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[2023] FCA 480
Federal Court of Australia
2023-05-16
Corp Pty J, Thawley J
Original judgment source is linked above.
Counsel for the Respondent: Mr MD Martin KC
Solicitor for the Respondent: Mills Oakley Lawyers
Counsel for the Prospective Respondent: James Sleight
Solicitor for the Prospective Respondent: CCSG Legal Pty Ltd
BETWEEN: JAMES KELLAND HARDINGHAM First Applicant
REAL ESTATE MARKETING AUSTRALIA PTY LTD Second Applicant
COURT HOUSE CAPITAL PTY LTD Prospective Respondent
order made by: THAWLEY J DATE OF ORDER: 16 May 2023
THAWLEY J: 1 This is an application by the respondent, RP Data Pty Limited for costs against a third party litigation funder, Court House Capital Pty Ltd. It has been made because RP Data was successful in the underlying proceedings and the applicants have not satisfied a costs order previously made. They are apparently impecunious. 2 The critical events central to the determination of this application may be stated briefly. The applicants, Mr Hardingham and Real Estate Marketing Australia Pty Ltd (REMA), entered into a Funding Agreement with Court House on 20 June 2018, before these proceedings were commenced. The Funding Agreement included the following: By clause 2 of the Funding Agreement, Court House agreed to provide funding for the applicants' solicitors, senior counsel, junior counsel and disbursements. By clause 3.1, Court House could provide further funding pursuant to a further funding agreement which could "include agreement to fund adverse costs orders". The Funding Agreement did not provide for Court House to indemnify the applicants against an adverse costs order. Clause 3.2 provided that Court House "is under no obligation to provide any further funding or indemnity". By clause 4, in the event of receiving an amount either by way of judgement or settlement, the applicants were required to repay the entire funding provided by Court House, together with an "additional sum" calculated as 15% of the "final amount", being in essence the gross settlement or judgment amount. By clause 6.3, it was acknowledged that the solicitors for the applicants would continue to be instructed by the applicants in all matters relating to the proceedings and the applicants had the right to direct, conduct and conclude the proceedings by way of settlement. The entitlement in cl 6.3 was subject to clauses 6.4 and 6.5 which provided, in effect, that the applicants would consult with Court House on any issues arising from the conduct or progress of the proceedings and that they would not compromise the claim without prior consultation with and consent from Court House. 3 In its written submissions in chief, Court House submitted that the Funding Agreement "funded the applicants' legal expenses and disbursements in the primary proceedings". This was consistent with cl 2 of the Funding Agreement. In submissions in reply, Court House stated that it had only in fact paid the fees of senior counsel. The Chief Executive Officer of Court House, Ms Michelle Silvers, swore an affidavit which was filed with the reply submissions, stating that, despite the terms of the Funding Agreement, the solicitors and junior counsel for Mr Hardingham and REMA acted on a no win no fee basis in the principal proceedings and that it was only senior counsel who was paid by Court House. I will proceed on that basis. 4 The principal proceedings were commenced on 13 July 2018, a short time after the Funding Agreement was entered into. Mr Hardingham was a professional photographer. He was the sole director of REMA. REMA had been commissioned by various real estate agencies to produce photographs and floor plans for use in marketing campaigns for the sale or lease of properties, including by upload onto the realestate.com.au platform (REA platform). Mr Hardingham and REMA and the real estate agencies each knew that: (a) the photos and floorplans were maintained on the REA platform after completion of the sale or lease and were made available to subscribers; and (b) the photographs and floor plans were provided by REA under contract to RP Data for publication via its website, www.corelogic.com.au. 5 Notwithstanding that the applicants had known what was occurring for many years, and were retained precisely so that the photographs and floor plans could be uploaded by the agencies onto the REA platform on the terms required by REA, the applicants claimed that the licence given to the agencies was limited with the result that RP Data infringed copyright in publishing the photographs and floor plans on its website. 6 It became apparent early in the proceedings that, because of the number of photographs and floor plans, considerable time and expense would be involved in determining the extent of the claimed infringements and issues of damage. The Court therefore made a consent order on 11 October 2018 for questions of liability for infringement of copyright in respect of works relating to twenty identified properties be heard and determined separately and before the hearing and determination of questions of infringement of other works and questions of pecuniary relief. The properties identified for the purposes of the separate question were chosen by the applicants. 7 On 22 December 2018, RP Data filed a cross-claim against REA. RP Data asserted that, if it had infringed copyright, then REA was liable to indemnify RP Data in respect of any loss or damage. That indemnity was said to arise under data licence agreements between RP Data and REA pursuant to which RP Data obtained access to electronic versions of the relevant works. 8 On 27 March 2019 the parties attended a mediation. Two days earlier, the applicants' solicitors had advised that a representative of Court House would attend the mediation, which he did. 9 The separate question was heard on 4 and 5 December 2019: Hardingham v RP Data Pty Limited [2019] FCA 2075. 10 Costs and appropriate orders giving effect to the reasons were resolved by a judgment delivered on 17 December 2019: Hardingham v RP Data Pty Limited (No 2) [2019] FCA 2138. On that day, the orders made by the Court included: 2. The applicants pay the respondent's costs of the proceeding, excluding the costs of the cross-claim: a. on a party and party basis up to 11.00am on 28 June 2019; and b. thereafter on an indemnity basis; in a lump sum to be determined by a Registrar, pursuant to r 40.02(b) and (c) of the Federal Court Rules 2011 (Cth). 11 The applicants appealed. 12 By early 2020, Mr Hardingham's business was being significantly affected by the COVID-19 pandemic. The applicants had insufficient assets to meet the costs order and their appeal would have been stultified if a stay of that order were not granted. On 16 April 2020, the applicants filed an interlocutory application seeking a stay of the costs orders until the disposal of their appeal from the order dismissing the application. 13 On 24 April 2020, RP Data filed an interlocutory application seeking orders that Court House pay RP Data's costs of the proceedings, excluding the cross-claim. 14 On 10 June 2020, I made orders with the intended effect of granting a stay until after the appeal and cross-appeal were heard or until further order: Hardingham v RP Data Pty Limited (No 3) [2020] FCA 868. Because this order was made, RP Data's interlocutory application for Court House to pay its costs was not heard. 15 On 24 July 2020, Burley J refused an application for security for costs in relation to the appeal which had been made by both RP Data and REA: Hardingham v RP Data Pty Limited [2020] FCA 1062. The applicants' solicitors, junior counsel and senior counsel had agreed to act on a speculative basis in relation to the appeal. 16 On 8 September 2021, by a majority, the Full Court allowed an appeal from the orders made on 9 December 2019: Hardingham v RP Data Pty Limited [2021] FCAFC 148; 395 ALR 644. This decision was reversed by the High Court on 14 December 2022: RP Data Pty Ltd v Hardingham [2022] HCA 39; 97 ALJR 40. The costs orders made in the primary proceedings on 17 December 2019 are now operative. 17 By an interlocutory application dated 3 February 2023, RP Data seeks the following orders: 1. Pursuant to section 43 of the Federal Court of Australia Act 1976 (Cth), Court House Capital Pty Ltd ACN 612 636 405 pay the first respondent's costs of the proceeding excluding the cross-claim: a. on a party and party basis up to 11.00am on 28 June 2019; and b. thereafter on an indemnity basis, in a lump sum to be determined by a Registrar pursuant to rule 40.02(b) and (c) of the Federal Court Rules 2011 (Cth). 2. That Court House Capital Pty Ltd be jointly and severally liable with the applicants for such costs. 3. Costs. 4. Such further or other orders as the Court thinks fit. 18 Section 43 of the Federal Court of Australia Act 1976 (Cth) (FCA Act) relevantly includes: 43 Costs (1) 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 this or any other Act provides that costs must not be awarded … … (2) Except as provided by any other Act, the award of costs is in the discretion of the Court or Judge. 19 It is not in dispute that the power under s 43 extends to making costs orders against non-parties: Knight v FP Special Assets Limited [1992] HCA 28; 174 CLR 178. Plainly enough, the power to order costs against a third party would only be exercised in circumstances where a non-party has a connection to the ligation which is sufficient to warrant exercise of the power: Dunghutti Elders Council (Aboriginal Corporation) RNTBC v Registrar of Aboriginal and Torres Strait Islander Corporations (No 4) [2012] FCAFC 50; 200 FCR 154 at [89]; Skelin v Self Care Corporation Pty Ltd (No 2) [2022] FCA 50 at [21]. 20 One example of where a connection is typically insufficient is where family members provide financial support to an applicant in litigation in which the supporting family member has no commercial interest in the outcome; such assistance is founded in family or social ties and directed at facilitating access to justice for the purpose of vindicating rights - see, for example: Citrus Queensland Pty Ltd v Sunstate Orchards Pty Ltd (No 10) [2009] FCA 498 at [22]; KSMC Holdings Pty Ltd (t/as Hubba Bubba Childcare on Haig) v Bowden (No 3) [2020] NSWCA 158 at [45]; Skelin at [20], [63] to [70]. 21 It has been said that an "order for costs against a non-party is only made in exceptional circumstances" : Dunghutti at [90]; or that it is rare and exceptional: Vestris v Cashman (1998) 72 SASR 449 at 467; see also: FPM Constructions Pty Ltd v Council of the City of Blue Mountains [2005] NSWCA 340 at [214]; PMWorks Pty Ltd v Management Services Australia Pty Ltd (t/as Peak Performance PM) [2018] NSWCA 168 at [39]. This is not intended as more than an observation that the costs consequences usually fall on the parties to the litigation or that such an order is outside of the ordinary run of cases where parties pursue or defend claims for their own benefit and at their own expense - see: Dymocks Franchise Systems (NSW) Pty Ltd v Todd (No 2) [2004] UKPC 39; [2005] 4 All ER 195 at [25]; KSMC Holdings at [44]; Skelin at [19]. It is, accordingly, not particularly helpful to state that a third party costs order is rare and exceptional. When there is a sufficient connection between the litigation and a third party, and the circumstances are such that the making of a costs order is fair in all the circumstances, the making of a third party costs order is normal. Certainly, it is not exceptional to order costs against a litigation funder who facilitates litigation for their own commercial gain. Indeed, this has become increasingly common. As Hammerschlag J said in Mistrina Pty Ltd v Australian Consulting Engineers Pty Ltd - Costs [2020] NSWSC 633 at [26]: … Dymocks was decided 16 years ago. Litigation funding is much more common now than it was then. It is an everyday feature of cases in this [Technology and Construction] List and the Commercial List in all types of claims, not only class actions. Applications of the present type are even less exceptional now than they were then. 22 There are many cases which recognise the fairness in ordering a party who funds litigation for their own commercial benefit to pay, if they fail, the successful party's costs. This is so whether or not the funder has given an indemnity for the costs ordered against an unsuccessful applicant. Examples include: Dymocks; Carborundum Abrasives Ltd v Bank of New Zealand (No 2) [1992] 3 NZLR 757; Gore v Justice Corp Pty Ltd [2002] FCAFC 83; 119 FCR 429; Mistrina. In Dymocks at [26], the Privy Council quoted from the unreported judgment of 19 May 2000 of Fisher J of the High Court of New Zealand in Arklow Investments Ltd v McLean at [21]: … [I]t is wrong to allow someone to fund litigation in the hope of gaining a benefit without a corresponding risk that that person will share in the costs of the proceedings if they ultimately fail. 23 In the context of ordering security for costs against a non-party, Hodgson JA observed in Green v CGU Insurance Ltd [2008] NSWCA 148; 67 ACSR 105 at [51] that "the court system is primarily there to enable rights to be vindicated rather than commercial profits to be made" and that "courts should be particularly concerned that persons whose involvement in litigation is purely for commercial profit should not avoid responsibility for costs if the litigation fails". Those observations are equally applicable to the present circumstances. 24 The beginning and end point is the terms of s 43 of the FCA Act. The power to order costs is discretionary. It must be exercised judicially, not arbitrarily or capriciously or on grounds unconnected with the litigation, having regard to relevant principle and the justice of the case in all the circumstances: Minister for Immigration, Citizenship, Migrant Services and Multicultural Affairs v Mukiza [2022] FCAFC 105 at [4]. 25 Court House is a commercial litigation funder which sought to profit from the principal proceedings. It funded the principal proceedings (but not the appeals) in return for 15% of any damages plus repayment of the funding it provided. Whilst it rather grandly submitted that its activities promoted access to justice, this is but a consequence of its commercial activities. I do not infer that Courts House's activities were motivated by any concern for access to justice. 26 Litigation funding is a legitimate and commonplace commercial activity. One obvious risk for any commercial litigation funder is that, if the funded litigation is unsuccessful, the funder might face an application that it pay the successful parties' costs. That risk arises whether or not it has agreed to indemnify the applicant against an adverse costs order. Court House decided to fund the principal proceedings in return for 15% of any damages obtained. As evidenced by the terms of cl 3 of the Funding Agreement referred to at [2] above, it is unrealistic to think that, in deciding to enter into the funding arrangement and on what terms, Court House did not appreciate and consider the prospect that it would be ordered to pay the respondent's costs if the applicants were unsuccessful. 27 Court House submitted that the proper course was for RP Data to have applied for security for costs in the primary proceeding. Whilst that was an available course, I do not agree that it was the only course available, or that the failure to make such an application operates to deny the relief which RP Data seeks. When the proceedings were commenced, there was nothing to indicate that funding arrangements existed. The evidence on this application does not establish that there was any reason for thinking that either Mr Hardingham or REMA was impecunious at or around the time the proceedings were commenced. The applicants' inability to meet the costs orders made on 17 December 2019 was at least partly due to a business downturn caused by the COVID-19 pandemic and the resulting lockdowns in early 2020: [2020] FCA 868 at [6]; [2020] FCA 1062 at [20]. 28 RP Data cannot be criticised for not bringing an application for security for costs at or around commencement of proceedings in circumstances where: (a) the participation of a litigation funder was not known; (b) there was no grounds for suspecting an inability to meet an adverse costs order; (c) one of the applicants was an individual against whom an order for security for costs was unlikely to be successful even if he was impecunious; (d) the claims of the corporate applicant entirely overlapped with those of Mr Hardingham such that an order for security against REMA was also unlikely: Brecher v Barrack Investments Pty Ltd [2018] FCA 472 at [28], [29]; [2020] FCA 1062 at [9]. The applicants' claim was genuine, even if adventurous. Indeed, it found favour with a majority of the Full Court. 29 The involvement of a litigation funder became known on 25 March 2019, two days before the mediation. By this time, the litigation had substantially progressed, including by RP Data joining REA by way of cross-claim. Although there was no evidence about this, RP Data submitted that it requested a copy of the Funding Agreement on 4 April 2019, after the mediation, but that its request was refused. Later correspondence suggests that the solicitors for RP Data assumed that the Funding Agreement included an indemnity for an adverse costs order. This was a false assumption. It appears to have been based on a review of Court House's website. 30 It was not necessary to bring a security for costs application after the mediation in the circumstances. The bringing of such an application after the mediation would only have increased costs and delay. If an application had been made and the Court was inclined towards making an order, which it probably would have done taking into account such matters as were referred to by Hodgson JA in Green, I have no doubt that Court House would have given an undertaking to meet a costs order or taken some other course to enable the proceedings to continue, probably by renegotiating upwards its 15% fee. Court House has adduced no evidence on this application to suggest otherwise. 31 RP Data's failure to make an application for security for costs after the mediation does not tell against ordering Court House to pay RP Data's costs of the proceedings excluding the cross-claim. 32 Court House submitted that it would be "disproportionate to the degree of funding provided" to order Court House to pay costs, including on an indemnity basis from 11am on 28 June 2019. Its funding was described as "partial funding" and it was submitted that a costs order would "punish" Court House for "assisting impecunious applicants to bring proceedings of merit" and that it would therefore be "penal in nature". I do not accept these submissions. The point is that Court House decided to fund the litigation for its own commercial gain. The litigation was ordinary commercial litigation from the perspective of Mr Hardingham and REMA. It was plain from a statement of the essential facts that the claim was one which might well fail. It is fair that the Court House also wears the risk in seeking to profit from the litigation. Its level of funding was substantial. The Funding Agreement provided for Court House's participation in settlement. A representative of Court House attended the mediation. There was no evidence to suggest that it was not consulted in relation to the circumstances giving rise to the indemnity costs order and the terms of the Funding Agreement suggest that it was. 33 Court House and its activities had a sufficient connection with the proceedings for it to be appropriate that a costs order be made against it. 34 The following orders for costs should be made:
Hardingham
RP Data Pty Limited