Litigation Fund WCX Pty Ltd v Homebuilding Pty Ltd (No 2)

Legislation Cited: Civil Procedure Act 2005 (NSW), s 98
Uniform Civil Procedure Rules 2005 (NSW), r 42.1

Cases Cited: FPM Constructions v Council of the City of Blue Mountains [2005] NSWCA 340
Heath v Greenacre Business Park Pty Ltd [2016] NSWCA 34
Litigation Fund WCX Pty Ltd v Homebuilding Pty Ltd [2025] NSWCA 16
May v Cristodoulou (2011) 80 NSWLR 462; [2011] NSWCA 75
Yu v Cao (2016) 91 NSWLR 190; [2015] NSWCA 276

Category: Costs

Parties: Litigation Fund WCX Pty Ltd (Applicant)
Homebuilding Pty Ltd (First Respondent)
Sheriff of New South Wales (Second Respondent)
District Court of New South Wales (Third Respondent)

Representation: Counsel:
M Coshott (For Applicant, with leave)
C Marshall (Second Respondent)
Solicitors:
Crown Solicitor for NSW (Second and Third Respondents)

File Number(s): 2024/00334499

JUDGMENT

1. THE COURT: This matter commenced as a claim by the respondent, Homebuilding Pty Ltd, against the owners of a residential property on which the respondent had carried out work. The respondent obtained a judgment in its favour in the District Court, including for its costs. An attempt in February 2024 to have the NSW Sheriff execute a writ of execution led to the applicant, Litigation Fund WCX Pty Ltd, commencing proceedings by way of a third party notice claiming equitable ownership of the assets of the homeowners. It relied upon a deed providing a line of credit to the homeowners.

2. On 26 August 2024, the Sheriff sought by way of a notice of motion to interplead in the proceedings in the District Court, seeking a determination of the ownership of the goods the subject of the warrant of execution. The applicant challenged the validity of the Sheriff’s action. The applicant’s third party claim application was dismissed, as was its challenge to the motion brought by the Sheriff. The applicant then commenced proceedings by way of summons in this Court seeking judicial review of the judgment in the District Court dismissing its proceedings. The sole basis of the application for review was a submission that the interpleader motion by the Sheriff was invalid.

3. By a judgment delivered on 20 February 2025 this Court dismissed the summons for judicial review: Litigation Fund WCX Pty Ltd v Homebuilding Pty Ltd [2025] NSWCA 16. The Court gave leave to the applicant and the Sheriff to file brief written submissions as to the appropriate costs orders. Perhaps because the orders required the applicant merely to file its submissions, and in contravention of the convention that all submissions and communications with the Court be served on all other affected parties, the applicant failed to serve its written submissions within the relevant period. As a result, there was a brief delay in completing the timetable permitting the Sheriff to respond.

Party and party costs

4. The Sheriff, being the second respondent in the proceedings in this Court, filed submissions seeking two orders, namely:

5. an order that the applicant pay the Sheriff’s costs of the proceedings; and

6. an order that Mr Coshott (the sole director and sole shareholder of the applicant) be jointly and severally liable with the applicant to pay the Sheriff’s costs.

7. The applicant filed written submissions on 3 March 2025 which took no issue with the proposed order that it pay the Sheriff’s costs, no doubt on the basis that this order fell squarely within the general principle that costs follow the event, the event in this case being the dismissal of the applicant’s summons: Civil Procedure Act 2005 (NSW), s 98; Uniform Civil Procedure Rules 2005 (NSW), r 42.1. Accordingly, that order should be made.

8. The sole remaining issue is whether a third-party costs order should be made against Mr Coshott.

Costs against non-party

7. Mr Coshott was not a party to the proceedings and did not seek to be joined or heard. However, the submissions by the applicant were entirely directed to the proposition that no costs order should be made against Mr Coshott, its sole director and shareholder. For the reasons set out below, the proposed costs order should not be made.

8. The factual circumstances relied upon by the Sheriff for a third-party order all related to Mr Coshott’s active role as director of, and agent for, the applicant. The Sheriff observed that Mr Coshott had (i) commenced the proceedings on its behalf; (ii) indicated an intention to engage a solicitor to act for the applicant but did not ultimately do so; (iii) swore affidavits on behalf of the applicant; (iv) authorised himself in his role as sole director, to conduct the proceedings on behalf of the applicant; (v) signed written submissions on behalf of the applicant, and (vi) obtained leave from the Court to represent the applicant at the hearing in this Court.

9. The Sheriff relied upon two authorities in this Court as relevant to the exercise of the Court’s discretionary power to award costs against a third party. The later case, Yu v Cao (2016) 91 NSWLR 190; [2015] NSWCA 276, was relied on for a statement of principles at a high level of generality to the effect that non-party costs orders should be made with considerable caution and the power exercised sparingly. Those propositions were true, but did not support the application.

10. The limited relevance of Yu v Cao may be explained quite shortly. Mr Cao succeeded in defamation proceedings against a Ms Liu. He obtained a third-party costs order against Ms Liu’s husband, Mr Yu. This Court held that such an order should not have been made in circumstances summarised by Sackville AJA in one paragraph:

“[189] In essence, this is a case where it should have been obvious, if not before the defamation proceedings were commenced then shortly thereafter, that Mr Yu should have been joined as a defendant. [Mr] Yu’s conduct undoubtedly influenced the decision to sue Ms Liu. But the evidence established that, from an early stage, Mr Cao strongly believed, for very sound reasons, that Mr Yu had been responsible for sending the email. Had Mr Yu been joined as a defendant in the defamation proceedings, as he should have been, the litigation would have taken a very different course.”

11. The bulk of the Sheriff’s submissions concerned a second, earlier, case in this Court, namely FPM Constructions v Council of the City of Blue Mountains [2005] NSWCA 340, placing reliance on the following passage:

“[210] There may be other cases where such an order is appropriate including the circumstances of Knight v FP Special Assets itself, in which the company was in receivership. … It is clear that the categories of case which may attract the exercise of the power are by no means closed, nor should they be. Nevertheless, the requirements of justice should not be allowed to expand an exception to the general rule, so as to undermine the rule itself. What is significant from a survey of the cases in which orders have been made against non-parties is that they tend to satisfy at least some, if not a majority, of the following criteria:

(a) the unsuccessful party to the proceedings was the moving party and not the defendant;

(b) the source of funds for the litigation was the non-party or its principal;

(c) the conduct of the litigation was unreasonable or improper;

(d) the non-party, or its principal, had an interest (not necessarily financial) which was equal to or greater than that of the party or, if financial, was a substantial interest, and

(e) the unsuccessful party was insolvent or could otherwise be described as a person of straw.”

12. As the Sheriff noted, the criteria, while not exhaustive, have been accepted to provide a useful guide: see May v Cristodoulou (2011) 80 NSWLR 462; [2011] NSWCA 75 at [96], [111]. In May, Handley AJA suggested a qualification to criterion (a) in the following terms:

“[20] An unsuccessful defendant provides a more promising basis for a non-party order because the successful plaintiff could not protect himself by getting security for costs.”

13. The successful defendant in FPM (the Council) had in fact sought security for costs (unsuccessfully) as to which the observation was made in FPM:

“[219] Absent some other relevant consideration, it would be curious if, the company not being ordered to provide security, its active director could be made liable for the costs of proceedings when it ultimately proved unsuccessful.”

14. Applying the criteria in FPM, the Sheriff did not submit that the conduct of the litigation on behalf of the applicant was “unreasonable or improper” (see par (c)); nor that the applicant was insolvent: see par (e). Indeed, by contrast with cases where there is a receiver pursuing a claim on behalf of creditors, or a litigation funder, there was no evidence that the source of funds for the litigation was Mr Coshott: see par (b). Noting that in FPM*,* Mr Yazbek was the controlling mind of FPM Constructions, the following passage applies mutatis mutand**is in the present case:

“[206] In the present case, it could not be said that FPM Constructions was merely a nominal party or that Mr Yazbek was the ‘real party’ to the proceedings. No doubt it is true, as his Honour found, that Mr Yazbek was the driving force behind FPM Constructions and was its representative for the purposes of the litigation. That does not mean, however, that the benefit of the proceedings brought by FPM Constructions for progress payments, in law, flowed to anyone other than FPM Constructions, nor that the company was other than the proper defendant in proceedings brought by the Council. Nor is the fact that Mr Yazbek was the sole director and secretary of the company inconsistent with that conclusion. Were it otherwise, the corporate veil would, in effect, be nullified at the very point at which it provides protection against personal liability for the shareholders and directors. The carefully crafted exceptions to the principle would overtake the principle itself were that the case.”

15. By way of contrast, this case may be compared with one of the rare cases where a third-party costs order has been made, Heath v Greenacre Business Park Pty Ltd [2016] NSWCA 34. The dispositive circumstance was identified by Gleeson JA in the following terms:

“[88] Making allowance for the appellant being a non-lawyer, and affording him a reasonable period in which to consider the respondents’ reply evidence, make further enquiries and seek legal advice, in my view, the appellant acting reasonably should have been in a position to assess and conclude that the defence and cross claim had no reasonable prospects by no later than the directions hearing on 30 May 2014. The appellant’s conduct in maintaining the proceedings after that date was so unreasonable that he should be required to pay the respondents costs from that date to the final hearing on 17 November 2014.”

16. Absent any equivalent circumstance in the present case, there should be no order against Mr Coshott personally.

Orders

17. It follows that the Sheriff should have an order for costs against the applicant. The applicant did not oppose such an order, but did oppose the proposed order against Mr Coshott. In doing so, however, it was not acting in its own interests, but in those of Mr Coshott. The appropriate result is that there should be no order as to the costs of the present applications.

18. The Court makes the following orders, in addition to those made on 20 February 2025:

19. Order that Litigation Fund WCX Pty Ltd pay the Sheriff’s costs of the proceedings in this Court up to and including 20 February 2025.

20. Make no order as to the costs of the subsequent costs applications.

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