KSMC Holdings Pty Ltd t/as Hubba Bubba Childcare on Haig v Bowden

Findings of fact

1. The following evidence was read for the applicants: 1. affidavit of Mark Isaac sworn on 10 July 2020 with an attached exhibit; 2. affidavit of Donald Wright sworn on 17 March 2020; 3. Exhibit 1 containing a letter of 15 August 2016 from Willis & Bowring (the solicitors for the applicants) and a letter of 24 August 2016 from Carneys Lawyers (the solicitors for the respondents, who had acted for Matthew Bowden in the earlier proceedings).
2. This evidence largely attached correspondence relating to the trial and annexed the narrative of Matthew Bowden's application for a costs assessment of the costs he incurred in conducting the District Court trial. This latter document was the focus of the applicant's claim that Tom and Annette Bowden should be the subject of a third party costs order.
3. The following evidence was read for the respondents: 1. affidavit of Stephen John Titus sworn on 24 June 2020; 2. affidavit of Matthew Bowden sworn on 23 June 2020; 3. affidavit of Thomas Robinson Bowden sworn on 23 June 2020; 4. affidavit of Annette Bowden sworn on 23 June 2020.
4. The total costs expended by the applicants were $476,219.54. It was established that on 4 May 2018 (the Friday before the District Court trial commenced) an email was sent to Mr Titus enclosing letters to Annette and Matthew Bowden warning them that a third party costs order may be sought at the conclusion of the proceedings. Mr Titus accepted that he forwarded those emails to Matthew Bowden and his mother, but I find that neither Annette nor Matthew Bowden now recollects receiving that correspondence. It is not clear whether this letter was sent to, or addressed specifically to, Tom Bowden, although he and Annette Bowden shared an email address. I find that whether or not the email was brought to his attention, Tom Bowden has no present recollection of receiving it.
5. There was a limited attempt by the applicants to impugn the credit of the witnesses who were cross-examined before me. In what follows I set out my findings on the credibility and reliability of the witnesses who gave evidence.
6. Mr Titus' evidence was ultimately uncontroversial. There was no submission that I should find that Mr Titus lacked credit. Mr Titus said that he was embarrassed that he did not give Matthew Bowden a formal costs disclosure and that he did not change the name of his client file to Matthew Bowden's name on and after October 2016. Mr Titus said he did not ever give Tom Bowden, Annette Bowden or both a costs disclosure because from shortly after the matter became active it became clear that his client was Matthew Bowden.
7. It is most unfortunate that Mr Titus did not, as he accepted, comply with his obligations under the Legal Profession Uniform Law (NSW) to give Matthew Bowden a costs disclosure. I note that there was no costs agreement either. Mr Titus did give evidence, however, that from October 2016 at the latest, Matthew Bowden was his client. Matthew Bowden sought an apology. When it was not given, Matthew Bowden instructed Mr Titus to commence court proceedings. Mr Titus sought instructions from Matthew Bowden and rendered accounts to him. Mr Titus' fees were paid by Matthew Bowden. I accept Mr Titus' evidence.
8. Tom Bowden gave evidence in a clear and convincing manner. No coherent attack on his credit was mounted. Tom Bowden said that he and his wife lent Matthew Bowden the funds to conduct the litigation against the applicants. Tom Bowden said that he did so because his son was "intimidated and very upset at what had happened". I accept that evidence. I infer that Tom Bowden wanted his son to succeed in the litigation. Tom Bowden said, and I accept, that he gave no instructions about the commencement or conduct of the litigation against the applicants. I find that Tom Bowden was involved in discussions about retaining senior counsel for the appeal, but that the decision to do so was not made by him. Matthew Bowden repaid $45,000 of the funds advanced by his parents in January 2020, prior to the decision of this Court. I reject the submission that Tom Bowden's evidence about gifts given to Matthew Bowden provides any support for the proposition that this money did not in truth belong to Matthew Bowden. Tom Bowden expects his son to repay the remainder of the funds advanced. I accept that the debt has not been forgiven. I accept Tom Bowden's evidence that he had no interest, beyond the loan to his son and a parental desire for his son to succeed, in the outcome of the litigation.
9. Annette Bowden gave evidence in a quiet and thoughtful manner. I accept her evidence. No credit matters were put to her and I reject the attempt in closing submissions to suggest she was part of a conspiracy "to make it look as if Matthew Bowden had some degree of financial responsibility for this case". I reject the submission as completely without foundation. Annette Bowden said that she and her husband lent Matthew Bowden the funds to conduct the litigation against the applicants. Annette Bowden did so because her son was "very distressed and troubled about the matter". I accept that evidence. I infer that Annette Bowden wanted her son to succeed in the litigation. Annette Bowden said, and I accept, that she sent various emails to Mr Titus but I find those emails reflected instructions from Matthew Bowden and that she gave no instructions herself about the commencement or conduct of the litigation against the applicants. As I have earlier found, Matthew Bowden repaid $45,000 of the funds advanced in January 2020, prior to the decision of this Court. I reject the submission that Annette Bowden's evidence about gifts given to Matthew Bowden provides any support for the proposition that this money did not in truth belong to Matthew Bowden. Annette Bowden expects her son to repay the remainder. As I have said, I find that the debt has not been forgiven. I accept Annette Bowden's evidence that she had no interest, beyond the matters I have described in this paragraph, in the outcome of the litigation.
10. I find that Tom and Annette Bowden acted out of love for their son and a desire to enable him to challenge what Matthew Bowden thought was unfair treatment. I reject the applicants' submission that despite their denials, Tom and Annette Bowden were encouraging, controlling and/or directing the litigation against the applicants.
11. Matthew Bowden struck me as a vulnerable young man who was and remains upset about what he thought was unfair treatment by KSMC and Ms Chapman. Without entering into a consideration of whether commencement of defamation proceedings was an appropriate response to those feelings, Matthew Bowden's convictions about the treatment he received were genuinely held. Having watched him give evidence I understand the desire of Tom and Annette Bowden to protect and support their son. I accept Matthew Bowden's evidence on this application as truthful and accurate. Matthew Bowden said he repaid $42,000 to Carneys Lawyers for the appeal costs and $45,000 to his parents in repayment of the loan. I accept that evidence. As I have said, I reject the submission that at some stage Tom and Annette Bowden "decided to make it look as if Matthew Bowden had some degree of financial responsibility for this case". The submission finds no support in the evidence. I reject the submission that the funds used to make these payments did not belong to Matthew Bowden. Matthew Bowden said that he gave all instructions in the litigation. I accept that evidence.
12. In what follows I set out the additional findings of fact I have made.
13. On 4 April 2016, the email the subject of the defamation proceedings was sent. As part of a lengthy email dealing with various staff movements at the Centre the email stated: "Matt - is unfortunately no longer with us due to disciplinary reasons. While being good with the children in general, Matt was not truthful with us regarding his studies and some other issues, and I felt it was better for him to move on and possibly gain a bit more life experience. We wish him well with his future."
14. On 24 May 2016, Willis and Bowring on behalf of the applicants sent Matthew Bowden a letter threatening defamation proceedings. The subject matter of the defamation threat was material on the internet about Ms Chapman. There is no evidence that Matthew Bowden was the author of that material. This was the first threat of defamation proceedings made between these parties.
15. On 3 July 2016, Matthew Bowden learned about the email described at [19] above. Matthew Bowden complained to his parents. He was very distressed at what he understood had happened. Tom and Annette Bowden said they would put Matthew Bowden in touch with a solicitor they had used for some commercial work.
16. On 11 July 2016, Tom and Annette Bowden wrote to Mr Titus, a solicitor they had dealt with in the past, about seeking an apology from KSMC and Ms Chapman. Whilst Mr Titus opened a file in the name of Tom and Annette Bowden, I find that the client in the proceedings which were ultimately commenced was and is Matthew Bowden. Despite opening the file in the name Tom and Annette Bowden, they were not clients of Mr Titus or parties to the proceedings. It is regrettable indeed that Mr Titus did not comply with his obligation to provide a formal costs disclosure and negotiate a fees agreement with Matthew Bowden. Whatever the consequences of that matter for Mr Titus, those consequences should not be visited upon the parents of his client.
17. In about July 2016, Tom and Annette Bowden agreed to lend Matthew Bowden the funds to pay his legal costs and seek an apology. A typed loan agreement was dated 14 July 2016, but may actually have been signed a few weeks later. Nothing turns on this.
18. On 9 November 2016, Matthew Bowden attended a conference with counsel and Mr Titus. Matthew Bowden attended the conference and his parents were present for some of the conference.
19. On 10 November 2016, Matthew Bowden instructed Mr Titus to seek an apology from KSMC and Ms Chapman and, failing receipt of that apology, to commence defamation proceedings. From that time all memoranda of fees and separate requests for payment were addressed by Mr Titus solely to Matthew Bowden. As I have said, despite the file being in the name of Tom and Annette Bowden, Mr Titus says and I accept that Matthew Bowden was his client in the defamation proceedings and Tom and Annette Bowden were not his clients.
20. On 16 March 2017, a copy of the statement of claim proposed to be filed was sent to Willis and Bowring. On the same day Mr Titus sent an email to Matthew Bowden at his email address and also to the family email address requesting provision of the filing fee for the statement of claim.
21. Although Mr Titus had not given a formal cost disclosure he continued to update his time costing in relation to his costs to Matthew Bowden. Mr Titus advised Matthew Bowden of the rate he would charge per hour. Mr Titus provided details of likely costs of counsel.
22. On 3 April 2017, the statement of claim was filed. I find that Matthew Bowden, and only Matthew Bowden, gave the instructions to Mr Titus to file the statement of claim.
23. On 11 April 2017, Mr Titus sent a letter and an Offer of Compromise to the applicants' solicitors. He sought an apology and a list of the email recipients of the 4 April 2016 email for the apology to be sent to them.
24. On 19 May 2017, Mr Titus received a letter from the applicants' solicitors offering to send a differently-worded apology. The letter said: "We note that there might be some difficulty obtaining the list of any recipients of the email of 4 April 2016, in so far as the email address ... was cleared prior to settlement of the sale of the business ... We advise that our client has conducted an extensive search through her paper records and has located six (6) email addresses of parents whose children attended Hubba Bubba Childcare on Haig in or around April 2016 ... Our client is also prepared to send the proposed written correspondence to any additional actual recipients of the email of 4 April 2016."
25. Pausing there, it is a matter of considerable regret that the dispute was not able to be resolved on the basis of an apology. The 11 day District Court trial, the successful appeal to this Court and the incurring of almost half a million dollars in costs by the applicants and over $300,000 by the first respondent provide a cautionary tale which all competent legal professionals practising in defamation in NSW should impress upon clients who are considering commencing defamation proceedings.
26. To the extent it matters, there were then further unsuccessful negotiations about settlement: 1. on 26 May 2017, Mr Titus sent a reply to the letter dated 19 May 2017. It called for a more direct apology to be sent to all the people on the recipient list of a different email sent in May 2016; 2. on 23 June 2017, the applicants' solicitors sent a letter to Mr Titus. It enclosed an Offer of Compromise. It proposed a form of apology and for that to be sent to 14 email addresses of parents; 3. on 10 July 2017, Mr Titus sent two letters including an Offer of Compromise to the applicants' solicitors. Matthew Bowden offered to compromise the proceedings by judgment in his favour in respect of damages in the sum of $10,000.00 and payment of costs on a party/party basis. The letters also rejected the offer in the letter dated 23 June 2017, and required the apology to be in a different form and to be sent to 43 recipients.
27. On 23 August 2017, a formal mediation took place. This was attended by Matthew Bowden, Gordon McGrath of counsel and Mr Titus. The mediation was unsuccessful.
28. The hearing in the District Court commenced on 7 May 2018. The case ran for 11 days, and did not conclude until 7 December 2018. Mr Titus asserted that the exorbitant length of the trial was because of the failure of the applicants to comply with Court directions, multiple late amendments to pleadings and particulars and late applications, calling irrelevant witnesses, and not providing the matter complained of until the sixth day of the hearing. I find that the unsuccessful justification plea was a substantial cause of what should have been at most a 4 day hearing (as it was originally fixed) becoming an 11 day hearing. I reject the applicants' submission that the issues in the justification part of the case were necessarily ventilated as part of the qualified privilege case. As I made clear in the principal judgment, much of the confusion in this case was introduced by a failure to distinguish between the issues in the applicants' unsuccessful justification defence and their ultimately successful qualified privilege defence. I reject the submission that it has been demonstrated that the conduct of the District Court litigation by Matthew Bowden was improper or extended its length unjustifiably. Judgment was given in favour of Matthew Bowden on 4 April 2019. On 14 November 2019, Matthew Bowden paid Mr Titus' firm $42,000 on account of fees for the appeal to this Court. On 13 January 2020, Matthew Bowden repaid $45,000 of the loan from his parents. On 29 February 2020, Matthew Bowden repaid $6,200 of the loan from his parents. On 20 March 2020, Matthew Bowden repaid $1,300 of the loan from his parents. The total amount of fees incurred for the trial and the appeal by Mr Matthew Bowden was at least $300,000.
29. Matthew Bowden is in full time employment and continues to live at home. He has been able to save a substantial part of his income. He has paid back a part of the loan from his parents and I find he will continue to make repayments. Matthew Bowden was not insolvent nor a "person of straw" at the commencement of the litigation or during the litigation. His financial status changed with the appellate decision against him.
30. Matthew Bowden will not from his assets and income be able to pay an award of costs of $476,219.54. I find, however, that the amount of costs incurred by the applicants, $476,219.54, is completely disproportionate to the issues raised in this litigation. There is no realistic possibility that any proper assessment of the applicants' costs will award the applicants anything approaching this amount. I find that despite his youth and relatively modest assets, Matthew Bowden will over time repay his parents the loan advanced which funded his case.

Consideration

1. This is now a further piece of litigation arising from four lines in a lengthy email about staff issues sent to 35 parents at a childcare centre. Remarkably, the defamation proceedings in relation to this email stretched over 11 days of trial in the District Court and led to a successful appeal in this Court. It matters little, as the applicants' submitted, that not all 11 days were full hearing days. The legal costs at stake in this application were the $476,219.54 said to have been incurred on the applicants' side. Despite the voluminous material before the Court, the issues between the parties on this application are not significant.
2. Section 98 of the Civil Procedure Act 2005 (NSW) relevantly provides: 98 Courts powers as to costs (1) Subject to rules of court and to this or any other Act - (a) costs are in the discretion of the court, and (b) the court has full power to determine by whom, to whom and to what extent costs are to be paid, and (c) the court may order that costs are to be awarded on the ordinary basis or on an indemnity basis. (2) Subject to rules of court and to this or any other Act, a party to proceedings may not recover costs from any other party otherwise than pursuant to an order of the court. (3) An order as to costs may be made by the court at any stage of the proceedings or after the conclusion of the proceedings. (4) In particular, at any time before costs are referred for assessment, the court may make an order to the effect that the party to whom costs are to be paid is to be entitled to - (a) costs up to, or from, a specified stage of the proceedings, or (b) a specified proportion of the assessed costs, or (c) a specified gross sum instead of assessed costs, or (d) such proportion of the assessed costs as does not exceed a specified amount. …
3. Section 98(1)(b) of the Civil Procedure Act provides that the court may determine by whom and to what extent costs are to be paid. Section 98(2) contemplates that an order can be made that a third party be made liable for costs of proceedings. The costs discretion is unfettered although it must be exercised judicially: Yu v Cao (2015) 91 NSWLR 190; [2015] NSWCA 276 at [136] per McColl JA with whom Sackville AJA and Adamson J agreed.
4. In Knight v FP Special Assets Limited (1992) 174 CLR 178; [1992] HCA 178, Mason CJ and Deane J at 192 described the proposition that an order for costs may only be made against a party to the litigation as "the prima facie general principle". However, in some circumstances the interests of justice may require that an order be made against a third party. In Knight, their Honours recognised the following category of case as being one where a third party costs order might be made (at 193): "… [W]here 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."
5. In Gore v Justice Corp Pty Ltd (2002) 119 FCR 429; [2002] FCAFC 83 O'Loughlin, Whitlam and Marshall JJ said (at [62]) 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". In Gore, a third party costs order was made in circumstances where the third party was a commercial litigation funder. Despite having no control over the conduct of the litigation, the funder stood to gain eight percent of the proceeds of the litigation in the event of success. Motivated by that potential profit, the funder was found to have been prepared to take a commercial risk including the protection of the plaintiff from liability for costs.
6. While the question whether a third party costs order ought be made ultimately depends on the particular facts of the case, there are various factors which typically give rise to such an application and which may, in some cases, warrant such an order. Basten JA in FPM Constructions v Council of the City of Blue Mountains [2005] NSWCA 340 surveyed cases where third party costs orders had been made, stating that "they tend to satisfy at least some, if not a majority, of the following criteria": 1. the unsuccessful party to the litigation was the moving party and not the defendant; 2. the source of funds for the litigation was the third party or its principal; 3. the conduct of the litigation was unreasonable or improper; 4. the third party had an interest (not necessarily financial) which was equal to or greater than that of the unsuccessful party or, if financial, was a substantial interest; 5. the unsuccessful party was insolvent or could otherwise be described as a person of straw.
7. The five criteria identified in FPM must not be applied mechanically: Heath v Greenacre Business Park Pty Ltd [2016] NSWCA 34 at [81]. The individual criteria are not to be treated as separate and independent factors; they are capable of interacting: Mistrina Pty Ltd v Australian Consulting Engineers Pty Ltd - Costs [2020] NSWSC 633 per Hammerschlag J at [23]. In HRX Pty Ltd v Scott [2013] NSWSC 451 Bergin CJ in Eq at [56] also referred to a third party playing an "active part in the conduct of litigation" as a factor for consideration.
8. The exercise of the discretion to make a third party costs order is approached with caution and has been described as "rare and exceptional" in Vestris v Cashman (1998) 72 SASR 449 at 467 and Kebaro Pty Ltd v Saunders [2003] FCAFC 5 at [103]. While the exercise of the jurisdiction has been described as "exceptional", the Privy Council observed in Dymocks Franchise Systems (NSW) Pty Ltd v Todd (No 2) [2004] UKPC 39 at [25] that "exceptional in this context means no more than outside the ordinary run of cases where parties pursue or defend claims for their own benefit and at their own expense."
9. There is authority for the unsurprising proposition that family members may provide financial support for a plaintiff in litigation without for that reason alone becoming exposed to an adverse costs order in the event that the plaintiff fails: Citrus Queensland Pty Ltd v Sunstate Orchards Pty Ltd (No 10) [2009] FCA 498. In that case, Collier J explained (at [22]) that relevant to her Honour's conclusion was the proposition that social or family ties justified the financial support of the litigation.
10. The applicants in the present case spent a deal of time in writing and orally calling in aid two English cases referred to by Collier J in Citrus Queensland as indicating limits on the breadth of her Honour's observation that family members may provide financial support for litigation without for that reason alone becoming exposed to an adverse costs order in the event that the plaintiff fails.
11. The first case referred to, Locabail (UK) Ltd v Bayfield Properties Ltd & Ors [1999] EWHC 261 (Ch), was a judgment following an ex-parte hearing. A third party, Mr Tavoulareas, had sent a message to the Court through his lawyers in his home jurisdiction of Florida that he did not intend to appear to answer a third party costs application. The message also asserted that Florida would not recognise any judgment of the English court for third party costs. Mr Tavoulareas was the ex-husband of the unsuccessful party to the underlying litigation, Mrs Emmanuel. The Deputy Judge at 24 noted the submission that Mr Tavoulareas may have been motivated by a desire "to do down" his former wife's subsequent husband who controlled the successful party in the underlying litigation. This case is hardly comparable to the present case and provides little assistance in determining the present question.
12. The second case referred to, Thistleton v Hendricks (1992) 32 Con LR 123 is a decision that was reported only in relation to the costs award and the facts in the report are scant. It was a judgment of Judge Hicks QC, apparently sitting as an Official Referee in a claim by a builder against a house owner and a counterclaim by the house owner against the builder. The third party's liability for costs was limited to £7,000. The decision has been subsequently distinguished in England in Murphy & Anor v Young & Co's Brewery & Anor [1997] 1 WLR 1591 and Hamilton v Al Fayed (No 2) [2002] EWCA Civ 665; [2003] QB 1175. In Thistleton itself Judge Hicks referred to Cooper v Maxwell (EWCA Civ, 20 March 1992, unrep); [1992] 3 WLUK 284 as being an example of a case where a mother was not liable as a third party to pay the costs of her sons, to whom she had lent about £900,000 to conduct unsuccessful litigation. I am not satisfied that the decision in Thistleton is of much assistance here.
13. Care must be taken not to read other cases, particularly cases from other jurisdictions, about the exercise of the third party costs power as if those cases provided anything other than limited guidance about the exercise of discretion in the particular case being decided.
14. The question whether a third party costs order ought be made ultimately depends on the particular facts of the case. It would be an error to approach the exercise of the third party costs discretion on the basis that family members who provide financial support for litigation are necessarily immune from an adverse costs order in the event that the family member fails. Whilst a family relationship is not a shield against a third party costs award if all the circumstances of the case justify such an order, I have concluded that such an order is not justified here.
15. I have made the following findings about the criteria identified by Basten JA in FPM which might support the making of a third party costs order: 1. the unsuccessful party to the litigation, Matthew Bowden, was the moving party and not the defendant; and 2. the source of the majority of the funds for the litigation was a loan to Matthew Bowden made by the third parties, Tom and Annette Bowden.
16. I have made the following findings about the criteria which do not support the making of a third party costs order: 1. the conduct of the litigation by Matthew Bowden was not unreasonable or improper; 2. I have found that Tom and Annette Bowden were not to receive anything from the litigation, save that Matthew Bowden would have been able to repay the money he owed earlier. Tom and Annette Bowden did not have an interest (financial or otherwise) in the litigation which was equal to or greater than that of Matthew Bowden; 3. whilst the unsuccessful party, Matthew Bowden, is unlikely to be able to pay a costs order of an amount approaching half a million dollars, he cannot accurately to be described as insolvent or a "person of straw"; and 4. Tom and Annette Bowden had no active involvement in the conduct of the litigation.
17. I do not think it appropriate to conclude that looking at the matter prospectively Matthew Bowden faced low prospects of success in the District Court. A judge of the District Court found in his favour on all issues. In hindsight, correctly understood, the applicants had a strong case of qualified privilege at general law. The applicants' counsel was unable satisfactorily to explain why, if it was obvious looking at the matter prospectively that the applicants had a strong case of qualified privilege at general law, that the applicants wasted time and money on other defences, particularly the unsuccessful justification defence, which I have found was a cause of a four day case becoming an 11 day case.
18. I have found that immediately prior to the case commencing in the District Court a written warning was sent to Tom and Annette Bowden that an application for a third party costs order may ultimately be made. Whilst sending such a warning letter is relevant in enlivening the discretion to award costs against the third party, I do not think that it is a factor in favour of making such an order here.
19. Ultimately, the involvement of Tom and Annette Bowden in the litigation was to lend their son the money to conduct his case and to be emotionally supportive of him because of his age, emotional state and their parental love.
20. Section 98 involves a broad judicial discretion. Taking into account all of the matters addressed above I am not satisfied this is an appropriate case in which to make a third party costs order under s 98.
21. Before leaving this case I should say that even if I was persuaded to make a third party costs order, the amount sought of almost half a million dollars was completely disproportionate to the issues in this litigation. Even if persuaded that I should make a third party costs order I would have limited that order to no more than $100,000 in total.

Orders

1. For the foregoing reasons I make the following orders on the applicants' notice of motion dated 17 March 2020: 1. Application dismissed; 2. Applicants to pay the costs of the respondents to the motion.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 28 July 2020