On what basis can a party to a proceeding seek an order for costs against a non-party?
In the case of Sandpiper Developments Pty Ltd v Main Beach Developments Qld Pty Ltd,[1] the plaintiff decided not to proceed with its claims. The defendants sought and obtained orders for summary dismissal of the proceeding. When the question of costs arose, the defendants sought a non-party costs order on the basis the plaintiff was ‘insolvent or at best a man of straw’.[2]
That gave Garde J cause to consider the principles relating to non-party costs orders, which principles are neatly summarised in his Honour’s reasons for judgment. My summary of the principles, as Garde J detailed them, is as follows.
General principles
A non-party costs order should be ordered where the justice of the case requires it and ‘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’ (according to the High Court plurality in Knight v FP Special Assets Ltd[3]).
A non-party costs order is appropriate where it otherwise can be said that the non-party ‘is the effective litigant standing behind an actual party or where there has been a contempt or abuse of the process of the court’ (according to Dawson J in that case[4]).
Those who fund a litigant
Those who purely fund a party in litigation, with no personal stake in the outcome or desire to control its course, generally should not be the subject of a costs order.[5]
Corporate parties and their directors
Where a non-party costs order is sought against a director of a litigant company, the corporate veil and the fact of the company as a distinct legal entity tend against a non-party costs order — indeed, ‘[t]he control of a corporate litigant by a director who is also its sole or majority shareholder is an unremarkable occurrence’.[6]
A non-party costs order might be made against a director where it can be shown that:
the director’s conduct was unreasonable or improper;[7]
the director gave instructions to pursue a claim or defence with no real prospects;[8]
a proceeding was instituted based on fraud without reasonable grounds;[9] or
a proceeding was continued ‘stubbornly and totally unreasonably’.[10]
Returning to the case of Sandpiper, Garde J went on to make a non-party costs order against the plaintiff’s director, ruling it was in the interests of justice to do so and citing, among other things, the fact of that director being responsible for the plaintiff’s delinquency in complying with court orders and for the plaintiff’s failure to be candid with the Court in that respect.[11] His Honour declined, however, to make a non-party costs order against another company which owned all the shares in the plaintiff, finding ‘no proper basis has been shown’ as to why such order ought be made.[12]
A matter of procedure
Logically, someone would not need to be joined as a party to a proceeding in order for a non-party costs order to be sought and made against them. That said, a court would expect that the non-party be put on notice of any such application for costs; the non-party should be made aware in advance of the application and any supporting material on which the applicant relies.[13]
[1]: [2024] VSC 469.
[2]: Ibid [54]. The Supreme Court Act 1986 (Vic) s 24(1) states: ‘Unless otherwise expressly provided by this or any other Act or by the Rules, the costs of and incidental to all matters in the Court, including the administration of estates and trusts, is in the discretion of the Court and the Court has full power to determine by whom and to what extent the costs are to be paid.’ This broad discretion provides the basis for a court to make a non-party costs order.
[3]: (1992) 174 CLR 178, 192–3 (Mason CJ and Deane J, Gaudron J agreeing).
[4]: Ibid 202.
[5]: Dymocks Franchise Systems (NSW) Pty Ltd v Todd [2004] 1 WLR 2807, 2815 [25].
[6]: Rushton (Qld) Pty Ltd v Rushton (NSW) Pty Ltd [2004] QSC 47, [12]–[13].
[7]: Manderson M & F Consulting v Incitec Pivot Ltd (No 3) [2011] VSC 441, [37].
[8]: Arundel Chiropractic Centre Pty Ltd v Deputy Commissioner of Taxation (2001) 179 ALR 406, 412.
[9]: QBH Commercial Enterprises Pty Ltd v Dalle Projects Pty Ltd [2018] VSC 383, [77].
[10]: Arundel Chiropractic Centre Pty Ltd v Deputy Commissioner of Taxation (2001) 179 ALR 406, 412.
[11]: [2024] VSC 469, [80].
[12]: Ibid [81].
[13]: See Peter Hannan, ‘Casting the Net Wider: Costs Orders Against Non-parties’ (2001) 75(10) Law Institute Journal 80, 83.