3 The respondent was formerly a director of the Australasian Academy of Natural Medicine Pty Ltd ("the Academy") which provided courses of education in natural medicine. The respondent was also a member of the teaching staff and he performed various administrative duties at the Academy. After resigning as a director, he took action against the Academy to recover the sum of $49,350 which he claimed was due to him by way of lecture fees and remuneration for administrative work performed by him.

4 By the time the matter came on for trial the only directors of the Academy were Dr Krishna Kumar and Professor Manfred Junius. Dr Kumar was also the Chief Executive Officer. These two men played an important role in the defence of the action and both gave evidence aimed at denying the respondent's claim.

5 The trial judge found in favour of the respondent and entered judgment for him in the sum of $49,350. The respondent then applied for an order that Dr Kumar and Professor Junius pay the costs which he incurred in the proceedings on a solicitor and client basis. The application was made on the basis that Dr Kumar and Professor Junius, although not parties to the action, funded and controlled the defence against the respondent's claim in the knowledge that the Academy could not meet the costs of doing so. It was also claimed that they had an interest in the litigation. The application was made against a background of unfavourable findings by the trial judge as to the credibility of Dr Kumar and Professor Junius.

6 The trial judge refused to make a costs order against Professor Junius, but he directed that Dr Kumar pay the respondent's costs of the action on a party and party basis.

7 It is alleged in the grounds of appeal that the trial judge erred in the exercise of his discretion to order costs against a non-party. It is claimed that he erred in making certain findings of fact; that he wrongly took into account various matters which had not been established in the proceedings and that he failed to take into account other matters which were relevant to the exercise of the discretion.

8 In order to deal with the arguments advanced on appeal it is necessary to summarise further the factual background of the case.

9 In 1994 a group of people with a common interest in natural medicine formed an association to teach students in various branches of that discipline. At the outset between 15 and 20 students enrolled in the courses which were provided. They paid fees to the association. Originally, there were seven members of the association including Dr Kumar, Professor Junius and the respondent. In July 1994 the association was replaced by the proprietary company, Australasian Academy of Natural Medicine Pty Ltd. Each of the seven members of the group were allocated shares and all became directors. There were no other shareholders. Some of the directors advanced loans to the company.

10 The respondent played an important role in the Academy, both as a lecturer and administrator. However, on 18 June 1998 he wrote to the directors of the Academy in the following terms:

"I regret to advise that I am no longer able to work in the environment that has been established under the current Board leadership. I am aware of my responsibilities as a director and I feel that I am no longer able to fulfil those responsibilities in an environment where I cannot feel confident of open and frank disclosure of all the financial details of the company.

It is only after great deliberation and as a conclusion to the considerable effort I have made to resolve the problems within the Board that I have come to a decision to tender my resignation as director.

I now tender my resignation, which is to have immediate effect.

In accordance with the agreements of directors and previous practice of this company in relation to resigning Board members, also (sic) tender my account for services rendered and loans made to the company. Please arrange for immediate payment of all amounts outstanding, which are now due and payable."

This letter was accompanied by another letter addressed to Dr Kumar to which was attached an account for the following amounts:

"Item Amount

Loans to the Academy $ 1,070.00

Outstanding Lecture Fees to 30/6/97 $ 6,090.00

Outstanding Lecture Fees July to December 1997 $ 1,260.00

Outstanding Administration Fees 1994 to 1997 $42,000.00"

11 When the amounts were not paid the respondent issued a statutory demand for payment of debt pursuant to the Corporations Law. The debt arising from the loan in the sum of $1,070 was acknowledged by Dr Kumar on behalf of the Academy and payment was tendered in that amount. However, there was no acknowledgment that the balance was due and payable and the Academy was successful in obtaining an order from the Supreme Court setting aside the statutory demand to the extent of $49,350.

12 The amount of $49,350 in dispute consisted of two components; the sum of $7,350 for outstanding lecture fees and the sum of $42,000 for outstanding administration fees. On 6 January 1999 Dr Kumar swore an affidavit in support of the application to have the statutory demand set aside in which he stated:

"That from the time of the commencement of the Applicant's undertaking, all seven directors were agreed that the shareholding should remain equal. Certain of them, including Stephen John Walters were limited in the funds they could invest. Therefore, it was agreed and understood by all seven that:-

1 the time and work devoted by each to the undertaking of the Academy be regarded as a form of investment by each;

2 eventually, lecture fees would be paid to each for their services in this regard once and only if funds permitted from time to time;

3 each was to assume a role of either principal, vice principal, administrator, deans of faculties and heads of department and discharge the appropriate duties of such office so as to advance the establishment of the academy and to do so without remuneration other than for reimbursement of the expenses of office; and

4 that a record be kept of the efforts of each director in relation to their respective exertions."

13 In an affidavit in support of the statutory demand, the respondent referred to a draft budget for the first year of operation of the Academy which, he said, was proposed and approved at a directors' meeting of the Academy held in or about March 1995. He annexed a copy of the budget which included a line for lecture and administration fees. In his answering affidavit Dr Kumar stated that this document had been prepared "to simply establish some form of estimated budget for the first full academic year". He said the document was produced to the directors as nothing more than an estimate and to serve as a guideline. He said that apart from two amounts of $15,000 payable to the respondent and himself as amounts due in the 1996 accounts, "no resolutions were made by the Directors either adopting or rejecting the contents of this document either in full or in part". He added that the budget projections were never achieved and the directors did not further consider this document.

14 The statutory demand was set aside on the basis that the claim was in genuine dispute. Subsequently, the plaintiff commenced proceedings in the District Court claiming the sum of $49,350 alleged to be due and payable to him by the Academy. It was decided not to proceed by way of pleadings, but by reference to the issues raised in various affidavits which were filed in the court. The affidavits included those which had been sworn by Dr Kumar and the respondent in relation to the statutory demand procedure.

15 There followed a three week trial at which most of the Academy's directors and the respondent gave evidence.

16 The learned trial judge made findings which were adverse to the credibility of Dr Kumar and Professor Junius. He reached the conclusion that Dr Kumar did not take his oath seriously and that much of the evidence tendered by him orally and in affidavit form comprised an untruthful reconstruction of events to suit the case of the Academy. Although the trial judge did not find that Professor Junius intended to give misleading evidence, he found the evidence given by that witness to be unreliable. He found that the evidence of Professor Junius on crucial matters was influenced by Dr Kumar whose version Professor Junius supported although he appeared to have no independent memory of many of the events to which he deposed. Nor was the trial judge prepared to place reliance on much of the evidence given by the other directors with the exception of Dr Ros. On the other hand, the trial judge was impressed with the evidence of the respondent whom he found to be a truthful and credible witness.

17 The main findings of the trial judge on the issue of liability can be summarised as follows:

1 When the Academy was incorporated the directors agreed that lecture fees for directors would be paid from time to time as funds permitted. Records would be kept for this purpose. It was agreed that lecture fees would be paid when a director presented an invoice to the Academy. It was further agreed that directors would voluntarily withhold their invoices for such accounts, but that this was a matter for each director to decide. The respondent decided to withhold the rendering of invoices for his lectures for some years.

2 The directors agreed that they would be responsible for certain administrative duties associated with their respective faculties. There was no agreement, as suggested by Dr Kumar, that no accounts for lecture fees would be paid unless the directors resolved in a meeting to pay some or all of the outstanding lecture fees. No such practice was adopted by the Academy.

3 By March 1994 the administrative duties associated with the Academy were time consuming and they were being performed by Dr Kumar and the respondent who had assumed the responsibilities of administrator and vice-principal respectively. Administrative duties performed by the other directors were minimal.

4 At the request of the directors, Dr Kumar and the respondent prepared a budget which was available before March 1995. The budget was considered by Dr Kumar and the respondent to be realistic. It included budgeted expenditure for lecturing by outsiders as well as by directors. It also provided for administrator's fees. The budget was presented to a directors' meeting on 19 March 1995. The minutes of the meeting accurately record "that the proposed budget be accepted". The minutes also refer to a suggestion by Dr Kumar that the budget be reassessed in November, but this arose because of a comment by one of the directors that the amount of lecture fees would be more than was budgeted for.

5 The decision by the directors to accept the budget constituted an acceptance by the Academy of a liability to pay lecture fees to directors and a further liability to pay administration fees of $15,000 for the next year to each of Dr Kumar and the respondent.

6 The directors did not consider that the allowance for administration fees was simply a projection which would not have to be paid because the Academy would not be able to pay the fees.

7 The respondent was paid administration fees amounting to $3000 which were owing to him in May 1995 but, because of a "gentlemen's agreement", he voluntarily withheld his account for further fees until he resigned as a director in 1998. The $3000 was paid by Dr Kumar to the respondent when the respondent asked to be paid some of the $15,000 which was then payable to him. Dr Kumar gave knowingly false evidence when he stated that the payment of $3000 was a loan to the respondent.

8 Dr Kumar prepared materials to be submitted to the Academy's accountant for the preparation of the annual accounts for the financial year 1995/1996. The material showed lecture fees owing to directors and fees outstanding to Dr Kumar and the respondent each in the sum of $15,000. By adopting the accounts the Academy acknowledged a liability to pay outstanding lecture fees to directors and to pay administration fees of $15,000 for the financial year 1995/1996 to Dr Kumar and the respondent. Each director understood that this was the position. Dr Kumar gave false evidence when he stated that the materials for the accountant were prepared in consultation with the respondent.

9 The references in the annual accounts to outstanding lecture fees and administration fees continued up to the time of the publication of the 1998/1999 accounts. The description of "contingent liability" applied to outstanding fees in the 1996/1997 accounts resulted from a suggestion by the Academy's accountant and did not imply that the directors were of the view that payment of such outstanding fees was contingent upon the Academy having the funds to pay.

10 When the respondent tendered his account dated 18 June 1998 for the payment of outstanding lecture fees and administration fees, the Academy became liable on that date to pay him the sum of $49,350.

11 The Academy was placed into voluntary administration one week after the judgment was delivered. In the Report to Creditors it was stated that under the proposed deed of company arrangement, creditors would receive three cents in the dollar.

18 In his judgment on the issue of costs, the trial judge affirmed his view that Dr Kumar was controlling the Academy as early as 1998. He also concluded that Dr Kumar was controlling the conduct of the litigation before him and that Dr Kumar and Professor Junius were funding it. The trial judge referred to his earlier findings that Dr Kumar did not take his oath seriously when swearing his affidavits and when giving evidence at the trial. His Honour said:

"I considered that parts of Dr Kumar's evidence were knowingly false. I concluded that he did not take his oath seriously, either when he swore his several affidavits in the proceedings in the Supreme Court regarding the plaintiff's statutory demand, or when he gave evidence before me. In particular, I considered that he knew he falsely swore that directors were not paid lecture fees unless and until directors of the Academy had resolved in a meeting that they be paid. Another example was Dr Kumar's evidence regarding the payment to the plaintiff of $3000 in May 1995. I found this payment to be in part payment of administration fees, contrary to what I considered to be evidence of Dr Kumar which he knew was false. In making many of my findings I rejected much of Dr Kumar's evidence.

So far as the evidence of Professor Junius was concerned, I rejected much of his evidence but, unlike Dr Kumar, I did not find that he had consciously given false evidence. I considered that much of his evidence was given, not from any independent recollection of the facts, but in reliance on what Dr Kumar had told him."

19 The trial judge took into account the submission made on behalf of Dr Kumar, that had he been put on notice by the respondent that a costs order might be made against him, he would have sought legal advice and ceased defending the action if the advice had been that a costs order was a possibility. However, in the view of the trial judge Dr Kumar and Professor Junius would have defended the claim in any event.

20 After considering various authorities concerned with the exercise of the discretion to award costs against a non-party, the trial judge made the order for costs against Dr Kumar, but refused to do so in the case of Professor Junius.

21 Before turning to the grounds of appeal, it is appropriate to discuss the nature of the power of the court to make an order for costs against a non-party.

22 The District Court Act 1991 s 42(1) empowers the District Court to award costs in civil actions against any person, whether a party to or a witness in the proceedings or not. The exercise of the power is discretionary and the discretion must be exercised judicially. The power to make an order for costs against a non-party is not to be exercised lightly: see NAQG of 2002 v Minister for Immigration and Indigenous Affairs [2002] FCA 1044.

23 As Lander J pointed out in Vestris v Cashman (1998) 72 SASR 449 at 467:

"If the order for costs which is sought against a non-party is in lieu of, in substitution for or complementary to an order for costs against a party, the circumstances for making such an order will not arise unless there is some connection or association between the party to the litigation and the non-party against whom the order for costs is sought. The connection must be of a kind that makes it just to make an order for costs in that the connection must be material to the question of costs: see Bischof v Adams [1992] VicRp 61; [1992] 2 VR 198 at 205."

24 The necessary connection between the non-party and the proceedings will differ from case to case, but a reading of the authorities indicates factors which are often relevant to the exercise of the discretion. Reference was made to some of these factors in the reasons for judgment of Mason CJ and Deane J in Knight v FP Special Assets Ltd [1992] HCA 28; (1992) 174 CLR 178 at 192:

"Obviously, the prima facie general principle is that an order for costs is only made against a party to the litigation. As our discussion of the earlier authorities indicates, there are, however, a variety of circumstances in which considerations of justice may, in accordance with general principles relating to awards of costs, support an order for costs against a non-party. Thus, for example, there are several long-established categories of case in which equity recognized that it may be appropriate for such an order to be made. See the discussion in Oasis Hotel Ltd v Zurich Insurance Co. (1981) 124 DLR (3d) 455, at pp 458-459.

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."

25 In the same case Dawson J (at 202) referred to the appropriateness, in certain cases, of awarding costs against a person who is not a party to the proceedings, but who is the "effective litigant" standing behind an actual party.

26 Although Knight's case was concerned with a receiver conducting litigation through a company, the factors considered capable of providing the justification for an order for costs against the non-party in that case are relevant in cases involving non-parties who are connected with parties to litigation in other capacities such as directors or shareholders: see Yates v Boland [2000] FCA 1895; Vestris v Cashman at 468. In Symphony Group PLC v Hodgson [1994] QBD 179 at 191 Balcombe LJ referred to a number of reported decisions in which costs orders had been made against non-parties. They include cases where a person had some management of the action or had maintained or financed the action.

27 In the present case, the trial judge found that Dr Kumar was controlling the Academy at least as far back as early 1998. He assumed the role of the chief executive of the company and, by the time the litigation commenced, the only other director of the company was Professor Junius.

28 The trial judge also found that Dr Kumar and Professor Junius funded the litigation and that Dr Kumar controlled its conduct. Dr Kumar was responsible for instructing legal advisers and providing the information necessary to conduct the litigation. All this was done at a time when it was clear that the company had no funds to finance the proceedings or satisfy any judgment debt which might result from it.

29 The first ground of appeal argued by Mr Heywood-Smith QC, for Dr Kumar, was that the trial judge erred in failing to accept the claim made by Dr Kumar in an affidavit sworn by him on 19 November 2001 that he instructed his legal advisers "in a bona fide manner and at all times acted in accordance with their advice". Instead, so it was argued, the trial judge placed undue weight on the unfavourable findings which he had made in relation to Dr Kumar's credibility. It was claimed that these findings were in relation to issues of fact which were peripheral to the defence of the respondent's claim. Particular objection was taken to the following passage from the judgment on the costs issue:

"He (Dr Kumar) stated that he instructed his legal advisers in a bona fide manner and at all times acted in accordance with their advice. The latter part of that statement may have been so, but the legal advice he received and acted upon was based, on the findings that I have made, on information that Dr Kumar knew to be false and on information given to the Academy's advisers by Professor Junius which I have found was largely, if not solely, influenced by Dr Kumar."

30 According to Mr Heywood-Smith's submission, there was evidence that Dr Kumar gave truthful instructions on an issue which was crucial to the Academy's case and, if successful, would have defeated the respondent's claim. In short, it was based on the contention that there was no binding contract between the Academy and the respondent entitling the respondent to the payment of fees because no such agreement had been approved by the company in general meetings. It was argued that the trial judge ignored the instructions given and the advice received on this issue and, instead, placed emphasis on instructions which were given on other issues.

31 In the course of making this point, Mr Heywood-Smith argued that the trial judge ignored an affidavit sworn by Mr Kadis, a solicitor, which referred to the instructions given to counsel and the advice which was given in consequence of those instructions. Mr Kadis acted for the Academy at the trial and for Dr Kumar and Professor Junius on the application for costs. In an affidavit dated 19 November 2001 he stated (para 5):

"... advice was received from counsel retained on behalf of the defendant company, that there was a good defence to the claims made by the plaintiff. The substance of this defence was put to this Honourable Court in both a 'no case' submission and in final submissions in a document headed 'Outline of Submissions of the Defendant'. I am informed that no part of counsel's advice was dependent upon any issues associated with a payment of $3,000.00 to the plaintiff in either 1995 or 1996. I am further informed by counsel and verily believe that nor was the issue of any decision taken in 1997 to make some payments to directors for lecture fees considered to be either inconsistent with the unanimous instruction of the four director witnesses as to the early agreement as to payment of lecture fees for the directors or with the defences put to Court. Finally, I am informed by counsel and verily believe that issues associated with:-

5.1 payment of a printing invoice in or about April, 1998;

5.2 the manner of the company instructing its accountant;

5.3 the suggestion of a payment of $10,000.00 each by the Poehlmanns;

5.4 payment of interest by the defendant for one year on a $10,000.00 loan to the plaintiff;

5.5 whether Krishna Kumar met with the company's accountant once or twice prior to the meeting of the 2nd February, 1998;

5.6 the content of Dr Krishna Kumar's Affidavit of 6th January, 1999;

5.7 whether Krishna Kumar and Michael Junius have received payment for lecture fees since the plaintiff's resignation from the position of director; and,

5.8 what payments were made to a visiting expert who lectured at the defendant company's Academy in 1997

were not relevant to the advice given as to the availability of the defences presented to the Court. The issues in paragraphs 5.7 and 5.8 did not arise during the plaintiff's case. The defendant had no opportunity to cross-examine either Frank Ros or the plaintiff in respect of these issues."

32 As I have stated, the defence referred to in the affidavit of Mr Kadis was based on an argument that any contract between the Academy and the respondent for the payment of the administration fees of $42,000 claimed by the respondent would require authorisation at a general meeting of the Academy and that no such authorisation had taken place. This was said to follow from the combined effect of articles 63 and 99 of the Academy's Articles of Association and s 180(1) of the Corporations Law.

33 Article 99 provides for the entitlement of directors to remuneration which is to be determined by the company in general meetings. Article 63 states that:

"All business shall be deemed special that is transacted at any extraordinary general meeting, and all that is transacted at an annual general meeting, with the exception of sanctioning a dividend (if such shall be the business of the meeting), the consideration of accounts, balance sheets and the reports of the Directors and Auditors, and the election, if and when such is the function of the general meeting, of Directors, and other officers, in place of those retiring and the remuneration of the Directors."

34 Article 100 provides that, if any director performs "extra services" then:

"The company shall remunerate such Director, either by a fixed sum or by a percentage of profits or otherwise as may be determined by the Company in general meeting, and such remuneration may be either in addition to or in substitution for his share in the remuneration above provided."

35 Section 180(1) of the Corporations Law provides as follows:

"Subject to this Law, the constitution of a company has the effect of a contract under seal:

(a) between the company and each member;

(b) between the company and each eligible officer; and

(c) between a member and each other member;

under with each of the above-mentioned persons agree to observe and perform the provisions of the constitution as in force for the time being so far as those provisions are applicable to that person."

36 The learned trial judge dealt with this argument in the following passage of his reasons for judgment at the trial:

"There is one further matter I mention. During his final address counsel for the Academy submitted that no contract was concluded between the Academy and the plaintiff concerning that part of the plaintiff's claim for administration fees (being $42,000) because such contract needed to be concluded at a general meeting. Articles 63 and 99 of the company's Articles of Association and s 108(1) of the Corporations Law were referred to, together with some authorities. I reject that submission. In my view article 99 has no application to the fees claimed by the plaintiff. That article relates to fees payable by directors for their duties as directors. Furthermore, I am satisfied that the Academy's Articles of Association authorise it to pay the lecture and administration fees that are the subject of the plaintiff's claim (article 100), and I am further satisfied that the various financial accounts of the Academy which were tendered before me establish that the company has, in a general meeting, determined and approved the payments of these moneys by adopting the accounts. The Academy's accounts which indicated the amounts claimed by the plaintiff were provided to the Academy's directors and shareholders."

37 There has been no appeal against the judgment on liability and the correctness or otherwise of the above finding is not an issue before the court on this appeal against the costs order. However, Mr Heywood-Smith placed considerable emphasis on the fact that this point was canvassed in legal advice given to Dr Kumar prior to the trial and, further, that it was raised as an issue at the trial. According to the submissions presented to this court, the argument, if accepted, would be a complete answer to the claim for $42,000 on account of fees for the performance of administrative duties. Dr Kumar received the advice of counsel to this effect. Accordingly, he was justified in taking part in the defence of the trial by giving instructions to resist the claim. This, so it was argued, was a relevant factor to take into account in his favour on the issue of costs. The unfavourable findings of credit made against him related to matters unconnected with this defence and, for this reason, should not have been given the weight attributed to them by the trial judge in making the order as to costs.

38 In my view, these arguments ignore the practical realities of the case and the course which the trial took.

39 There is no suggestion that the legal advisers retained by Dr Kumar did not take instructions from him prior to the trial on any other issues relevant to the respondent's claim. In his affidavit dated 6 January 1999 which was filed in this court on the application to set aside the statutory demand and tendered by the defence in the proceedings in the District Court action, Dr Kumar addresses a number of issues which were canvassed at considerable length during the trial. If the trial judge had accepted Dr Kumar's evidence on these issues there is little doubt that the respondent's claim would have been defeated.

40 The issues include his version of the circumstances in which the budget was presented to the directors, why the payment of administrative fees was not contemplated by the directors until 1998, the alleged loan of $3000 to the respondent and the claim by Dr Kumar that, at a meeting of directors held on 2 February 1998 it was recorded that fees for administration and fees for lectures given by directors should be viewed as contingent liabilities to be paid if and when funds were made available. The trial judge found against the version given by Dr Kumar on all of these issues.

41 The assertion that there was no binding contract because of failure to comply with the articles of association and the Corporations Law was not ventilated in Dr Kumar's affidavit filed in relation to the statutory demand procedure and was raised at the trial after the plaintiff's case had closed by way of a submission of no case to answer. The issue took only a short time to argue at this stage of the trial and when it was raised later in the course of final addresses.

42 Mr Heywood-Smith argued before this court that the argument based on the articles of association and the Corporations Law was the Academy's primary defence. However, the trial lasted for approximately three weeks and almost all of the time was occupied with other issues, many of which were raised in the affidavits sworn by Dr Kumar and filed in court prior to the commencement of the trial.

43 It must have been evident to Dr Kumar and his legal advisers, both before and during the trial, that the issues which were likely to be debated in the case travelled far beyond the narrow legal argument referred to in the affidavit of Mr Kadis. The trial judge found that Dr Kumar misled the court both in his affidavits and oral evidence on a wide variety of topics and, further, that the result of the case turned on these issues.

44 Dr Kumar and his legal advisers chose not to confine the defence to the narrow issue arising from the articles of association and the Corporations Law, but to embark on a much wider challenge based on material which the trial judge found to be concocted in important respects. When the trial judge stated in his reasons for judgement on the costs issues that the legal advice Dr Kumar received was based on information he knew to be false, he was referring to those issues which occupied most of the time in the case. He was entitled to infer that instructions were taken and advice given in respect of these issues. It is evident from Dr Kumar's extensive affidavit of 6 January 1999 that they were the subject of discussion between Dr Kumar and the solicitor he was instructing well before the commencement of these proceedings.

45 In my view, the trial judge was entitled to take into account this conduct by Dr Kumar in considering the exercise of the discretion to make the costs order sought by the respondent. It is not to the point that he was given advice that the claim could or would be defeated on the legal argument raised by counsel.

46 Mr Heywood-Smith also placed reliance on another passage in the affidavit of Mr Kadis in which he stated:

"... for the purpose of preparing for the hearing proofs were taken from four witnesses, and also, the accountant Mr Chris Garrett was spoken to prior to the trial. The four witnesses from whom proofs were taken were Krishna Kumar, Manfred Heinrich Junius (Michael Junius), Karl Horst Poehlmann and Adrianna Michaela Poehlmann. The four director witnesses were proofed separately. I have reviewed those proofs. The proposed evidence of each on the critical issue of the conclusion of contract was consistent, that is, it presented a consistent picture. The evidence of Krishna Kumar and Michael Junius on the issue of the resolution of directors on 2 February 1998 was consistent with the other."

According to the argument, the trial judge erred in failing to take into account the fact that the Academy defended the action after consistent statements had been taken from these potential witnesses.

47 The logic of this argument is far from clear. Mr Heywood-Smith sought to derive some significance from the fact that the trial judge inferred that advice had been given on instructions which Dr Kumar knew to be false when three other directors gave instructions which were consistent with Dr Kumar's instructions. As I understand it, the significance is said to arise from the assertion that only Dr Kumar's instructions were found to be false; no findings were made to the effect that the other three witnesses gave false instructions or false evidence.

48 The argument overlooks the fact that unfavourable findings were made as to the credibility of all four witnesses. I have already referred to some of the findings made in relation to Dr Kumar and Professor Junius. In that passage the trial judge noted that much of the evidence given by Professor Junius was not given from any independent recollection of the facts, but in reliance on what Dr Kumar had told him.

49 Dr Poehlmann was considered to be an unimpressive witness whose evidence was coloured by the fact that he harboured resentment for the plaintiff. The trial judge found that much of his evidence was confusing and contradicted other directors called by the Academy. Mrs Poehlmann was found to be an uncompromising witness who, like her husband, had little appreciation of the way in which the business of the company was conducted.

50 These findings leave no room for an argument based on an assertion that the witnesses gave consistent statements in their proofs of evidence.

51 In any event, I am of the view that this court could not act on the bare assertion by the solicitor that the statements were consistent. Such a statement involves an expression of opinion based on material which is not before the court.

52 In my view, the trial judge acted correctly in disregarding the submission that it was relevant to have regard to the solicitor's view that there was consistency between these four witnesses in the statements taken from them prior to the trial.

53 The next criticism of the reasons for judgment on costs is directed at a comment made by the trial judge that Dr Kumar and Professor Junius had determined not to proceed with a motion to wind up the company after the respondent's statutory demand had been set aside.

54 In his affidavit of 19 November 2001, Dr Kumar stated that at the time the statutory demand was made by the respondent a meeting of directors of the Academy was called due to concern that the application to set aside the notice might not succeed. He said that if the notice was not set aside the company would face insolvency. He stated that the respondent and Mr Ros intended to vote against a foreshadowed resolution to voluntarily wind up the company. This meant that the motion could not succeed. However, Dr Kumar said that he and Professor Junius would have voted in favour of the motion if it had been put.

55 Mr Heywood-Smith argued that the trial judge misstated Dr Kumar's position as to the winding-up. He said the trial judge implied that Dr Kumar and Professor Junius had decided that a winding-up of the company was appropriate, but then decided not to proceed after the statutory demand had been set aside.

56 The trial judge was entitled to infer motive from the evidence as a whole and was not bound to accept Dr Kumar's explanation as to his motive, particularly in the light of the unfavourable findings concerning Dr Kumar's credibility. If the statutory demand had been successful, it appears obvious that the company could not have met the debt and Dr Kumar may well have considered that a winding-up was inevitable and that a voluntarily winding-up was preferable. It was open to the trial judge to find that after the statutory demand had failed Dr Kumar's view was that a winding-up was no longer necessary and it was preferable for the company to continue in operation. I would reject the suggestion that the trial judge's approach to this issue was in error.

57 Another ground of appeal alleges that the trial judge erred in failing to act on Dr Kumar's assertion that he and Professor Junius did not act in their own interests in attempting to preserve the accreditation of the Academy, but acted to their personal financial detriment in doing so.

58 The trial judge found that Dr Kumar was determined to do whatever he could to preserve the Academy's government accreditation to the benefit of himself and Professor Junius. The accreditation appears to have been crucial to the survival of the Academy. It enabled students to obtain Austudy benefits, thus attracting more pupils to the Academy. The Academy's first application for accreditation was rejected and Dr Kumar gave evidence of the extensive work required to make the further application which was successful. If the company was wound up the accreditation would cease and could not be transferred to another entity. A fresh application would have to be made in the event that another entity took over the work of the Academy. There was no guarantee that accreditation would be given to the new entity.

59 Furthermore, Dr Kumar had lent money to the Academy which was outstanding at the time of the litigation. The Academy also rented accommodation from him. Considerable work had been put into the establishment of the Academy. It is evident that, in these respects, Dr Kumar had much to lose from the financial failure of the Academy and, in my view, the trial judge was justified in concluding that he would have done anything he could to preserve that which was of such importance to him. It was open to the trial judge to reject Dr Kumar's suggestion that his responses to the respondent's claim were motivated solely out of concern for the students of the Academy.

60 Mr Heywood-Smith criticised the trial judge's reasoning in dealing with the lateness of notice to Dr Kumar that an application would be made against him for an order for costs.

61 In his affidavit of 19 November 2001 Dr Kumar stated (para 35):

"In relation to paragraph 9 of the Second Affidavit, I am informed by my counsel, Mr Paul Heywood-Smith, and believe it to be true, that Mr Milazzo, in an aside to him in the latter stages of the trial in this matter, raised the possibility of a costs order against myself. I was not aware of this possibility until the last day of submissions in the trial when Mr Milazzo raised the issue with Judge Muecke. At no time prior to the 'aside' referred to herein did the plaintiff put me on notice that he might apply for costs against me personally. Had the plaintiff done so I would have sought advice as to whether that was a possibility. If it was I would have encouraged my fellow director to cease defending the action and upon the obtaining by the plaintiff of judgment I would have taken the same action as I did in February 1999 as is deposed to in paragraph 14 of the First Affidavit."

62 The trial judge addressed these assertions in his reasons for judgment:

"One factor which was argued on behalf of Dr Kumar and Professor Junius which I consider to be important is that they did not have warning directly form the plaintiff or his legal advisers of the possibility that an application of this type may be made until very late in the trial. It is not absolutely certain that they did not otherwise receive advice on this topic but I shall assume they did not. The submissions that they were not sufficiently fore-warned by the plaintiff is an important consideration, but it is off-set to a considerable extent by the fact that I am not satisfied that had they been advised of that earlier by the plaintiff their conduct on behalf of the Academy would have been any different than it was. I am satisfied that they would have instructed their advisers to proceed in exactly the same way to which the matters before the Supreme Court and this Court did proceed. That is because I consider that Dr Kumar, as a matter of principle, would not have conceded any ground to the plaintiff and also because I am satisfied that Dr Kumar would have done whatever he could to preserve the Academy's accreditation to his and Professor Junius' sole benefit."

63 The failure to give an early warning to a non-party of an application for costs against that party may be of relevance to the exercise of the discretion to grant the application. The relevance of a warning of this nature was discussed in Symphony Group PLC v Hodgson where Balcombe LJ expressed the view (at 193) that it will be exceptional for an order for payment of costs by a non-party to be made in circumstances where the applicant has a cause of action against the non-party and could have joined that person as a party to the original proceedings. He continued:

"Joinder as a party to the proceedings gives the person concerned all the protection conferred by the rules, as to e.g. the framing of the issues by pleadings; discovery of documents and the opportunity to pay into court or to make a Calderbank offer (Calderbank v Calderbank [1976] Fam. 93); and the knowledge of what the issues are before giving evidence."

"Even if the applicant can provide a good reason for not joining the non-party against whom he has a valid cause of action, he should warn the non-party at the earliest opportunity of the possibility that he may seek to apply for costs against him. At the very least this will give the non-party an opportunity to apply to be joined as a party to the action."

65 It is important to appreciate the circumstances in which these comments were made. The plaintiff in that case employed the defendant under a contract which restricted the defendant from engaging in work of the type he was engaged upon for a period of one year from the termination of his employment with the plaintiff. According to the plaintiff's case, the defendant gave notice to the plaintiff and, within a week of the termination of his employment, commenced doing the same sort of work for H Ltd which was a competitor of the plaintiff.

66 The plaintiff commenced proceedings against the defendant. The defendant was represented in the action by solicitors who acted for H Ltd. B, the managing director of H Ltd, gave evidence for the defendant. The plaintiff succeeded in the action and thereupon made application to the trial judge for costs against H Ltd which had not been a party to the action.

67 On an interlocutory appeal to the Court of Appeal it was held that the involvement of H Ltd did not justify an order for costs against it. No warning had been given to H Ltd that an application for costs would be made and the company had been deprived of any legal right to control the action, for example by making an offer of settlement. It was held that the connection of H Ltd with the original proceedings was not close enough to ensure that the company would not suffer injustice by allowing evidence at the trial to be used against it on the application for costs.

68 The Symphony Group case is distinguishable from the present case where it would seem that the respondent had no cause of action against Dr Kumar which would justify joining him as a party. Furthermore, there would seem to be no reason why Dr Kumar would have applied to be joined as a party; he had control over the defence of the respondent's claim and he authorised the making of an offer to the respondent in order to settle the case. He had control over what evidence would be called by the defence.

69 As the Full Court of the Federal Court pointed out in Yates v Boland [2000] FCA 1895 para 34 when speaking of the giving of warnings to non-parties of an intended application for costs:

"The discussion concerning Symphony and Vestris in pars 18 to 32 of these reasons shows that the question of warning has been treated as a material consideration in certain circumstances. Whether such a requirement arises in a particular case depends on the facts and circumstances of the individual case. The necessity to warn a non-party of an intention to claim costs is not a principle applicable in every case in which costs are sought against a non-party. Rather it may be a material consideration depending on the situation disclosed in the case under consideration."

70 In my view, the fact that no notice was given until late in the proceedings in the present case is not of significance when considered in the context of the reasons usually given as to why such a warning is appropriate. Dr Kumar's degree of involvement in the proceedings enabled him to exercise almost the same level of control which would have been available to him had he been a party. This is illustrated by the complaint which he now makes, namely, that if he had received earlier notice of the application he would have taken steps "to cease defending the action" (affidavit 19 November 2001 para 35).

71 When considering the question of notice it is also relevant to take into account the fact that aspects of Dr Kumar's conduct of the trial criticised by the trial judge did not become fully apparent until Dr Kumar gave evidence: cf Hamberger (Employment Advocate) v Williamson and Construction, Forestry, Mining and Energy Union [2001] FCA 189.

72 I do not regard the failure to give notice in these circumstances as particularly relevant to the exercise of the discretion to order costs against Dr Kumar. In any event, I am of the view that it was open on the evidence for the trial judge to conclude, as he did, that the giving of notice would not have altered the manner in which the case was conducted.

73 Finally, it was argued that the trial judge failed to take into account certain aspects of the conduct of the litigation by the respondent. Reference was made to the fact that the respondent rejected offers made at the commencement of and during the trial to settle the action. It was argued that at no time did the respondent show any concern about the incapacity of the company to pay a judgment debt.

74 The authorities to which I have referred demonstrate that the focus of the inquiry in applications for non-party costs orders is the connection between the non-party and one of the parties to the litigation. As was pointed out in Knight's case, the party with whom the non-party is connected will often be insolvent. In my view, the fact that the respondent, who was on the opposite side of this litigation, was intent on pursuing a lawful claim against a company which was not in the course of being wound up is of no relevance to the costs issue presently under consideration.

75 I am also of the view that there is no relevance in the further argument that the trial judge erred by failing to take into account the fact that, at a meeting of the creditors of the company, the respondent wished to vote through a proxy against the motion to wind up the company prior to the commencement of the litigation. The respondent was required to prove the debt which he claimed was owing to him but which was not admitted by the company. There might well have been an advantage to the respondent in gaining a judgment in his favour prior to the commencement of a voluntarily winding-up.

76 In my view no error has been demonstrated in the trial judge's approach to the exercise of the discretion to award costs against Dr Kumar.

78 GRAY J. I agree that the appeal should be dismissed for the reasons given by Duggan J.