HIS HONOUR: On 26 February 2020, I gave judgment in the principal proceedings: Mistrina Pty Ltd v Australian Consulting Engineers Pty Ltd [2020] NSWSC 130. The plaintiffs lost.
Both plaintiffs were then, and are now, impecunious. The first plaintiff went into liquidation on 22 November 2017. The second plaintiff is a deceased estate, the only asset of which is its interest in the claim the subject of the proceedings. They were funded in their pursuit of the defendant by Pretium Funding Pty Limited (Pretium), a litigation funder, pursuant to a funding agreement which they entered into with Pretium on 15 March 2019. Under the funding agreement, Pretium was to receive out of the proceeds of any judgment or settlement, first, all of its outlay and then, after the plaintiffs' lawyers had been paid, 45% of the remainder.
On 20 July 2018, after the defendant had brought an application for security for costs, the plaintiffs were ordered to pay into Court as security for the defendant's costs, $81,750 (the security). The Court made the following orders by consent:
(4) The sum of $81,750 is to be paid out of Court to the Defendant in the event the Court orders the First Plaintiff to pay the Defendant's costs of these proceedings, or the costs of any part of these proceedings, provided:
1. such costs are ordered to be paid forthwith and once the costs are agreed or assessed, unless otherwise fixed by the Court; or
2. such costs are not ordered to be paid forthwith, at the conclusion of the proceedings in accordance with 42.7(2) of the Uniform Civil Procedure Rules 2005 (NSW) and once the costs are agreed or assessed, unless otherwise fixed by the Court.
The security was paid into Court on 28 August 2018 and is still there.
On 25 October 2018, the defendant made an Offer of Compromise to the plaintiffs under Uniform Civil Procedure Rules 2005 (NSW) (UCPR) r 20.26, that there be judgment in favour of the defendant, each party to bear their own costs of the proceedings. The Offer was open for 28 days. Simultaneously, the defendant made a Calderbank offer that there be a discontinuance and release. By then, the defendant had incurred costs of the order of $21,000.
The defendant now moves the Court for:
1. an order that the plaintiffs pay its costs of the proceedings, the costs to be assessed on the indemnity basis from 11am on 26 October 2018;
2. an order that Pretium be liable with the plaintiffs, jointly and severally, for its costs; and
3. an order that the security be paid out of Court into the trust account of its solicitors.
This application has been dealt with on the papers. Comprehensive written submissions were received from the defendant, the plaintiffs, and Pretium.
For the reasons which follow:
1. the plaintiffs should pay the defendant's costs on the ordinary basis until 11am on the 26 October 2018 and on the indemnity basis thereafter;
2. Pretium should be liable jointly and severally with the plaintiffs to pay the defendant's costs incurred from 15 March 2019; and
3. the application for payment out must, at this time, be refused.
[3]
THE RELEVANT PROVISIONS
Section 98(1) of the Civil Procedure Act 2005 (NSW) (CPA) 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.
UCPR r 42.1 provides:
42.1 General rule that costs follow the event
Subject to this Part, if the court makes any order as to costs, the court is to order that the costs follow the event unless it appears to the court that some other order should be made as to the whole or any part of the costs.
UCPR r 42.2 provides:
42.2 General rule as to assessment of costs
Unless the court orders otherwise or these rules otherwise provide, costs payable to a person under an order of the court or these rules are to be assessed on the ordinary basis.
UCPR Pt 42 contains provisions for the making of offers of compromise. UCPR r 42.15A provides:
42.15A Where offer not accepted and judgment no less favourable to defendant
(1) This rule applies if the offer is made by the defendant, but not accepted by the plaintiff, and the defendant obtains an order or judgment on the claim no less favourable to the defendant than the terms of the offer.
(2) Unless the court orders otherwise -
(a) the defendant is entitled to an order against the plaintiff for the defendant's costs in respect of the claim, to be assessed on the ordinary basis, up to the time from which the defendant becomes entitled to costs under paragraph (b), and
(b) the defendant is entitled to an order against the plaintiff for the defendant's costs in respect of the claim, to be assessed on the ordinary basis, up to the time from which the defendant becomes entitled to costs under paragraph (b), and
(i) if the offer was made before the first day of the trial, as from the beginning of the day following the day on which the offer was made, and
(ii) if the offer was made on or after the first day of the trial, as from 11 am on the day following the day on which the offer was made.
[4]
INDEMNITY COSTS
The plaintiffs did not put anything in opposition to the making of the costs orders sought by the defendant against them. It probably does not matter to them given their financial plight. There is accordingly no issue that the Offer of Compromise met the requirements of the UCPR and contained sufficient element of compromise to make it effective to found an order for indemnity costs: Botany Bay City Council v Latham (No 2) [2013] NSWCA 450 at [13]. The plaintiffs, of course, had nothing to say about the application against Pretium.
Pretium directed some criticisms to the Calderbank offer and the fact that it came simultaneously with the Offer of Compromise. It made the point that its involvement came long after the Offer. However, it properly did not put any substantive submission with respect to the making of an indemnity costs order in favour of the defendant against the plaintiffs.
The defendant succeeded in the litigation and is entitled to its costs from the plaintiffs. It is entitled to indemnity costs from 11am on 26 October 2018.
[5]
PAYMENT OUT OF COURT
The orders which the Court made on 20 July 2018, and which specified the conditions under which the security would be paid out, were made by consent. The orders do not provide for the money to be paid out other than when the costs are agreed, assessed, or otherwise fixed by the Court. None of these events has happened. The plaintiffs object to payment out at this stage. Even though it seems inevitable that the defendant's costs will exceed the security, it must, by its own agreement, wait until the amount of the costs is determined for the money to be paid out.
[6]
NON-PARTY COSTS ORDER
The final, and an important, issue is whether the Court should make an order that Pretium pay costs. I think it should.
Section 98(1)(b) of the CPA is the source of the power to make a non-party costs order. [1]
The power is a wide one. The section specifies no limitation on the circumstances that may be considered by the Court to be relevant in the exercise of the jurisdiction to make an order.
Non-party costs orders have been described as "exceptional": see e.g. FPM Constructions v Council of the City of Blue Mountains [2005] NSWCA 340 (FPM Constructions); PM Works Pty Ltd v Management Services Australia Pty Ltd t/as Peak Performance PM [2018] NSWCA 168 at [39] (PM Works).
However, in Dymocks Franchise Systems (NSW) Pty Ltd v Todd (No 2) [2004] UKPC 39; [2005] 1 NZLR 145 at [25] (Dymocks) (referred to in PM Works, not with disapproval), the Privy Council made the point that "exceptional" in the context of non-party costs orders 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 and that the ultimate question is whether, in all the circumstances, it is just to make the order. The Privy Council pointed out that it is "inevitably to some extent a fact-specific jurisdiction and that there will often be a number of different considerations in play, some militating in favour of an order, some against." This observation was made in the context of an application for costs against a litigation funder.
The following criteria relevant to the exercise of the discretion were identified in FPM Constructions at [210] and referred to in PM Works at [35]:
1. the unsuccessful party to the proceedings was the moving party and not the defendant;
2. the source of funds for the litigation was the non-party or its principal;
3. the conduct of the litigation was unreasonable or improper;
4. 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
5. the unsuccessful party was insolvent or could otherwise be described as a person of straw.
These criteria are not exhaustive, the categories of case which may attract the exercise of the power are not closed and the criteria are not to be treated as separate and independent factors. An evaluative assessment of all factors and their interaction with each other must be made: see FPM Constructions at [206], [210] and [214] and referred to in PM Works at [32]-[34]. Neither FPM Constructions nor PM Works concerned a commercial litigation funder.
There are no presumptions either way. There is no onus of proof in the application for the exercise of the discretion: Ballantyne Suites Pty Ltd v Ballantyne Chambers Pty Ltd (in liquidation) [2014] VSCA 223 at [45] (Ballantyne). Justice dictates.
The discretion is at large. In determining whether to exercise its discretion to make such an order, the Court will have regard to all the relevant circumstances. If those circumstances warrant making the order because it is just to do so, giving it the description exceptional does not add much. The description exceptional is not some additional criterion.
Also, Dymocks was decided 16 years ago. Litigation funding is much more common now than it was then. [2] It is an everyday feature of cases in this 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.
As recounted by Newey LJ in Chapelgate Credit Opportunity Fund Master Fund Limited v Money & Ors [2020] EWCA Civ 246 at [30] (Chapelgate), in Deutsche Bank AG v Sebastian Holdings [2016] EWCA Civ 23 at [62], Moore-Bick LJ giving the Court of Appeal's judgment warned that the jurisdiction to make costs orders against non-parties "is in danger of becoming over-complicated by authority" and that the "only immutable principle is that the discretion must be exercised justly."
In Re Atlantic Computer Systems PLC [1992] Ch 505 at 541, the English Court of Appeal considered the English equivalent of section 440D(1) of the Corporations Act 2001 (Cth) which provides that during the administration of a company, proceedings in a court against the company or in relation to any of its property cannot be begun or proceeded with except with the leave of the Court and in accordance with such terms (if any) as the Court imposes. The Court observed that the discretion given by the section is at large and that it was not for the Court "to cut down that discretion… or… to confine it within a strait jacket." [3] Section 98(1)(b) is to be approached in the same way.
I turn now to why it is just to make a costs order against Pretium.
Litigation funding is Pretium's business. This is an entirely legitimate commercial activity. But that is what it is.
Pretium's facilitation of the impecunious plaintiffs' access to justice was more to serve its own commercial and financial ends than to facilitate access to justice by them: see Chapelgate. In Excalibur Ventures LLC v Texas Keystone Inc & Ors [2016] EWCA Civ 1144 at [28] (Excalibur), Tomlinson LJ remarked that he did not think commercial funders were greatly motivated by the need to promote access to justice nor did his Lordship think that they should be.
Without Pretium's involvement, bringing the proceedings would have been beyond the plaintiffs' means. For providing those means, Pretium obtained the prospect of a significant financial return in the form of a proportion of any verdict or settlement (after the payment of its own costs and that of the lawyers fighting the case).
The present is not a case of a party pursuing a claim for its own benefit and at its own expense. Pretium was not "a disinterested relative", involved through friendship or family ties, or a "pure funder" which had no personal interest in the litigation and did not stand to benefit from it: see Knight v FP Special Assets Ltd (1992) 174 CLR 178; Gore v Justice Corp Pty Ltd (2002) 119 FCR 429 at 452, [64]; Dymocks at 155-6, [25]; PM Works at [39].
In Excalibur at [27], the Court referred to the derivative nature of a commercial funder's involvement and expressed the view that this should ordinarily lead to the funder being required to contribute to the costs on the basis they have been assessed against those whom it chose to fund. I take this to be an expression of the potential materiality of the nature of litigation funding as a circumstance to be factored in to the exercise of the discretion.
The possibility of a non-party costs order is part of the risk which Pretium must be assumed to have undertaken in return for its potential financial return. It is inevitable that a commercial litigation funder would see this as a factor in the mix of its assessment to participate and on what terms.
There is no issue here about piercing the corporate veil so as to denude an entrepreneur of legitimate protection it may have by the interposition of a corporation: cf PM Works at [10] and following.
Pretium suggested as considerations against the making of an order that:
1. it had no control over the litigation and did not have a majority interest in its fruits;
2. the defendant could have applied for further security for costs; and
3. the defendant did not until December 2019 foreshadow an application for a non-party costs order against it.
However:
1. Pretium was not an idle or disinterested bystander. The evidence shows, at least, that it participated in settlement discussions. It has claimed legal professional privilege over documents subpoenaed by the defendant in an endeavour to obtain information about its further participation. On any view, Pretium's 45% interest was a substantial one, even if (marginally) less than half. On one permutation, its interest was entire. If the litigation had yielded an amount less than or equivalent to Pretium's costs, it would have got it all.
2. applications for security for costs are a regular feature of litigation in this List and the Commercial List. They do not always succeed and if they do, the applicant does not always get the amount it wants. The plaintiffs plainly could not have put up further security without financial assistance. Given that Pretium funded the litigation, I think that it may be inferred that Pretium would have put up the money. There would have been no warrant in this case to have ordered security to be provided on the indemnity basis (even if further security had been ordered).
3. there is nothing to suggest that if it would expressly have been put on notice that the defendant might ask for a non-party costs order, Pretium would have been deflected from its course: Ballantyne at [14] and [28]-[32]. In its affidavit evidence, it did not suggest otherwise.
Justice dictates that the successful defendant against the impecunious plaintiffs funded by the commercial funder should not be left with an empty costs order against persons of straw. Justice further dictates that the commercial litigation funder should be ordered to pay the defendant's costs, jointly and severally, with the plaintiffs from 15 March 2019 when the litigation funding agreement was entered into.
[7]
Orders
The Court orders that:
1. the plaintiffs are to pay the defendant's costs of the proceedings.
2. the costs incurred from 11am on 26 October 2018 are to be paid on the indemnity basis.
3. Pretium Funding Pty Ltd is jointly and severally liable with the plaintiffs to the defendant for the payment of the defendant's costs of the proceedings incurred from 15 March 2019.
4. Prayer 2 of the Notice of Motion seeking payment out of Court of the security is dismissed.
5. the parties have liberty to apply with respect to payment out of the monies in Court on 3 days' notice.
[8]
Endnotes
Section 51(3) of the Senior Courts Act 1981 (UK) is the equivalent in the United Kingdom.
See the Australian Law Reform Commission, Integrity, Fairness and Efficiency - An Inquiry into Class Action Proceedings and Third-Party Litigation Funders (Report No 134, December 2018), 50 [2.12] which records that "The litigation funding market in Australia has been growing and industry revenue is forecast to grow at an annualised 7.8% over the five years through to 2022-2023. Revenue for the 2017-18 financial year is predicted to be $105.4 million with a profit of $44.8 million."
See too Larkden Pty Limited v Lloyd Energy Systems Pty Limited [2011] NSWSC 1305.
[9]
Amendments
26 May 2020 - Amendment to para 13
26 May 2020 - Jurisdiction
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Decision last updated: 26 May 2020