74 per Gaudron J, approved in Walton v Gardiner (1993) 177 CLR 378 at 394 per Mason CJ, Deane and Dawson JJ.
[99]Jago v District Court of New South Wales (1989) 168 CLR 23 at 74 per Gaudron J, approved in Walton v Gardiner (1993) 177 CLR 378 at 394.
Words like "unfair", "unjust", "oppressive", "seriously and unfairly burdensome, prejudicial or damaging", "productive of serious and unjustified trouble and harassment" and "bring the administration of justice into disrepute among right-thinking people" are not words of exact meaning. Nor are the words "abuse of process" themselves. That notion is not "very precise"[100]. Hence it is not surprising that, as Lord Diplock said, "[t]he circumstances in which abuse of process can arise are very varied"[101]. "What amounts to abuse of court process is insusceptible of a formulation comprising closed categories. Development continues."[102]
[100]Ridgeway v The Queen (1995) 184 CLR 19 at 75 per Gaudron J. See also Batistatos v Roads and Traffic Authority of New South Wales (2006) 226 CLR 256 at 267 [14].
[101]Hunter v Chief Constable of the West Midlands Police [1982] AC 529 at 536.
[102]Batistatos v Roads and Traffic Authority of New South Wales (2006) 226 CLR 256 at 265 [9] per Gleeson CJ, Gummow, Hayne and Crennan JJ.
Abuse of process: funding litigation without indemnifying the plaintiff
It is convenient to turn from these general statements to examine the language used in the authorities in relation to the liability of non-parties who have supplied funds to plaintiffs for the conduct of litigation from which they hope to profit, but who have not indemnified the plaintiffs against their potential liability to pay the defendants' costs. Although only one of those authorities relates directly to r 42.3(2)(c), they all have some relevance to its construction.
Non-party costs cases. There are cases in, or emanating from, the New Zealand courts which discuss the making of costs orders against non-party funders. In Arklow Investments Ltd v MacLean Fisher J, sitting in the High Court of New Zealand, said[103]: "[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." In Dymocks Franchise Systems (NSW) Pty Ltd v Todd (No 2) the Privy Council quoted that passage with approval[104]. The Privy Council also said, after describing instances where a costs order would not be made against a non-party, that where[105]:
"the non-party not merely funds the proceedings but … is to benefit from them, justice will ordinarily require that, if the proceedings fail, he will pay the successful party's costs. The non-party in these cases is not so much facilitating access to justice by the party funded as himself gaining access to justice for his own purposes. He himself is 'the real party' to the litigation".
The defendant submitted that to be a "real party" a funder did not need to exercise exclusive control over the litigation, and that it sufficed if it had a "role as one of the actors in the scene in important and critical respects."[106] The Privy Council also approved[107] the following statement of Tompkins J in Carborundum Abrasives Ltd v Bank of New Zealand (No 2)[108]:
"Where proceedings are initiated by and controlled by a person who, although not a party to the proceedings, has a direct personal financial interest in their result, such as a receiver or manager appointed by a secured creditor, a substantial unsecured creditor or a substantial shareholder, it would rarely be just for such a person pursuing his own interests, to be able to do so with no risk to himself should the proceedings fail or be discontinued."
These references to wrongness and injustice suggest that the judges who used this language had abuse of process in mind.
[103]Unreported, 19 May 2000 at [21] (emphasis added).
[104][2005] 1 NZLR 145 at 157 [26].
[105][2005] 1 NZLR 145 at 156 [25] (3) (emphasis added).
[106]Citing Kebaro Pty Ltd v Saunders [2003] FCAFC 5 at [113] per Beaumont, Sundberg and Hely JJ.
[107][2005] 1 NZLR 145 at 156 [25] (4).
[108][1992] 3 NZLR 757 at 765 (emphasis added).
As to the first submission, the general law did not suggest that third party costs orders should only be made in unusual circumstances. Nor do the terms of r 42.3.
As to the second submission, Mason CJ and Deane J in Knight v FP Special Assets Ltd did not say that the availability of security for costs was "generally" a factor against a third party costs order. They did say that that availability "would, in many situations, be a strong argument for refusing to exercise a discretion to order costs against a non-party, but discretion must be distinguished from jurisdiction." As those words suggest, the passage concludes a paragraph rejecting an argument that the availability of security for costs deprived the court of jurisdiction to make third party costs orders. That paragraph described some of the difficulties facing claimants for orders relating to security for costs[179]. The reasons for judgment did not have to analyse, and did not analyse, which situations would make the argument in question "strong". It is far from clear why what was said should apply under r 42.3(2)(c). There is no reason why the remedies cannot be cumulative, and why a failure to obtain security, in view of the difficulties and unattractive consequences of seeking security, should operate as a strong discretionary factor against a costs order. Further, abuse of process causing financial loss to a victorious defendant is the type of conduct which, once found, is unlikely to be permitted lightly to go without remedy on discretionary grounds.
[179]See above at [93].
As to the funder's third submission, there is no obligation on a defendant early in the proceedings to warn a plaintiff or the person funding the plaintiff that the defendant may apply for a third party costs order at the end of the proceedings.
Ninth argument – quantum of recovery
In this case it is appropriate for the whole of the costs shortfall to be paid for by the funder. That is because without the funding provided by the funder the proceedings would probably not have continued beyond a very early point. The funding agreement was entered into only five weeks after the proceedings began. The funder conceded that but for the funding the litigation would probably not have continued from that time.
Costs against the directors and shareholders of the funder
In view of the fact that the defendant ought to succeed in obtaining a costs order as against the funder, it would ordinarily not be necessary to consider whether one should be made against the directors and shareholders – the controllers – of the funder, Messrs Peter Sweeney, Paul Sweeney and Denys Truman. The need for the defendant to make an application for that order arose out of the following circumstances.
The funder was a $3 company. Each controller owned one share. The funder operated as a de facto partnership between the three controllers. In the three years that ended 30 June 2004, 30 June 2005 and 30 June 2006 the funder had a deficiency of assets in relation to liabilities of $188,291, $916,112 and $864,764 respectively. In each year there were debts owed by the plaintiff to the funder of $791,594, $1,987,469 and $2,167,018 respectively. The financial position of the plaintiff at all material times meant that those debts were not recoverable by the funder[180]. Hence the accumulated losses each year were much greater to that extent. The defendant submitted that these considerations showed the funder to be insolvent from at least 30 June 2004. The funder and its controllers submitted "that the fact that the financial statements of [the funder] disclose an excess of liabilities over assets is not, without more, probative of (or at least sufficient to prove) [the funder's] insolvency, in accordance with the test for insolvency prescribed by section 95A of the Corporations Act 2001 (Cth)." However that may be, the asset position of the funder is so parlous as to make it necessary to consider the defendant's application for a costs order against the controllers.
[180]See [74]-[75] above.
The primary judge found that while there was no evidence that the controllers would benefit "directly" from any success enjoyed by the plaintiff in the litigation, they had provided the funder with the funds it advanced to or on behalf of the plaintiff. He also found that any recoveries made by the funder from the litigation would have flowed back to the individuals through their loan accounts with the funder. As noted above, the primary judge additionally found that Mr Peter Sweeney spent most of the 19 day trial in court, attended numerous conferences relating to the proceedings, was provided with copies of advices from time to time given to the plaintiff and relevant correspondence, and made decisions and gave instructions on matters of funding[181]. In short, the controllers provided the money to the funder which it used to fund the plaintiff, they thus ensured that the proceedings would be prosecuted, and they were to receive, in substantial measure, the benefits of the litigation. The interposition of a corporate veil between them and the funder, on which the controllers relied, is in the circumstances no barrier to the making of costs orders against them pursuant to r 42.3(2)(c). The facts suggest that the responsibility for the abuse of process is to be laid primarily at their feet.
[181]See above at [97]-[98].
Costs of appeals
The conclusion that third party costs orders should have been made against the funder and Messrs Sweeney, Sweeney and Truman in relation to the trial applies equally to the appeal to the Court of Appeal. Correctly, neither the funder and its controllers nor the defendant submitted otherwise. They should also be made in relation to the costs of the present appeals.
Orders
The appeals should be allowed with costs and consequential orders should be made.