Gore v Justice Corp Pty Ltd

• All Full Court judgments delivered from 1 May 2002 will contain the FCAFC medium neutral citation only.

Gore v Justice Corp Pty Ltd [2002] FCA 354 COSTS - costs against a stranger to the litigation - discretion of the Court to award costs against a stranger - discretionary principles discussed

COSTS - prior notice - whether failure to give prior notice of a claim for costs deprives an applicant of a costs order against a non-party

Criminal Law Act 1967 (UK) ss 13, 14 Legal Practice Act - No 35/1996 (Vic) ss 98(3), 99 Maintenance and Champerty Abolition Act 1993 (NSW) Legal Profession Act 1987 (NSW) ss 186, 187, 188 Criminal Law Consolidation Act 1935 (SA) sch 11, s 3(2)(b) Federal Court of Australia Act 1976 (Cth) s 43 Supreme Court Act 1981 (UK) s 51

Butterworths Australian Legal Dictionary (1997) p 715

Ram Coomar Coondoo v Chunder Canto Mookerjee (1876) 2 AC 186 cited Magic Menu Systems Pty Ltd v AFA Facilitation Pty Ltd (1997) 72 FCR 261 referred to Martell v Consett Iron Co Ltd [1955] Ch 363 cited Knight v F P Special Assets (1992) 174 CLR 178 discussed c.f. Caboolture Park Shopping Centre Pty Ltd (in liquidation) v White Industries (Qld) Pty Ltd (1993) 45 FCR 224 cited Arundel Chiropractic Centre Pty Ltd v Deputy Commissioner of Taxation [2001] 179 ALR 406 followed In re Cooke (1889) 5 TLR 407 referred to McDonald v FAI (NZ) General Insurance Co Ltd [1999] 1 NZLR 583 cited Money Tree Management Services v Deputy Commissioner of Taxation (2000) 46 ATR 13 considered Hill v Archbold [1968] 1 QB 686 discussed Trendtex Trading Corporation & Anor v Credit Suisse [1980] QB 629 discussed Aiden Shipping Co Ltd v Interbulk Ltd [1986] 1 AC 965 referred to Condliffe v Hislop [1996] 1 WLR 753 referred to Hayward v Giffard (1838) 4 M & W 194, 150 ER 1399 referred to McFarlane v EE Caldonia Ltd (No 2) [1995] 1 WLR 366 cited Murphy v Young and Co's Brewery [1997] 1 WLR 1591 discussed TGA Chapman Ltd v Christopher [1998] 1 WLR 12 discussed Tharros Shipping Co Ltd v Bias Shipping Ltd (No 3) [1997] 1 Lloyd's Rep 246 distinguished Giles v Thompson [1994] 1 AC 142 discussed Symphony Group Plc v Hodgson [1994] QB 179 distinguished Vestris v Cashman (1998) 72 SASR 449 considered Latoudis v Casey (1990) 170 CLR 534 followed House v The King (1936) 55 CLR 499 followed Yates v Boland [2000] FCA 1895 discussed Hamberger (Employment Advocate) v Williamson (2001) 104 IR 163 cited PETER GORE & ORS TRADING AS CLAYTON UTZ v JUSTICE CORPORATION PTY LTD N1103 of 2001 O'LOUGHLIN, WHITLAM AND MARSHALL JJ SYDNEY 28 MARCH 2002

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN: PETER GORE AND ORS TRADING AS CLAYTON UTZ

JUDGES: O'LOUGHLIN, WHITLAM AND MARSHALL JJ

THE COURT ORDERS THAT: 1. The orders of the learned trial judge be set aside. 2. The respondent pay to the appellants, on account of their costs, but in full and final satisfaction of the respondent's liability for such costs, the taxed party and party costs of the appellant, in respect of the period commencing on 22 April 1999 and concluding on 22 December 1999. 3. The respondent pay the appellants' costs of and incidental to the hearing of the appellants' notice of motion in the court below and of this appeal. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN: PETER GORE AND ORS TRADING AS CLAYTON UTZ

REASONS FOR JUDGMENT THE COURT 1 The issue that has led to this appeal addresses the role of a stranger who has financially assisted an applicant in the prosecution of a civil proceeding. In circumstances where the stranger stands to participate in the benefits of a judgment should the applicant be successful, should that stranger be at risk to pay some or all of a respondent's costs in the event of the litigation being resolved in favour of the respondent? In the present case, the learned trial judge concluded that it was not appropriate for the stranger to pay any of the respondent's costs. It is from that decision that this appeal has been brought. 2 The appeal is but another episode that has evolved from the long running battle between Montague Mining Pty Ltd ("Montague") and Mr Paul Williams, the company's sole shareholder and director, and the appellants, the partners of Messrs Clayton Utz, Montague's former legal advisers. On 16 July 1997, Montague instituted proceedings against Messrs Clayton Utz and Spinifex Gold NL ("Spinifex"). On 5 December 1997, a judge of this Court in its New South Wales Registry ordered that Montague give to Clayton Utz security for costs in the form of a personal guarantee by Mr Williams. An appropriate deed of guarantee was subsequently executed on 18 February 1998. 3 Montague and Spinifex were able to resolve their difficulties but no resolution of the dispute between Montague and Clayton Utz could be achieved. In due course it was decided that the question whether Clayton Utz was liable to Montague should be determined separately and in advance of any determination of the extent of Montague's damages. That decision led to a trial on the question of liability which was heard on 24 and 25 August 1998. At this stage, it is appropriate to interpolate that four days earlier, on 20 August, Montague rejected an offer from Clayton Utz to settle the case for $600,000 plus costs. On 23 October 1998, the trial judge published his findings; he held that Clayton Utz had been negligent in respect of the legal services that they had rendered to Montague.

the litigation agreement 4 Six months or so later, on 21 April 1999, Montague entered into an agreement with Justice Corporation Pty Ltd ("Justice Corporation"). The effect of that agreement, which its parties called a "Litigation Agreement", was to have Justice Corporation give financial assistance to Montague in litigating the assessment of its damages against Clayton Utz. In return, Justice Corporation was to receive, effectively, 8 per cent of any award of damages that Montague might obtain. The existence of the Litigation Agreement was disclosed by Montague's solicitors, Messrs Cashman and Partners, when they wrote Messrs Corrs Chambers Westgarth, the solicitors for Clayton Utz on 27 May, 1999 in these terms: "We enclose a copy of a contract entered into between our client and the Justice Corporation. On the next occasion when the matter is before the court we shall bring this document to the court's attention. In the event that your clients have any complaint in relation to this arrangement we suggest the objections be submitted at that time however we would ask that you provide an indication as to your position at the earliest convenience." 5 Messrs Corrs Chambers Westgarth replied on 2 June 1999 saying that they had not yet formed any view "as to the implications of the agreement" but they did suggest that it might be appropriate for Justice Corporation to provide security for their client's costs "in view of the fact that Justice Corporation stands to derive a financial benefit in the event that the matter is resolved in your client's favour". 6 The Litigation Agreement was a lengthy document of nineteen pages. It was in the nature of a pro-forma agreement in that the words "Montague Mining Australia Pty Ltd" were handwritten in a blank space that occurred immediately before the word "Claimant". The balance of the document was printed. It contained a schedule in which the name of the claimant had been inserted together with information that identified the proceedings, the respondent, the solicitors for Justice Corporation and the "Agreed Portion" which was identified at 8 per cent. 7 In cl 3 of the Litigation Agreement, Montague agreed that "the Sale Property", which was defined so that it effectively meant "the Agreed Portion", would be assigned to Justice Corporation "as and when it comes into existence" and that Montague would, meanwhile, receive the Sale Property on trust for Justice Corporation. The Litigation Agreement defined the word "Claim" as meaning "the right to bring the legal or equitable action, suit or proceeding" that was described in the schedule. It also recited that Montague "owns the Claim" and that Montague had agreed to sell to Justice Corporation "part of the Claim Proceeds". In return, the recitals recorded that Justice Corporation had agreed "to pay necessary litigation costs in relation to the claim on the terms set out in this contract". The term "Claim Proceeds" was defined as: "… any final relief in the form of: (a) any property, money or other valuable benefit transferable or payable to the Claimant as a result of any Court order; and (b) any property, money or other valuable benefit transferable or payable to the Claimant under any Settlement Agreement, but does not include the Claim, the Claimant's Costs Order or Security for Costs." 8 Subclause 4.2 of the Litigation Agreement was identified as a paramount provision that was to prevail over any inconsistent provision in the agreement. In effect, it provided that Montague was to retain control of the litigation. Elsewhere in cl 4 there were provisions that Montague was to use its best endeavours to ensure that the claim was litigated "honestly, diligently and with due care and skill". Montague further agreed that if it entered into any settlement agreement, that agreement would contain a provision that would allow Montague to disclose the terms of the settlement to Justice Corporation.

assessment of damages 9 As has already been noted, a request was made on behalf of Clayton Utz that Justice Corporation provide security for their costs. As that request was refused, Clayton Utz applied to the Court for an order for security. That application was heard by the learned trial judge. Speaking of the manner in which he disposed of that application, he said in his judgment that is now under review by this Court (at par 15): "I refused to make an order for security, primarily because Montague had already established Clayton Utz's negligence. I said at the time I was not satisfied there is a high degree of probability that Montague would be unable to prove damage." 10 On 18 October 1999, the trial proceeded to an assessment of Montague's damages. On 5 November 1999 his Honour gave judgment in favour of Montague against Clayton Utz in the sum of $561,460. His Honour further ordered Clayton Utz to pay Montague's costs. Montague immediately applied to his Honour to amend the judgment debt and to increase it to $621,765 on the ground that his Honour had made an incorrect assumption about Montague's ability to sell certain shares at a particular time. At about the same time, Clayton Utz moved to have the costs order set aside on the basis that the amount of the judgment debt was for a lesser sum than the offer that had earlier been made by Clayton Utz to settle the matter. These applications led to his Honour withdrawing his earlier order; he thereafter entered judgment in the sum of $616,200 (inclusive of interest). On 22 December 1999, he limited his costs order to costs in favour of Montague that had been incurred by Montague up to and including 20 August 1998 - the date when Montague rejected Clayton Utz's offer of settlement. As his Honour pointed out, the effect of his varied order was "to deprive Montague of a significant proportion of the costs it incurred in relation to the issue of liability and all its costs in respect of the trial on damages". His Honour did not, however, order that Montague pay any of Clayton Utz's costs.

appeals and the loan agreement 11 Both parties appealed against his Honour's decision. The appeal by Clayton Utz to the Full Court was successful. In its reasons for judgment, which were delivered on 30 August 2000, it allowed Montague nominal damages of $20 only and ordered Montague to pay Clayton Utz's costs as from 20 August 1998; those costs were to include Clayton Utz's costs on the appeal and their costs on Montague's unsuccessful appeal in which it had alleged that his Honour's award of damages was inadequate. 12 The hearing before the Full Court took place on 18 and 19 May 2000 but three days earlier, on 15 May, Montague and Justice Corporation executed a new agreement which they called a "Loan Agreement". This agreement purported to assert that the parties had agreed that the Litigation Agreement was "void ab initio and of no effect". It was not suggested during the course of this appeal that such a determination would only be within the province of a Court but nothing turns on that issue. It is clear, and it was accepted during argument, that it was the intention of the parties to cancel the Litigation Agreement. The Loan Agreement recited that: "As a result of the Litigation Agreement being voluntarily made void, the Borrower [Montague] and Justice Corporation have agreed that Justice Corporation has lent the Borrower money, sufficient to prosecute the Claimed Litigation …"

The Loan Agreement required Montague to repay to Justice Corporation, all moneys that had been advanced to it by Justice Corporation, together with interest at 10 per cent per annum, within seven days of the end of the litigation. There was a proviso, however, to the effect that Montague's obligation to repay the moneys advanced was not to exceed the amount of any judgment sum or the amount of any sum that was received in settlement of Montague's claim against Clayton Utz.

13 After the publication of the Full Court's reasons for judgment, Clayton Utz called upon Justice Corporation to pay their costs. They made that demand, no doubt, because they had been supplied with a copy of the Litigation Agreement and because they were aware that, in that agreement, Justice Corporation had agreed in cl 2.1(a) to pay Montague's costs "… and Defendant's (Clayton Utz) costs". It was then, for the first time, that Montague and Justice Corporation made known to Clayton Utz that the Litigation Agreement had earlier been cancelled and replaced with the Loan Agreement.

the orders sought in the court below 14 When Justice Corporation refused to make payment, Clayton Utz moved the Court on motion dated 29 November and filed on 5 December 2000 for an order that Justice Corporation pay their costs. The orders that were sought by Clayton Utz, so far as they are relevant to these proceedings, were that Justice Corporation pay the costs of: "(a) the negligence issue in these proceedings incurred after 20 August 1998; (b) the damages issue in these proceedings; (c) Appeal No. N1494 of 1999; (d) this Notice of Motion." 15 The matter was heard by his Honour on 12 June 2001 and his reasons for judgment were delivered on 29 June 2001. In the hearing in the Court below, the costs that were sought by Clayton Utz were divided into four periods as follows: · from 20 August 1998, the date on which Montague rejected Clayton Utz's offer of $600,000 plus costs, to 21 April 1999, the date upon which Justice Corporation and Montague executed the Litigation Agreement ("the first period"); · from 22 April 1999, the day following the execution of the Litigation Agreement, to 23 August 1999, the date of the filing by Clayton Utz of their motion for an order for the provision of security for costs by Justice Corporation ("the second period"); · from 24 August 1999, the day following the filing of the application for security for costs, to 22 December 1999, the date of the final orders of the learned trial judge ("the third period"); and · from 23 December 1999 to 31 December 2000 ("the fourth period"); it is not apparent from his Honour's reasons why this last mentioned date was chosen but the fourth period primarily encapsulates the costs that were incurred by the parties in the appeal and the cross appeal to the Full Court. 16 In addition to the costs that were incurred in those four periods, there are also the costs of the notice of motion that ultimately led to this appeal. We have proceeded upon the premise that, come what may, those costs will not be included in the fourth period; we will deal with them as part of the costs of this appeal. 17 The matters of significance in this litigation may be summarised as follows: · in the first place, Montague is a "man of straw" and will not be able to meet any costs order; · secondly, Justice Corporation initially contracted to acquire an 8 per cent interest in any judgment or settlement that Montague might obtain against Clayton Utz; · thirdly, the Litigation Agreement contained a provision to the effect that Justice Corporation would, in appropriate circumstances, pay any costs that were incurred by Clayton Utz as a successful party; · fourthly, a copy of the litigation agreement was supplied by either Montague or Justice Corporation to Clayton Utz who were thereby aware of the commitment that Justice Corporation had made to pay their costs; · fifthly, Justice Corporation's obligation to meet Clayton Utz's costs was highlighted by counsel for Montague, and not disputed by counsel for Justice Corporation, at the hearing of the notice of motion for security for costs against Justice Corporation; · sixthly, neither Montague nor Justice Corporation told Clayton Utz until 18 September 2000 that the Litigation Agreement had been cancelled and replaced by the Loan Agreement; · seventhly, it would be appropriate to infer that Justice Corporation was aware of the offer of $600,000 plus costs that Montague had rejected on 20 August 1998; and · finally, there was an express provision in the Litigation Agreement which deprived Justice Corporation of any right to control the conduct of the litigation.

maintenance and champerty 18 Before addressing the substantive question of when costs might be awarded against a stranger to the litigation, it is appropriate first, to note the state of the law with respect to the subjects of maintenance and champerty. Maintenance and champerty are no longer crimes or torts in the United Kingdom: see ss 13 and 14 of the Criminal Law Act 1967 (UK). The States and Territories of Australia have also liberalised their approaches to these subjects but not in a uniform manner. Either as a result of legislative enactment or through professional codes of conduct, most Australian jurisdictions now permit legal practitioners to enter into agreements as to costs under which payment is contingent upon the successful outcome of the litigation. Where such a contingency arrangement is permitted, it allows a practitioner to charge a percentage premium on the costs that would otherwise be payable but, so far as we are aware, approval is yet to be given to practitioners charging a fee that is proportionate to the amount that a client might recover by way of judgment or settlement: see, for example, subs 98(3) and s 99 of the Legal Practice Act 1996 (Vic). The common law offence of champerty was abolished in New South Wales by the Maintenance and Champerty Abolition Act 1993 (NSW). His Honour in the Court below also noted that ss 186 and 187 of the Legal Profession Act 1987 (NSW) now enable legal practitioners to make conditional costs agreements with their clients and permit such an agreement to provide for the payment of a premium of up to 25 per cent on the costs that would otherwise be payable. On the other hand, s 188 of the same Act prohibits an arrangement whereby costs are to be determined as a proportion of the amount recovered in the proceedings. The crimes and torts of maintenance and champerty were abolished in South Australia in 1992 but the legislation made it clear that champertous contracts that were contrary to public policy could still be struck down as illegal: see sch 11 of the Criminal Law Consolidation Act 1935 (SA), s 3(2)(b). 19 Even before the passage of the legislation to which reference has just been made, the Courts were prepared to accept and approve third party assistance where it was satisfied that the third party had a sufficient interest in the proceedings; it had been acknowledged in various cases that there would be occasions and circumstances when it would be appropriate for a third party to afford financial assistance to a litigant. Thus, one definition of "maintenance" was the "common law crime of assisting a party in litigation without lawful justification": Butterworths Australian Legal Dictionary (1997) p 715 (bold emphasis added). In the same publication "champerty" was defined as follows: "An aggravated form of maintenance in which the consideration given for the maintenance of a suit is part of anything gained as the result of the proceedings, or some other profit: Trendtex Trading Corp v Credit Suisse [1982] AC 679. Champerty implies a bargain of some sort between a litigating party and another person who has no interest in the subject in dispute, to divide the property sued for between them if they prevail, in consideration of the other person carrying on the suit at his or her own expense: Hayes v Levinson (1890) 16 VLR 305. Champerty infringes the rule of public policy where the property in dispute becomes the subject matter of a contract to share in the proceeds of the proceedings: for example Re Trepca Mines Ltd (No 2) [1962] Ch 511." 20 As long ago as 1876, the Judicial Committee of the Privy Council in Ram Coomar Coondoo v Chunder Canto Mookerjee (1876) 2 AC 186 at 210 commented that: "Their Lordships think it may properly be inferred from the decisions above referred to, and especially those of this tribunal, that a fair agreement to supply funds to carry on a suit in consideration of having a share of the property, if recovered, ought not to be regarded as being, per se, opposed to public policy. Indeed, cases may be easily supposed in which it would be in furtherance of right and justice, and necessary to resist oppression, that a suitor who had a just title to property, and no means except the property itself, should be assisted in this manner." 21 In Magic Menu Systems Pty Ltd v AFA Facilitation Pty Ltd (1997) 72 FCR 261 ("Magic Menu Systems") at 267-268, a Full Court of this Court discussed maintenance and champerty. His Honour in the Court below summarised the salient points from that decision when he noted that the Full Court had described maintenance as "assistance or encouragement of a party to an action in which the maintainor had no interest". As for champerty the Court said it "was a species of maintenance, on terms that the maintainor and the plaintiff would share in the outcome of the action". The Full Court noted that "public policy considerations shaped the attitude of the Courts towards agreements to maintain litigation", but added at 267: "… concerns expressed earlier this century, as to the potential for the maintenance of actions to give rise to an increase in litigation, might now be considered of lesser importance than the problems which face the ordinary litigant in funding litigation and gaining access to the Courts."

The Full Court in Magic Menu Systems went on to refer to a comment by Danckwerts J in Martell v Consett Iron Co Ltd [1955] Ch 363, that support of legal proceedings based upon a bona fide common interest, financial or philosophical, must be permitted if the law itself was not to operate as oppressive; it added (at 267) that: "Courts today … are likely to take an even wider view of what might be acceptable …". The Full Court then went on to note (at 267-268) that the offences and torts of maintenance and champerty had been abolished by legislation in three Australian States, including - relevantly for this litigation - New South Wales. Even so, the Full Court held that this did not strip courts of their ability to hold particular maintenance agreements to be contrary to public policy and illegal. However, neither party in the present litigation suggested that the Litigation Agreement should be struck down for illegality and we refrain from expressing a view on that subject.

costs against a stranger 22 We turn now to consider the question of costs being awarded against a stranger to the litigation. The leading case in Australia dealing with the obligation of a stranger to pay costs is Knight v F P Special Assets (1992) 174 CLR 178 ("Knight"). That was a case in which the High Court considered that it was appropriate for the receivers of a company to be held personally liable for the costs that the company, as a losing party, would otherwise have been liable to pay. Mason CJ and Deane J said (Gaudron J agreeing) at 188: "The cases awarding costs against non-parties are more readily explicable on the footing that there was no absence of jurisdiction to order costs against non-parties in the strict sense and that the jurisdiction could be exercised against persons who were considered to be the 'real parties' to the litigation."

"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."

In his separate judgment, Dawson J at 202 expressed himself this way:

"The cases therefore establish a long-asserted jurisdiction to award costs in appropriate cases against a person who is not a party to the proceedings where that person is the effective litigant standing behind an actual party or where there has been a contempt or abuse of the process of the court." 23 The learned primary judge noted (at par 26) that it was common ground that the principles that were enunciated in Knight, as to the circumstances in which the power to award costs against a non-party may be exercised, equally applied to proceedings in this Court. That statement was not questioned during the course of this appeal. However, there is no reason to suppose that the remarks of the members of the High Court in Knight have closed the door to the categories of third parties who may be made liable for the costs of litigation nor that the circumstances that were identified by their Honours were exhaustive. 24 His Honour in the Court below noted that it was common ground that an order for costs against a stranger may be made in this Court by virtue of the provisions of s 43 of the Federal Court of Australia Act 1976 (Cth): c.f. Caboolture Park Shopping Centre Pty Ltd (In liquidation) v White Industries (Qld) Pty Ltd (1993) 45 FCR 224 at 230 (per Lee, Hill and Cooper JJ) ("Caboolture"). The relevant provisions of the section are as follows: "(1) Subject to subsection (1A), (which deals with representative proceedings and is not relevant to this appeal) the Court or a Judge has jurisdiction to award costs in all proceedings before the Court (including proceedings dismissed for want of jurisdiction) other than proceedings in respect of which any other Act provides that costs shall not be awarded. (1A) … (2) Except as provided by any other Act, the award of costs is in the discretion of the Court or Judge." 25 The comparable provision in the United Kingdom legislation is subs 51(1) of the Supreme Court Act 1981 (UK) which provides as follows: "Subject to the provisions of this or any other Act and to rules or court, the costs of and incidental to all proceedings in the civil division of the Court of Appeal and in the High Court, including the administration of estates and trusts, shall be in the discretion of the court, and the court shall have full power to determine by whom and to what extent the costs are to be paid."

Both the Australian and the United Kingdom legislation emphasise that any award of costs is at the discretion of the Court. While the Australian section does not contain the English power "to determine by whom and to what extent the costs are to be paid", the decision in Knight covers that gap (if, indeed, it is appropriate to describe it as a gap): see the remarks of the members of the Full Court in Caboolture at 229 where their Honours in their joint judgment said that:

"… there is no reason to believe that the jurisdiction of the Court to order costs against a non-party under s 43 is more limited that the jurisdiction presently conferred upon the High Court in the United Kingdom by s 51 of the Supreme Court Act 1981 (UK) …" 26 A recent Australian decision in which a stranger was ordered to pay costs was Arundel Chiropractic Centre Pty Ltd v Deputy Commissioner of Taxation (2001) 179 ALR 406 ("Arundel"). That was a case in which the applicant had asserted (in winding-up proceedings that the Deputy Commissioner of Taxation had brought against it in the Supreme Court of Queensland) that it was not liable to pay income tax. The grounds upon which it formulated its claim were based on the fact that the Constitution was an enactment of a foreign power (ie the Imperial Parliament) and as such, could not bind Australia which is a Sovereign State. The applicant filed a notice of motion seeking the removal of the proceedings into the High Court of Australia pursuant to s 40 of the Judiciary Act 1903 (Cth); but thereafter the applicant lost heart; it paid its tax and discontinued its proceedings in the High Court. The Deputy Commissioner of Taxation responded by applying to have the notice of discontinuance set aside; he also alleged that because the Institute of Taxation Research Pty Ltd ("the ITR") had supported and backed the litigation it should be joined as a party and made liable to pay his costs, preferably on an indemnity basis. 27 Speaking of one of Arundel's principal officers, Callinan J said, at par 30, that he: "Stubbornly and totally unreasonably believed that the statutory scheme for the imposition and collection of income tax in this country was invalid."

However, his Honour went on to add that there was "no doubt that the so-called arguments which were to be presented on behalf of Arundel" had, in part at least, been formulated by the ITR. His Honour agreed that the jurisdiction to award costs against a stranger to the litigation should be exercised sparingly. He considered the difficulties that members of the legal profession face when a client insists on pursuing what appears to be a hopeless case; he referred (at par 34), with implicit support, to the remarks of Lord Esher, made over one hundred years ago, in In re Cooke (1889) 5 TLR 407 at 408:

"[I]f the solicitor could not come to the certain and absolute opinion that the case was hopeless, it was his duty to inform his client of the risk he was running, and, having told him that and having advised him most strongly not to go on, if the client still insisted in going on the solicitor would be doing nothing dishonourable in taking his instructions."

More recently, those remarks were repeated in McDonald v FAI (NZ) General Insurance Co Ltd [1999] 1 NZLR 583 at 593 and Callinan J referred to the following passage from the judgment of Giles J:

"[T]he pursuit of a hopeless case upon instructions will not necessarily attract the liability. Neither will mere mistake or error of judgment be enough. Each case will need to be considered on its own facts. But there will be cases where the cumulative effect of those factors are present …"

Mere encouragement of litigation is not sufficient to make a stranger liable for costs. But, as Callinan J pointed out at par 36, the ITR went far beyond mere encouragement:

"It has been, in the clearest way, a promotor of this litigation. It is relevant that it had a direct financial interest in its promotion and its outcome."

The terms of the agreement that Arundel had signed with the ITR included the following provision:

"The Institute agrees with the Client to provide research to the Client and to any adviser nominated by the Client provided the Client pays to The Institute the fees as required under the terms contained in Schedule C herein. Such fees shall be determined by a 'once only' non-refundable down payment for initial administration and research fees with the remainder to be paid on the basis of twelve and one half percent, or $5000 which ever is the greater (12.5% is the total amount paid including what is paid under Schedule C) of any taxation monies claimed as due and owing by any taxation authority saved by The Institute of behalf of the Client."

Callinan J concluded this aspect of his judgment by referring to "the real party" test that had been enunciated in Knight. He noted, at par 37, that the ITR was not "the only real party" to the litigation but it was, nonetheless, "a real party in the very important and critical respects to which I have referred". His Honour concluded by ordering that the ITR pay the costs of the Deputy Commissioner of Taxation on a solicitor and client basis but not on an indemnity basis.

28 Not long before the decision in Arundel, the ITR - again a stranger to the litigation - had been ordered by the Full Court of the Supreme Court of South Australia to pay the respondent's costs on an indemnity basis in Money Tree Management Services v Deputy Commissioner of Taxation (2000) 46 ATR 13. It would seem, from the brief remarks in the judgment of Lander J, that the ITR had engaged in activities similar to those in which it had engaged in Arundel. His Honour, in the course of his judgment, noted that the judge in the court below had described the arguments that had been advanced against the interests of the Deputy Commissioner of Taxation as "spurious". He also observed that the judge at first instance had found that the ITR had been responsible for the preparation and the carriage of those arguments.

English authorities 29 Due to the industry of counsel, we were taken to several English authorities on the subject of costs against a non-party. Unfortunately, these had not been referred to his Honour. The first of them was Hill v Archbold [1968] 1 QB 686 ("Hill"). That was a case where the applicant, a member of the National Union of Teachers, published a circular that contained serious allegations about two senior paid officials of the Union. Libel actions, funded by the Union, were instituted but were unsuccessful. The applicant sought an injunction to restrain the Union from using Union funds to pay the legal costs that had been incurred by the Union officials in the conduct of the proceedings. That application was unsuccessful at first instance and on appeal it was held that the Union had a sufficient interest in the libel action to justify its use of Union funds. Lord Denning MR said at 694: "A person is still guilty of maintenance if he supports litigation in which he has no legitimate concern without just cause or excuse. But the bounds of 'legitimate concern' have been widened: and 'just cause or excuse' has been readily found."

"Much maintenance is considered justifiable today which would in 1914 have been considered obnoxious. Most of the actions in our courts are supported by some association or other, or by the state itself. Comparatively few litigants bring suits, or defend them, at their own expense. Most claims by workmen against their employers are paid for by a trade union. Most defences of motorists are paid for by insurance companies. This is perfectly justifiable and is accepted by everyone as lawful, provided always that the one who supports the litigation, if it fails, pays the costs of the other side. It is the universal experience in this Court that if a trade union or an insurance company supports a case and fails, it pays the costs of the other side." (pp 694-695) 30 Lord Denning MR returned to this subject in Trendtex Trading Corporation & Anor v Credit Suisse [1980] QB 629. That case concerned the position of a bank which had financed a contract and which had later lent money to support litigation that had arisen as a consequence of the contract. His Lordship warned (at 654) that even though the crime and tort of maintenance including champerty, had been abolished there still remained the possibility that a champertous agreement might be struck down as contrary to public policy. With that caution, he went on to refer back to his judgment in Hill and to repeat the passages that have already been quoted in these reasons. 31 The House of Lords considered the question of a stranger to the litigation being held responsible for costs in Aiden Shipping Co Ltd v Interbulk Ltd [1986] 1 AC 965 ("Aiden Shipping"). The principal speech was delivered by Lord Goff of Chieveley, the remaining Law Lords being content to state their agreement with his reasons. In that case, the judge at first instance had ordered shipowners to pay certain costs that had been incurred during the course of their litigation with the ship's charterers; such costs were to include the costs that the charterers were required to pay to their sub-charterers as a result of separate proceedings between those last two mentioned parties. The Court of Appeal allowed an appeal by the shipowners, holding that the court was bound by its previous decisions to hold that an order for costs could only be made against a party to the proceedings in question. The charterers appealed and the House of Lords allowed the appeal. Lord Goff concluded that there was no justification for implying a limitation to the effect that costs could only be ordered to be paid by parties to the proceedings. 32 His Lordship was of the opinion that the discretionary power to award costs in subs 51(1) of the Supreme Court Act 1981 (UK) was expressed in wide terms and it was left to the rule-making authority to control its exercise by rules of court. During the course of his speech, Lord Goff referred to the cases where costs have been awarded against a solicitor or against a relator in a relator action or against a next friend. He regarded them as cases in which costs may be awarded against a stranger to the litigation. His Lordship then said at 980: "The existence of these cases adds weight to [the] submission that no implied limitation with reference to the word 'party' can be read into the broad terms of the statute; though, had these cases stood alone, I would perhaps have been unwilling to rely on such special cases as the sole justification for rejecting the previous authorities in the Court of Appeal. I prefer to proceed upon the broader ground, that there is no basis for the proposed implied limitation upon the express words of the statute; and, on that basis, I am happy to rely upon these special cases in support of that broader approach." 33 Mason CJ and Deane J, in their joint judgment in Knight at 192, quoted that passage, saying that they "respectfully agree[d] with these comments". 34 The English authorities, including the remarks of Lord Denning in Hill and Trendtex were discussed in Condliffe v Hislop [1996] 1 WLR 753 ("Condliffe"). In that case, the Court of Appeal concluded that the financial support of the plaintiff's litigation by his mother, having regard to their relationship and the level of support given, did not justify an order for costs against the mother. The plaintiff, a chartered accountant, alleged that an article that had been published by the defendant in a magazine, "Private Eye", was defamatory of him in regard to the manner in which he conducted his practice. A few months after commencing the libel proceedings, the plaintiff and his wife were declared bankrupt. The defendant's solicitors immediately sought financial information about the future conduct of the proceedings and were told that the plaintiff's mother undertook to pay such of the defendant's costs as may be the subject of an order of the Court. Notwithstanding this advice, the defendants still sought security against the mother. This led to the mother withdrawing her undertaking, although she remained willing to support her son financially. Thus, the primary issue was a consideration of an application for security of costs against a maintained plaintiff. Kennedy LJ, with whom Peter Gibson LJ and Sir Roger Parker agreed, said at 762: "If acceptance of liability for costs is not forthcoming, what is the Court to do?… the principle that in the ordinary way costs follow the event 'is of fundamental importance in deterring plaintiffs from bringing and defendants from defending actions which they are likely to lose'. If that principle is threatened, as for example if an insurer or a trade union were known to be giving financial support to a party without accepting liability for the costs of the other side if the supported party were to lose, then, as it seems to me, the Court might, at least in some cases, be prepared to order that the action be stayed … Normally, the better course will be to let the action proceed to trial and then, if need be, consider the powers of the Court under s 51 of the Supreme Court Act 1981 (as in McFarlane's case (1995) 1 WLR 366) …"

Although these remarks appear to sit comfortably with what Lord Denning had said in Hill, his Lordship went on to add at 759:

"It is, I believe, worth noting that Lord Denning M.R. was not on that occasion considering the position of a close relative, and the proviso which he enunciated (and which in Shah v Karanjia [1993] 4 All E.R. 792, 808c Vinelott J. found "difficult to understand") was not in any way material to the facts of the instant case."

In Shah v Karanjia, Vinelott J had referred to the old decision of Hayward v Giffard (1838) 4 M & W 194, 150 ER 1399 as authority for the proposition that:

"… the court cannot order a person with a legitimate interest in a suit, who has maintained it, to pay the costs of the suit if it fails." (at 808) 35 On the other hand, the remarks of Lord Denning had been applied by Longmore J in McFarlane v EE Caldonia Ltd (No 2) [1995] 1 WLR 366 when he ordered that costs be paid by a commercial organisation which had funded the plaintiff under the terms of a contract which would have given the organisation 12.5 per cent of the plaintiff's damages. His Honour said at 373: "It may well be that it is not necessary in every case of lawful maintenance that the maintainer should accept a liability for a successful adverse party's costs; for example, a member of a family or a religious fraternity may well have a sufficient interest in maintaining an action to save such maintenance from contractual illegality, even without any acceptance of liability for such costs. But in what one may call a business context (e.g. insurance, trade union activity, or commercial litigation support for remuneration) the acceptance of such liability will always, in my view, be a highly relevant consideration."

Kennedy LJ in Condliffe had quoted this passage at 761 saying:

"That seems to me to be the correct approach. The existence of a business relationship will not always lead the court to expect acceptance for liability for costs (e.g. if the financial backer is a bank lending money to a plaintiff, or in some cases an insurer: … but it will be a highly relevant consideration." 36 In Murphy v Young and Co's Brewery [1997] 1 WLR 1591 ("Murphy"), the plaintiffs were insured under a legal expenses policy which covered them for their legal costs up to a maximum of 25,000 pounds in any action which they might reasonably bring. They brought an action for unfair dismissal against the defendant but they were unsuccessful and the defendant was awarded its costs in a sum in excess of 42,000 pounds. The insurer paid out 25,000 pounds under its policy but the plaintiffs had insufficient funds to meet the short fall of 17,000 pounds. The defendant unsuccessfully applied for a costs order against the insurers pursuant to s 51 of the Supreme Court Act 1981 (UK). 37 Phillips LJ (with whom Sir John Balcombe and Butler-Sloss LJ agreed) noted that in the Aiden Shipping case the House of Lords had held that the jurisdiction that was provided by s 51 of the Supreme Court Act: "… was not subject, as had been believed, to an implied limitation that costs could only be awarded against those who were parties to the litigation. Non-parties could be ordered to pay costs where justice so required." (at 1593)

"An order under section 51 that a non-party pay costs will only be justified when exceptional circumstances make such an order reasonable and just."

His Lordship observed that during the course of his judgment he had "explored some of the categories of exceptional circumstances that may justify such an order". However, he was obviously not intending to suggest that the examples to which he referred were intended to be exclusive. His examples are to be found at 1601-1602 of his judgment:

"(1) In Giles v Thompson [1994] 1 AC 142, 164 Lord Mustill suggested that the current test of maintenance should ask the question whether: 'there is a wanton and officious intermeddling with the disputes of others in which the meddler has no interest whatever, and where the assistance he renders to one or the other party is without justification or excuse.' Where such a test is satisfied, I would expect the court to be receptive to an application under section 51 that the meddler pay any costs attributable to his intermeddling. (2) Where a non-party has supported an unsuccessful party on terms that place the non-party under a clear contractual obligation to indemnify the unsuccessful party against his liability to pay the costs of the successful party, it may well be appropriate to make an order under section 51 that the non-party pay those costs directly to the successful party. … (3) Where a trade union funds unsuccessful litigation on behalf of a member the following factors, in addition to the funding itself, are likely to be present and, where they are, to make it appropriate to order the union to pay the successful party's costs should such an order be necessary: (a) an implied obligation owed by the union to its member to do so: see (2) above; (b) an interest on the part of the union in supporting and being seen to support the member's claim; (c) the conduct of the litigation; (d) expectation based on convention that the union will bear the costs of the successful party should the member lose. (4) Where an unsuccessful defendant's costs are funded by insurers who have provided cover against liability, which is not subject to any relevant limit, the same considerations that I have set out under (3) are likely to apply. (5) The position is more complex where a defendant's costs have been funded by insurers at risk under a policy under which their liability is limited to a sum which is insufficient to cover both liability and costs." 38 In his concurring judgment in Murphy, Sir John Balcombe added an interesting observation. He pointed out that: "The legal expenses insurance with which we are here concerned did not relate to a specific piece of litigation, and this distinguishes this case from one where a third party funds a particular claim and has a direct commercial interest in the outcome of that claim." 39 Eight months after the decision in Murphy, Phillips LJ once more presided in the Court of Appeal in another costs claim against an insurer in TGA Chapman Ltd v Christopher [1998] 1 WLR 12 ("TGA Chapman Ltd"). On this occasion the insurers were unable to avoid liability. In TGA Chapman Ltd the defendant had no assets. He was, however, covered by an insurance policy which indemnified him against liability at law for damages in respect of any accidental damage that he might cause to property. The defendant was found to have been negligent in accidentally setting fire to the plaintiff's premises. Damages of 1,129,212 pounds plus interest and costs were awarded against the defendant but his indemnity policy was limited to one million pounds. The plaintiffs pursued the insurers for their costs. The insurers were ordered to pay those costs on the grounds that: · they determined that the claim would be fought; · they had funded the defence of the claim; · they had controlled the conduct of the litigation; · they had fought the claim exclusively to defend their own interest; and · they had failed entirely.

In those circumstances the Court of Appeal agreed with the trial judge that a claim for costs against the insurers was justified.

40 Phillips LJ who wrote the leading judgment in TGA Chapman Ltd, and with whom Waller and Mummery LJJ agreed, discussed at length his earlier reasons for judgment in Murphy for the purpose of distinguishing the facts of that case from those that were then before the Court of Appeal. Bearing in mind that the relevant insurance policy in Murphy was a "Legal Expense" policy, and not, as in the case of TGA Chapman Ltd, an indemnity policy, the relevant distinguishing features were said to be that: · the insurer in Murphy had no interest in the result of the litigation, save in so far as this had affected their liability to pay costs; · the insurer in Murphy did not initiate the litigation; · the insurer in Murphy exercised no control over the conduct of the litigation; · the insurer in Murphy could not have been accused of "wanton and officious intermeddling" in the dispute; · finally, "Legal Expense" insurance was, in the words of his Lordship "a respectable and well recognised form of insurance and was subject to express regulation under statutory instruments pursuant to the Insurance Companies Act 1982 (UK)".

These were the factors that had led Phillips LJ to conclude in Murphy that the mere fact of an insurer funding a litigant was not, without more, sufficient to justify an order for costs against the insurer at the suit of the opposing successful party. His Lordship recognised that the acts of the insurers did not fall within those tests: they were not guilty of unlawful maintenance; and their conduct could not be described as "wanton and officious intermeddling" in litigation in which they had no interest. On the other hand, in TGA Chapman Ltd he said at 20:

"In the context of the insurance industry, the features to which I have just referred may not be extraordinary. But that is not the test. The test is whether they are extraordinary in the context of the entire range of litigation that comes to the courts. I have no doubt that they are. It must be rare for litigation to be funded, controlled and directed by a third party motivated entirely by its own interests." 41 In Tharros Shipping Co Ltd v Bias Shipping Ltd (No 3) [1997] 1 Lloyd's Rep 246 ("Tharros") the Court of Appeal reiterated an earlier statement that it had made in Murphy that the mere fact of funding did not render it reasonable and just that the funder should pay the costs of the successful adverse party; the court had rejected the submission in Murphy that legal expense insurance should carry such a consequence for the insurer so as to impose a risk of liability to costs beyond the limit of the cover. In Tharros, the plaintiff chartered its vessel to the defendant ("Bias"). Bias purported to terminate the charter prior to its expiry date and Tharros instituted proceedings, claiming damages because of the early re-delivery and for failure to maintain the vessel in good order and condition as required by the terms of the charter. Bias defended the claim, alleging that it had been induced to enter the charter-party by fraudulent misrepresentation as to the condition of the vessel; it also counter-claimed damages for fraudulent misrepresentation. Bias had been entered as a member of a shipowners' protection and indemnity association ("the Club") on 20 February 1991, but the Club was only informed by Bias of the existence of Tharros' claim on 8 October 1992. In due course, the Club confirmed that it would hold Bias covered in respect of its defence - but not its counterclaim - with effect from 8 October 1992. Twelve months or so later, a few days before the trial was due to start, the Club withdrew cover from Bias on the basis of the advice from Bias' leading counsel as to the merits of the fraud case. The case proceeded and, whilst it was still on foot, Bias withdrew its allegation of fraud and accepted liability for breach of the charter party. Judgment was subsequently given in favour of Tharros together with costs on an indemnity basis. Bias having paid nothing on account of costs, Tharros moved the Court for an order that the Club pay its costs. Tharros advanced its claim for costs on three alternative bases: · the Club had a binding contractual obligation to indemnify Bias in respect of Bias' liability to Tharros. In such circumstances it was just and reasonable that a costs order be made that would require the Club to pay Tharros directly; · in supporting Bias' claim, but denying any liability for Tharros' costs, the Club was unlawfully maintaining the litigation and should not be permitted to evade liability for costs in such circumstances; · as a matter of general principle, a non-party who funds unsuccessful litigation should be liable to pay the costs of the successful party. [This last point was disposed of summarily for the reasons earlier identified that mere funding, without more, was not a sufficient reason to order a stranger to pay the costs of a successful litigant]. 42 The first of the arguments that was advanced on behalf of Tharros was met by having regard to the rules of the Club. After allowing for the circumstances in which cover would be granted to a member, there was a proviso to the effect that the directors of the Club could decline cover where the costs became payable "by the personal neglect or default of the Member". The particular facts of the case led to a conclusion that there was an arguable case for the Club's allegation that the proviso should apply. It is not without significance, however, to note that it was recorded that the Club acknowledged that, but for the proviso, its liability to Bias in respect of Tharros' costs would have extended from the date of the claim, 8 October 1992, to the date of its withdrawal of cover, 5 November 1993. 43 The Court of Appeal rejected the submission that the Club's conduct amounted to unlawful maintenance, relying upon the test of Lord Mustill in Giles v Thompson [1994] 1 AC 142 at 164 ("Giles"). That was a case where a company carried on the business of hiring out cars to people whose cars had been damaged as a result of road accidents. If the company was satisfied that a customer had been in the right at the time of the accident, it would, as a term of its hiring agreement, obtain the customer's consent to maintain an action for damages against the party who was said to be responsible for the damage to the customer's vehicle. Lord Mustill, with whom the other Law Lords agreed, said at 164: "… all the aspects of the transaction should be taken together for the purpose of considering the single question whether … there is wanton and officious intermeddling with the disputes of others in where the meddler has no interest whatever, and where the assistance he renders to one or the other party is without justification or excuse."

His Lordship went on to say that he was unable to accept that there was anything officious or wanton about the intervention of the hire company in the customer's litigation.

44 The interesting feature about Tharros is that the Court of Appeal relieved the Club of liability, even though it had accepted liability to fund the litigation on terms that it would not only bear Bias' costs, but would also meet any order that might be made against Bias in respect of Tharros' costs. There were, however, two distinguishing features between the facts in Tharros and the case that is presently under appeal: · the Club had no financial interest in the outcome of the litigation whereas Justice Corporation stood to gain 8 per cent of the claim proceeds; · Tharros did not know of, and did not in anyway rely on, the cover that the Club had given Bias, whereas Clayton Utz were made aware of the Litigation Agreement within about a month or so of its execution. 45 In addition to these two important distinctions, it is also of interest to note that the Court relieved the Club of liability for Tharros' costs, even though there had been a finding that the Club exercise supervision over the preparations for the trial - a factor that could not be held against Justice Corporation in these proceedings; as has already been noted, Montague was to retain control of the litigation.

the question of prior notice 46 There are cases that suggest that an applicant, who has applied for a costs order against a non-party, may deprive himself or herself of that right if no prior notice of an intention to claim costs has been given to the non-party. That was the position in Symphony Group Plc v Hodgson [1994] QB 179 ("Symphony Group"); it was also the case in the decision of the Full Court of the Supreme Court of South Australia in Vestris v Cashman (1998) 72 SASR 449 ("Vestris"). Both those cases are, however, distinguishable on their facts from the present case. For example, in Symphony Group there were obvious grounds for the plaintiff to sue the non-party for inducing a breach of contract by the defendant. The defendant had been employed under a contract of service by the plaintiff and had covenanted that he would not, for a specified time, work for a competitor of his employer following upon the cessation of his employment. The non-party, well knowing of the restrictive covenant, nevertheless employed the defendant. In absolving the new employer from a costs order at the suit of the former employer, the Court was influenced by the fact that the former employer had a cause of action against the non-party for inducing a breach of contract and could have joined the new employer as a party to the proceedings. If that had been done, the non-party would have had the opportunity to defend its position, to pay moneys into court, to make an offer of settlement and generally to have, thereby, the opportunity to protect itself and minimise any costs that it might incur. Balcombe LJ at 192-193 listed these issues, along with others, as material considerations that were to be taken into account, although, as he emphasised, he did not suggest "that there may not be others which are relevant". His Lordship added that even if an applicant could provide a good reason for not joining the non-party against whom he had 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 an order for costs against him". 47 There is, of course, no question of Clayton Utz having a cause of action against Justice Corporation and much of what Symphony Group stands for is not therefore applicable to this case. However, the South Australian decision in Vestris has taken the matter of prior notice to the non-party a stage further. In that case the plaintiff-purchaser sued the vendor of a business, claiming that there had been a misrepresentation as to the takings of the business. The plaintiff was a trustee of a trust whose beneficiaries included Mr and Mrs Cashman; Mr and Mrs Cashman were also shareholders in the plaintiff company and hence, they stood to gain from any award of damages that might be made. Vestris was successful in defending the action and, at the conclusion of the proceedings, it applied for an order for costs against Mr and Mrs Cashman. The principal reason for the refusal of the application for a costs order against the non-parties was that Vestris had been on notice about the plaintiff company's impecuniosity from an early stage; it had had ample opportunity to make an interlocutory application for security for costs and had failed to do so. There had been a finding that Vestris should have known, at the time of the commencement of the proceedings, that the plaintiff company was insolvent. Olsson J (with whom Doyle CJ agreed) went further, however, saying at 458: "… common fairness dictates that a defendant seeking to place a non-party at risk of an order for costs must, either by bringing a timely application for security or, alternatively, at least by letter advising the defendant's intention, place the non-party on notice of that risk …" 48 It is not necessary for this Court to express a view on the need to give notice in the terms suggested by Olsson J. Clayton Utz had put Justice Corporation on notice when it unsuccessfully sought security from it for their costs. Furthermore, Clayton Utz had no need nor any cause to put Justice Corporation on further notice. As has already been noted, Montague's solicitors had supplied Clayton Utz with a copy of the Litigation Agreement and it can readily be inferred that Clayton Utz would have read of Justice Corporation's commitment to Montague to pay any costs that Montague might be ordered to pay to Clayton Utz.

discretionary principles 49 The questions that are raised in the present appeal concern the operation of the relevant principles and the criteria or guidelines that may assist in the exercise of the discretion that is reposed in the Court. At the same time, it is important to heed the warning that such principles, criteria or guidelines are neither a substitute for, nor a fetter upon, the general discretion of the Court: Latoudis v Casey (1990) 170 CLR 534 at 538-541 per Mason CJ. As is apparent from the decisions to which reference has been made in these reasons, the ultimate decision will always be dependent upon the facts of the case. 50 Questions of costs are normally determined on discretionary principles by the trial judge. The discretion is unfettered, save that it has to be exercised judicially and in accordance with general legal principles covering awards of costs. If an appellate court is to interfere, it must be upon the clear understanding that it is not merely replacing its view for that of the trial judge. The well known and accepted principles for interfering with a trial judge in the exercise of his or her discretionary powers are to be found in House v The King (1936) 55 CLR 499 at 504-5: "The manner in which an appeal against an exercise of discretion should be determined is governed by established principles. It is not enough that the judges composing the appellate court consider that, if they had been in the position of the primary judge, they would have taken a different course. It must appear that some error has been made in exercising the discretion. If the judge acts upon a wrong principle, if he allows extraneous or irrelevant matters to guide or affect him, if he mistakes the facts, if he does not take into account some material consideration, then his determination should be reviewed and the appellate court may exercise its own discretion in substitution for his if it has the materials for doing so. It may not appear how the primary judge has reached the result embodied in his order, but, if upon the facts it is unreasonable or plainly unjust, the appellate court may infer that in some way there has been a failure properly to exercise the discretion which the law reposes in the court of first instance. In such a case, although the nature of the error may not be discoverable, the exercise of the discretion is reviewed on the ground that a substantial wrong has in fact occurred." 51 In Yates v Boland [2000] FCA 1895 ("Yates"), the third party, Mr Yates, was not warned that he was at risk of a claim for costs. Nevertheless an order was made against him - and on an indemnity basis. The learned trial judge had found that the successful respondents did not know of the parlous state of the applicant company's finances until after the end of the trial. That finding, although challenged, was accepted on appeal and was sufficient to disregard the fact that no prior notice of an intention to claim costs against Mr Yates had been given to him. In any event, the Full court in Yates concluded that the necessity, if it existed, of warning the non-party was not a principle for the purpose of the test that had been formulated in House v The King (above). Whether such a requirement will become a material consideration (as it did in Symphony Group and Vestris) in a particular case will depend on the facts and circumstances of the individual case. As was said in Yates at par 34: "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."

See also Hamberger (Employment Advocate) v Williamson (2001) 104 IR 163 at 167.

52 As can be seen, the decisions in Symphony Group and Vestris are far removed from the issues that are presently under consideration. There may be a case for saying that, within a particular category, notice of intention to seek costs from a third party may be a necessary prerequisite, but probably it might be more appropriate to say that the question of the need for prior notice is no more than one of many relevant matters that should be considered when considering an application for costs against a stranger to a litigation. As Lander J said in Vestris at 468: "It is not desirable to lay down any rules which would fetter the exercise of a trial judge to make such an order but some guidance as to the exercise of the discretion can be obtained from the decided cases."

the decision in the court below 53 We turn now to a consideration of the learned trial judge's decision. His Honour came to the conclusion that the claim that had been made by Clayton Utz against Justice Corporation was not only unsustainable, but also excessive. As his Honour pointed out, the costs that had been claimed against Justice Corporation in respect of the first period of time from 20 August 1998 to 21 April 1999 were costs that had been incurred prior to the execution of the Litigation Agreement. In other words, the costs that Clayton Utz incurred in this period were incurred by them solely as a consequence of Montague's institution of proceedings. Justice Corporation had nothing to do with the decision to institute those proceedings and it had nothing to do with any subsequent decision (prior to 21 April 1999) to prosecute those proceedings. There is no basis upon which Clayton Utz could claim its costs against Justice Corporation in respect of that period. As his Honour said, there was no causal connection between those costs being incurred and the involvement in the case of Justice Corporation. We will dispose of the fourth period before giving our consideration to the second and third periods. 54 The fourth period commenced on the date upon which his Honour made his final orders. His Honour correctly noted that the costs incurred by Clayton Utz in that fourth period must have related only to the Full Court appeal on the question of damages and the subsequent application by Clayton Utz for an order for the payment of costs by Justice Corporation. His Honour rejected the application for costs in respect of that period because, as he pointed out, the Litigation Agreement provided for the financial support of Montague by Justice Corporation only in respect of the first instance hearing. It did not contain any provision for costs with respect to any appeal against the decision. His Honour's remarks about the fourth period are clearly correct. An additional issue arose between the parties concerning the costs of the fourth period. Justice Corporation argued that it would have been beyond the jurisdiction of the learned trial judge to make an order as to the payment of the costs of the appeal. As we have decided that, as a matter of fact, it would not be appropriate to order that Justice Corporation pay these costs, it is not necessary to address the question of jurisdiction. 55 His Honour dealt with the second and third periods together. He accepted that Montague was "a man of straw" and he also proceeded upon the premise that Mr Williams had no significant assets. He noted the presence of the contractual obligation on the part of Justice Corporation in cl 2.1(a) of the Litigation Agreement which required Justice Corporation to "pay the Claimant's Costs, Security for Costs and Defendant's Costs …" (bold emphasis added). His Honour further found that the existence of its 8 per cent share in any judgment sum that Montague might recover, meant that it was "clear Justice Corporation had an interest in the litigation" during the second and third periods, that is, from 22 April 1999 to 22 December 1999. 56 His Honour then said: "It follows two of the three circumstances, specified in Knight by Mason CJ and Deane J, are satisfied. What of the third? Can it be said Justice Corporation relevantly "played an active part in the conduct of the litigation"?" (bold emphasis added)

His Honour concluded that, because of the fact that Justice Corporation played no active part in the conduct of the litigation, there was "not enough" to bring home a liability for costs against it. He accepted that Justice Corporation may have made a "significant financial contribution"; he allowed that Justice Corporation may have provided the "sinews of war" notwithstanding that it had no "say in how the war was conducted". He considered that there were two reasons for his conclusion. In the first place, he felt that he could not be satisfied that, absent Justice Corporation and its financial assistance, there would have been no hearing of the assessment of damages; he allowed that funds might have been obtained from other sources: perhaps lawyers might have been prepared to act on some conditional basis. He concluded by saying:

"Whatever the position, it is not fanciful to believe it may have been possible for Montague to arrange representation on some such basis at the assessment hearing, liability having already been established. In short, I cannot be satisfied the involvement of Justice Corporation made any difference to the quantum of the costs incurred by Clayton Utz."

Counsel for Justice Corporation submitted that this was a finding that was open to his Honour on the evidence.

57 His Honour expressed his second reason for his conclusion in these terms at par 55: "… I do not think the Knight principle is invoked merely by the provision of financial support for a litigant."

"Were this enough, it would be dangerous for a lawyer to agree to act in litigation on a speculative or conditional costs basis."

the arguments on appeal 58 On the hearing of the appeal, Clayton Utz challenged his Honour's conclusions on various grounds. In the first place, counsel for Clayton Utz submitted that existing authorities show that it may be appropriate to order a non-party, who has funded litigation, to pay the costs (or some of them) that have been incurred by the successful opposing party: the more so where there was an agreement, as there was in this case, to share the proceeds of the litigation. There is no doubt that it could be appropriate to order a stranger to the litigation to pay costs, particularly in those cases where there is an agreement that gives to the stranger a share in the proceeds of the litigation. Much depends upon the facts of each case. Counsel also argued that there was neither principle nor precedent that required a successful party to establish, as a precondition to an order for costs, that, absent the involvement of the stranger, it would not have been put at risk for the costs that it had incurred. He submitted that, in the circumstances of this case, the natural inference was that costs had been incurred by Clayton Utz as a result of the involvement of Justice Corporation and that those costs might not have been otherwise incurred. 59 Counsel for Clayton Utz argued that the learned primary judge erred in principle when he concluded at par 55: " … I do not think the Knight principle is invoked merely by the provisions of financial support for a litigant. I know of no decision that has gone so far."

As the Full Court said in Magic Menu Systems at 268, the policy considerations which gave rise to the offences and torts of maintenance and champerty have not lost all significance today:

"The ability of the Courts to treat agreements for maintenance as contrary to public policy, and therefore illegal, remains unaffected by the statutory provisions: …"

On the other hand, the Court must be seen to be willing to move with the times. There are ongoing concerns about the high costs of litigation; there are risks that citizens with justifiable causes of action may be kept out of courts because of their inability to pay the costs of litigation or because they fear the financial risks of litigation. If, in such circumstances, a business house, openly and reasonably, wishes to engage in the business of funding litigation and is prepared to meet the costs of the opposing party - should that party be successful, we see no cause for instant alarm. The cases, particularly the English cases that we have reviewed, have shown for some years now, a receding tide in the torts of maintenance and champerty.

60 Counsel for Justice Corporation supported the reasons for the decision of the learned primary judge in the Court below. He submitted that the two dominant reasons upon which his Honour relied were both open to him - Justice Corporation was not "the real party" or "the effective litigant" and there was no assurance that Montague would not have obtained financial assistance elsewhere if Justice Corporation had declined to fund the litigation. Counsel also supported his Honour's finding that it was relevant to note that Justice Corporation had played no active part in the conduct of the litigation. As for the English cases which had not been cited in argument before his Honour, counsel submitted that they were all distinguishable and, in any event, were not, and would not have been, binding upon him. Those cases, submitted counsel, did no more than support a proposition that in some cases it may be appropriate to order a non-party who has provided funding for litigation to pay costs. According to counsel, his Honour did not decide to the contrary: he merely found, in the particular circumstances of the case that was before him, that it was not appropriate to make a costs order against Justice Corporation. Counsel for Justice Corporation pointed out that this was an appeal from the decision of a judge who had exercised his discretionary power to refrain from making an order for costs. As such, an appeal court should not lightly interfere with the exercise of a discretionary power.

conclusion 61 We do not consider that it was an appropriate exercise for his Honour to hold that it may have been possible for Montague to continue with its case unaided by Justice Corporation. By approaching his task in that fashion, his Honour concluded that he could not be positively satisfied that, absent support from Justice Corporation, that the litigation would have come to a halt. The correct approach, in our opinion, is to examine what did happen, putting to one side issues of speculation. By adopting that attitude, there is a clear answer: Justice Corporation funded the litigation and gave financial support to Montague in terms that were represented by the contents of the Litigation Agreement. Those were the relevant facts upon which a judicial determination was to be made and the judicial discretion was to be exercised. 62 We have also concluded, with respect, that the learned trial judge erred when he regarded the passage in Knight as laying down three principles, each of which must be present before a stranger to the litigation could be made liable for costs. It is true that Justice Corporation had no control over the litigation, as did the receivers in Knight, but Justice Corporation was entitled to share in the proceeds of a victory - a factor that would not have been enjoyed by the receivers in Knight. Furthermore the supply of a copy of the Litigation Agreement to Clayton Utz and the disclosure of the fact that Justice Corporation was, in appropriate circumstances, to pay Clayton Utz's costs, leaves open the inference that this would have lulled Clayton Utz into a false sense of security. The sharing in the anticipated results of the litigation and the obligation to meet Clayton Utz's costs were both factors of material importance and his Honour, with respect, in terms of House v The King (above), failed to have adequate regard to those material considerations. 63 Justice Corporation cannot obtain, in our opinion, any assistance from the cancellation of the Litigation Agreement and the execution of the Loan Agreement. Clayton Utz knew about the Litigation Agreement. It is reasonable to infer that it relied upon its contents. Clayton Utz did not, however, learn of the existence of the Loan Agreement until after the publication of the Full Court judgment. For reasons best known to them, Montague and Justice Corporation withheld disclosure of its existence. Furthermore, it could not be said that these proceedings involved matters of public interest or, indeed, matters that extended beyond the immediate interests of Montague and Clayton Utz such that an order for costs against a stranger would have been inappropriate. 64 Justice Corporation, whilst not controlling the litigation, had a direct financial interest in the outcome of the case; it offered no explanation for its participation in the litigation and the only inference must be that it was a commercial investment. It was prepared to take a commercial risk, to meet Montague's costs, to protect Montague against an order for costs in favour of Clayton Utz and, in return, it hoped to profit from its investment. No extenuating circumstances exist to save Justice Corporation from an order that it pay some of Clayton Utz's costs. There was no question of it being involved through friendship or because of family ties; there was no question of public interest and no moral high ground that might have justified its involvement. It was a simple straightforward commercial arrangement. If Montague had been successful there was every likelihood that there would have been a costs order against Clayton Utz, thereby recouping to Justice Corporation much of what it had outlaid by way of expenditure on Montague's costs. It seems to us, as a logical consequence of these circumstances, that in return for the chance of obtaining 8 per cent of the judgment debt and a recoupment of much of its outlay for costs, Justice Corporation should be expected to incur the risk of a costs order in the event of Clayton Utz being the successful party. Reaching that conclusion is made the easier because of the provision in the Litigation Agreement under which Justice Corporation agreed with Montague that it would pay Clayton Utz costs in the event of Montague losing the case. That factor should not, however, be treated as being the catalyst for the Court arriving at its decision. It was a matter of great significance that the existence of this clause was made known to Clayton Utz but it was still only one of the factors that has led this Court to its conclusion. 65 The drawing of the analogy with lawyers funding an impecunious litigant was not helpful and, so we believe, constituted an error in his Honour's reasoning. As we have noted, the New South Wales legislation now affords a statutory umbrella for certain types of contingency arrangements. If a legal practitioner seeks more than the statute affords him or her, it may be that the practitioner may incur responsibilities as well as enjoying rights, but there is little point in hypothesising. If the cases, particularly the English cases, show nothing else, they show that there are numerous variations in the facts and that each case must be decided on its particular facts. 66 There was further argument during the course of the appeal with respect to his Honour's refusal to receive into evidence certain material which, so it was said, was relevant to questions of the knowledge and the state of mind of Montague and, perhaps, Justice Corporation. In view of the decisions at which we have arrived, we have found it unnecessary to address those issues. 67 In our opinion the appeal should be allowed in part. The orders of the learned trial judge in the Court below should be set aside and in lieu there should be an order that Justice Corporation pay to Clayton Utz on account of their costs, but in full and final satisfaction of Justice Corporation's liability for such costs, the taxed party and party costs of the second and third period. Although Clayton Utz's success in this appeal was limited to its costs in respect of the second and third period, the case was fought out on the larger question of principle: when, if at all, should a stranger to the litigation be visited with a costs order. In this regard, Clayton Utz was successful. The time that was taken up in discussing the details of the first and fourth periods was minimal. In those circumstances we consider that it is appropriate that Clayton Utz should have their costs. There will be a further order that Justice Corporation pay Clayton Utz's costs here and in the Court below of and incidental to the hearing of Clayton Utz's notice of motion and this appeal. I certify that the preceding sixty-seven (67) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices O'Loughlin, Whitlam and Marshall.

Solicitor for the Appellants: Ebsworth & Ebsworth as agents for Brian Bartley & Associates