Rickard Constructions Pty Ltd v Rickard Hails Moretti Pty Ltd & Ors; Allianz Australia Insurance Limited v SST Consulting Pty Ltd & Ors; Jeffery & Katauskas Pty Ltd v SST Consulting Pty Ltd & Ors; Rickard Hails Moretti Pty Ltd v SST Consulting Pty Ltd & Ors

Rickard Constructions Pty Ltd v Rickard Hails Moretti Pty Ltd & Ors; Allianz Australia Insurance Limited v SST Consulting Pty Ltd & Ors; Jeffery & Katauskas Pty Ltd v SST Consulting Pty Ltd & Ors; Rickard Hails Moretti Pty Ltd v SST Consulting Pty Ltd & Ors - [2008] NSWCA 283 - NSWCA 2008 case summary — Zoe

[20]

Friday, 19 December 2008 Rickard Constructions Pty Ltd v Rickard Hails Moretti Pty Ltd & Ors Allianz Australia Insurance Limited v SST Consulting Pty Ltd & Ors Jeffery & Katauskas Pty Ltd v SST Consulting Pty Ltd & Ors Rickard Hails Moretti Pty Ltd v SST Consulting Pty Ltd & Ors Judgment 1 GILES JA: I agree with Gyles AJA. 2 TOBIAS JA: I agree with Gyles AJA. 3 GYLES AJA: Consideration of the circumstances under which it is appropriate to make an order for costs against a non-party pursuant to the Uniform Civil Procedure Rules 2005 (UCPR) Rule 42.3(2)(c) is the principal matter for determination in these proceedings. 4 On 14 August 2006 McDougall J rejected an application for such an order by the three successful defendants in a proceeding brought by an insolvent corporate plaintiff, Rickard Constructions Pty Ltd (Rickard Constructions) (Rickard Constructions Pty Ltd v Rickard Hails Moretti Pty Ltd [2006] NSWSC 791). Each of those defendants - Rickard Hails Moretti Pty Ltd (Rickard Partners), Jeffery & Katauskas Pty Ltd (J & K) and Allianz Australia Insurance Ltd (Allianz) - seek leave to appeal from that decision. 5 The substantive decision of McDougall J (Rickard Constructions Pty Ltd v Rickard Hails Moretti Pty Ltd [2004] NSWSC 1041) was upheld in this Court on 14 December 2006 (Rickard Constructions Pty Ltd v Rickard Hails Moretti Pty Ltd [2006] NSWCA 356). By motion, each of the successful respondents to that appeal seeks costs of that appeal against the same non-parties, again pursuant to UCPR Rule 42.3(2)(c). McDougall J had dealt with costs of the substantive proceedings, including ordering Rickard Constructions to pay certain of the costs on an indemnity basis as the result of the rejection of a Calderbank offer (Rickard Constructions Pty Ltd v Rickard Hails Moretti Pty Ltd [2005] NSWSC 481 (the costs judgment)). 6 The parties are agreed that it is appropriate for this Court to hear the motion in the other appeal proceedings as well as the applications for leave and argument on appeal. The Court heard argument in all matters at the same time as the principal issue was common. The extent to which the material to be considered differed in detail will be dealt with where necessary. There is no serious opposition to a grant of leave to appeal in each case.

[21]

Commercial background 7 The commercial background can be sufficiently gathered from the following summary taken from the judgment under appeal, with some editing. A fuller account of the background is to be found in the substantive judgment (Rickard Constructions [2004] NSWSC 1041) and the appeal judgment (Rickard Constructions [2006] NSWCA 356). 8 Rickard Constructions constructed a pavement for a container depot at Port Botany. The pavement was designed by Rickard Partners. J & K provided geotechnical services. Allianz issued a contract works insurance policy for the project in favour of Rickard Constructions. The pavement failed shortly after it was put into service. Rickard Constructions rebuilt it. The question for decision in the principal proceedings was as to who should bear the loss. 9 The container depot is located at Lot 1, 55 Friendship Road, Port Botany. Lot 1 was leased initially to Port Botany Container Park Pty Ltd (Container Park). Rickard Constructions and Container Park entered into a building contract, for the construction of the pavement, on 23 April 1998. Rickard Constructions' obligation was to execute the works - namely, the construction of the pavement - in a workmanlike manner in accordance with the design shown in the drawings and specifications prepared by Rickard Partners. 10 Thereafter, Container Park sold its business to Mayne Nickless Ltd (Mayne Nickless) and MPG Logistics Pty Limited (MPG Logistics), a subsidiary of Mayne Nickless (these and other Mayne companies are referred to collectively in these reasons as "Mayne"). As part of that transaction, Container Park assigned its interest in Lot 1 and its interest in the building contract to Mayne Nickless. 11 Rickard Partners and J & K provided services in connection with the construction of the pavement both before and after 18 December 1998. Rickard Constructions continued, after that date, to perform its obligations under the building contract. After considerable delay (in part due to heavy rainfall in the first half of the calendar year 1999), it handed the works over to Mayne on 26 August 1999. 12 The container depot was to be used for the storage of shipping containers. That business involved the use of heavy forklift trucks, to shift and place the containers. The design of the pavement sought to take into account the loads that this usage would impose. However, the pavement failed within three days of being put into service, when substantial portions of it collapsed. 13 The failure of the pavement led to a difference of opinion between Rickard Constructions and Mayne. The former maintained that it had complied with its obligations under the building contract (to construct the pavement in accordance with the design prepared by Rickard Partners; it was not a design and construct contract). Mayne seemed inclined to disregard the separate legal personalities of the builder and the designer, and to focus on the fact that both were effectively directed by Mr Charles Eric Rickard, the principal of both companies at the time. In any event, on 3 May 2000, Rickard Constructions, Mayne Nickless and MPG Logistics entered into an agreement (the 3 May agreement) for Rickard Constructions to carry through to completion the rectification of the failed pavement. 14 Under the 3 May agreement, Rickard Constructions agreed to complete the rectification works. Mayne Nickless and MPG Logistics agreed that the rectification works would constitute a variation under the building contract. However, Mayne Nickless and MPG Logistics were not to pay Rickard Constructions in cash for that variation. Instead, they agreed to assign to Rickard Constructions any right that they might have against the designer of the pavement or the supervisors of the pavement construction "to recover … the amount payable [by them to Rickard Constructions] in connection with" the variation. Rickard Constructions agreed to accept that assignment in full satisfaction of its claim for payment. 15 There were two subsequent assignments, purporting or attempting to perfect Rickard Constructions' rights under the assignment in the 3 May agreement. 16 After the events in issue Container Park changed its name to SST Consulting Services Pty Ltd. I shall refer to it in these reasons hereafter as "SST Consulting".

[105]

(9) Thus, Mr Rickard at any time could have brought the litigation to an end, and in addition SST Consulting at any time after 31 March 2001 could have brought the litigation to an end." 28 His Honour found that SST Consulting stood to benefit from any success that Rickard Constructions might enjoy in the litigation. It stood to recover whatever was the amount of its initial advance or advances, what was characterised as a "success fee", and further amounts advanced by it to fund the litigation, with varying measures of priority over certain of the creditors of Rickard Constructions. It was held that there was no evidence that the individuals, Mr Peter Sweeney, Mr Paul Sweeney or Mr Truman, would benefit directly from any success enjoyed by Rickard Constructions. Such benefit as they might receive was of a practical kind in the sense that they were shareholders in SST Consulting, ran it as a "partnership" and had provided it with the funds that it had advanced to and on behalf of Rickard Constructions. It was assumed that the fruits of the litigation would flow back to the individuals through their loan accounts. It was held that Mr Rickard's family company stood to benefit from any success enjoyed by Rickard Constructions in substantially the same way as SST Consulting stood to benefit. It was assumed that Mr Rickard would benefit from recovery by his family company, although there was no precise finding as to how that might take place. 29 The finding on improper purpose was the subject of considerable debate on this appeal. In order to understand it, it is necessary to go back to the judgment that the trial judge had delivered on indemnity costs (Rickard Constructions [2005] NSWSC 481) and also to certain aspects of the substantive judgment (Rickard Constructions [2004] NSWSC 1041). 30 Application was made by Allianz for indemnity costs based upon the refusal by Rickard Constructions to accept a Calderbank offer that exceeded the result. His Honour concluded that the offer was reasonable and that rejection of the offer was not reasonable ([2005] NSWSC 481 at [43]). His Honour went on to say (at [44]-[46]):

[109]

It was held that the costs of rectification were directly caught by the exclusion and that Rickard Constructions had not established the material necessary to take advantage of the exception to the exclusion. The case against Allianz included a claim for consequential loss. However, the policy included an express exclusion of such a claim. 32 Improper purpose is dealt with in the judgment under appeal (Rickard Constructions [2006] NSWSC 791) at [56]-[60]. His Honour appears to have taken the view that the only basis upon which it was contended that the proceedings were brought or conducted with some improper or ulterior purpose was the bringing of the hopeless case on consequential loss against Allianz. His Honour adhered to the views that he had expressed at [45] of the costs judgment. He found that that conduct did not infect the balance of the proceedings and so concluded that the proceedings were not commenced or in any relevant way continued in bad faith. Nor (apart from consequential losses) were they of such a character that they were, or should have been seen to have been, hopeless as the fundamental flaws referred to at [44] of the costs judgment could have been addressed in preparation of the case. 33 His Honour went on to consider the proper construction of UCPR Rule 42.3 and concluded (at [78]) that the power to make a non-party costs order would be enlivened under Rule 42.3(2)(c) "whenever the Court is satisfied that there has been an abuse of process, regardless of the precise nature or classification or characterisation of that abuse of process". In so doing his Honour rejected an argument that abuse of process in the rule refers to the tort of abuse of process. His Honour considered a number of authorities in coming to that view. 34 His Honour then went on to consider three particular decisions - those of this Court in Fostif Pty Ltd v Campbells Cash and Carry Pty Ltd [2005] NSWCA 83; (2005) 63 NSWLR 203 and Project 28 Pty Ltd v Barr [2005] NSWCA 240, and that of Einstein J in Idoport Pty Ltd v National Australia Bank Ltd [2004] NSWSC 695. The decisions were all concerned with stay of proceedings. His Honour's decision was given prior to the judgment of the High Court in the appeal in Fostif. His Honour then said the following (at [89]):

[114]

CONTENTIONS OF THE PARTIES 37 The basis for the orders sought by J & K was that in the circumstances of the case the funding of the primary proceedings and the appeal by the SST Parties without provision of an indemnity to the plaintiff for the defendant/respondent's costs constituted an abuse of process for the purposes of UCPR Rule 43.2(3)(c). That basis is raised by each of the other parties seeking orders. That basis was further developed to involve two headings. The first was funding without an indemnity - the funding of the primary proceedings and the appeal by the SST Parties for their own benefit and for the benefit of Rickard Constructions without the provision of an indemnity to Rickard Constructions for J & K's costs. The second was trafficking in actions - the prosecution by the plaintiff of causes of action of third parties, the assignment of which was contrary to public policy and ineffective, in circumstances where the SST Parties procured those assignments by providing indemnities to the assignor without providing an indemnity to Rickard Constructions. 38 It is submitted that for all relevant purposes SST Consulting funded the primary proceedings and the appeal and put up all security for costs in each of those proceedings. Further, they had the ability to bring the litigation to an effective halt by ceasing to provide further funding. SST Consulting stood to benefit from any success that Rickard Constructions might enjoy in the litigation. The directors also stood to benefit from the proceedings in the manner discussed by the trial judge. The orders for security for costs, both at the primary level and on appeal, were inadequate. The appeal could not have been instituted or prosecuted without the funding by the SST Parties including putting up security for costs and resisting an application for further security. It is further pointed out that documents produced by SST Consulting on the motion have disclosed that it itself is insolvent and would be unable to pay costs other than by future contributions from its directors. 39 Counsel referred to broad statements as to the nature of abuse of process in the judgments of the High Court in Batistatos v Roads and Traffic Authority of New South Wales [2006] HCA 27; (2006) 226 CLR 256 and in the authorities referred to in that judgment. Particular reference was made to a passage approved in Batistatos at [6] describing abuse of process as follows: "the inherent power which any court of justice must possess to prevent misuse of its procedure in a way which, although not inconsistent with the literal application of its procedural rules, would nevertheless be manifestly unfair to a party to litigation before it, or would otherwise bring the administration of justice into disrepute among right-thinking people".

[115]

It is said that the categories of abuse are not closed and continue to evolve ( Batistatos at [9]). It was submitted that the proceedings as conducted were manifestly unfair and prejudicial to the successful defendants, as they had no effective recourse under the ordinary procedures of the Court to recover their costs from the plaintiff or the real party or parties behind the plaintiff. 40 It was submitted that the trial judge was wrong in distinguishing the decision in Project 28 [2005] NSWCA 240 and that the application of the principle applied in that case should have led to the order for costs being made. 41 It was submitted that the importance of the principle that a successful party is ordinarily entitled to recover costs from the unsuccessful party is expressed clearly by McHugh J in Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72 at 97 and that, in particular, the unfairness of a non-party maintaining actions in the name of another without exposure to the defendant's costs was recognised in Project 28 [2005] NSWCA 240 at [114] per Ipp JA (Hodgson JA and Campbell AJA agreeing): "It has long been recognised that a tendency to abuse can arise if a nominal plaintiff sues for the benefit of some other party and is not able to pay the successful party's costs." 42 It was submitted that the judgment of Mason CJ and Deane J (with whom Dawson and Gaudron JJ agreed) in Knight v FP Special Assets Ltd (1992) 174 CLR 178 confirmed that there was jurisdiction to make an order for costs against a third party who is the real party behind the nominal party to protect the processes of the Court from abuse, with a broad view being taken of what constituted an abuse of process (see at 187-190). Dawson J provided support for the same view (at 202). It is submitted that the provisions of UCPR Rule 42.3(2)(c) import the effect of Knight into the current rules notwithstanding the changes in the rules which have taken place since Knight was decided. It is submitted that the observation by Heydon JA in Wentworth v Wentworth [2000] NSWCA 350; (2001) 52 NSWLR 602 at [162] should not be read as stating to the contrary. 43 It is submitted that the decision of the High Court in Campbells Cash and Carry Pty Ltd v Fostif Pty Ltd [2006] HCA 41; (2006) 229 CLR 386 can be distinguished because there was an indemnity in that case given by the funder to the claimants in respect of cost orders that may be made against them. There was no doubt about the adequacy of that indemnity. 44 Counsel ultimately refined the submission so that an abuse of process would occur where a non-party with a commercial interest in the fruits of the litigation funds proceedings by an insolvent plaintiff without providing the plaintiff with an indemnity against cost orders in favour of successful defendants. It was submitted that that proposition is supported by the reasoning in Knight and also by the decision of the Privy Council in Dymocks Franchise Systems (NSW) Pty Ltd v Todd (No 2) [2004] UKPC 39 particularly at [25 (3)]. 45 J & K advanced a second proposition, namely that there was abuse of process in the attempted prosecution against the first and second defendants/respondents (without an indemnity) of assigned bare rights of action. Here, it was said, an insolvent plaintiff assignee sought to sue in its own name on the actions of third parties with neither the funder nor the assignor indemnifying the plaintiff in respect of the costs of the defendants. This is to be contrasted with the fact that the SST Parties gave an indemnity to Mayne and the Patrick entities as assignors under separate Deeds of Assignment. It is submitted that to enable this to be done would be to encourage trafficking in actions and the bringing of unmeritorious claims, to enable litigation to be employed as a means of commercial oppression and to encourage the creation of artificial arrangements for the bringing of actions. Reference is made to dicta of Mason P in Fostif, particularly at [108] and [123], and to the judgment of Callinan and Heydon JJ in the High Court in Campbells Cash and Carry at [257]-[259]. 46 It is submitted that the ability to obtain security for costs should not be regarded as a sufficient remedy or protection for defendants, particularly in cases involving trafficking of actions (cf Mason CJ and Deane J in Knight at 190-192). There are limits to the effectiveness of security for costs as is revealed by the facts of this case. 47 It is submitted that the trial judge misunderstood the submissions below. He summarised the proposition as being control coupled with the absence of liability for costs. It was submitted below that either or both of the two propositions would be an abuse of process. In other words, the prosecution of funded proceedings without having a costs protection would be an abuse of process regardless of the control aspect. Furthermore, his Honour did not give any consideration to the second main proposition, namely the prosecution of invalidly assigned actions where an indemnity was provided by the litigation funder to the assignor but not in relation to orders in favour of the successful defendants. 48 It is submitted that the case against the shareholders of SST Consulting was established. SST Consulting was a $3 company which operated as a de facto partnership and is now insolvent. It was found that the directors stood to benefit from any success in the proceedings. The matter should be decided upon substance rather than form. In relation to the costs of the appeal, the fact that some fees were incurred on a contingency basis is irrelevant. 49 Counsel for Rickard Partners adopted and supported the submissions of counsel for J & K, adding a reference to Condliffe v Hislop [1966] 1 All ER 431 at 440. 50 Counsel for Allianz submitted that the abuse of process occurred in the following ways: "(a) the primary proceedings were unjustifiably oppressive to Allianz in that it was required to incur substantial unrecovered costs in successfully defending the proceedings which were being funded for reward and thereby controlled by the respondents who had not accepted liability for any adverse costs order;

[125]

It was common ground that neither SST Consulting, the SST individuals nor Mr Rickard accepted or assumed any liability for any adverse order for costs against Rickard Constructions in the primary proceedings (other than the monetary and temporal limits set out in cl. 15.2 of the [Deed of Company Arrangement]." 52 It was submitted that the primary proceedings were unjustifiably oppressive to Allianz in that it was required to incur substantial unrecovered costs in successfully defending proceedings being funded for reward and therefore controlled by the respondents who had not accepted liability for any adverse costs order. That is similar to the argument presented on behalf of J & K, although including the element of control. It was submitted that the authorities established that oppression was to be judged by the effect upon the other party rather than moral delinquency or misconduct on the part of the plaintiff (Oceanic Sun Line Special Shipping Co Inc v Fay (1988) 165 CLR 197 at 247 per Deane J; Hamilton v Oades (1989) 166 CLR 486 at 502 per Deane and Gaudron JJ; Batistatos 226 CLR 256 at [69], [70] and [138]. The submissions under this head largely mirrored those put by the other applicants. 53 It was submitted that the conduct of the respondents brought the administration of justice into disrepute by undermining the fundamental principle that a party who uses the Court's process should be at risk in relation to costs if the proceedings are unsuccessful. Apart from referring to the passage from the judgment of McHugh J in Oshlack 193 CLR 72 at 97 relied upon by the other applicants, counsel referred to a long line of authority dealing with the ability of a Court to order costs to be paid by a "real" third party who uses the Court's processes in bringing and continuing proceedings. It was submitted that all of the parties against whom an order is sought had a sufficiently close connection with the primary proceedings so that each of them could fairly be described as a real party to those proceedings. 54 It was then submitted that even if the narrow view were taken, the lack of restraint as to costs manifested itself in the manner in which the proceedings were actually conducted. Three instances of misconduct were alleged. The first was that the case against Allianz was said by the trial judge to have been "misconceived, in serious and fundamental ways". The finding that those flaws were matters that could have been addressed in preparation was beside the point as the proceedings were brought and continued where no attempt had been made to adduce evidence on or address the essential elements. It was submitted further that the judge had not asked himself the critical question, namely whether those failures to address the essential elements of the case demonstrated that the usual discipline imposed upon a party that it was likely to pay the costs of the successful party was missing. The second instance was that Rickard Constructions had advanced a "hopeless" claim against Allianz for consequential loss for the illegitimate purpose of forcing a settlement from Allianz. Again the question should have been asked as to whether making that claim demonstrated the lack of discipline and restraint imposed by the usual order as to costs. The primary judge was wrong to hold that this did not "infect" the balance of the case. Settlement of the whole case was the aim. Even if that issue did not "infect" the balance of the primary proceedings, UCPR Rule 42.3(2)(c) envisages that an order for costs may be made for part of the costs. The third instance of misconduct was the unreasonable rejection of the Calderbank offer. Again, it was submitted that this demonstrated the lack of usual restraint and discipline. 55 It was submitted that Mr Rickard, as the principal of the insolvent plaintiff, who also partially funded the case and who stood to benefit from the case, was liable in the same way that the SST Consulting principals were liable. It was also sought to rely upon the actual involvement of Mr Rickard in control of the litigation to link him with the actual misconduct in the prosecution of the case. 56 Counsel supported the argument that the availability of an order for security for costs is not of itself sufficient to prevent an order for costs against third parties who have committed an abuse of process, adding a reference to Forest Pty Ltd v Keen Bay Pty Ltd (1991) 4 ACSR 107. 57 It was submitted that the successful defence of the appeal could not be distinguished from the primary proceedings. The fact that some costs were incurred on a contingency basis was not relevant. 58 Counsel for the SST Parties submitted that the basic principle advanced by the applicants is unsupported by authority and is contrary to the restrictions on the making of third party costs orders that follow from s 98 of the Civil Procedure Act and UCPR Rule 42.3. It depends upon the "real party" basis recognised in Knight by Mason CJ and Deane J. This is directly contrary to the explanation in Wentworth at [162] per Heydon JA as to the purpose of UCPR Rule 42.3. It is also submitted that the proposition contended for in this case is even balder than that referred to by Mason CJ and Deane J in Knight as it does not include any requirement that the real party control the conduct of the litigation. 59 Counsel for the SST Parties supported the finding of the trial judge that UCPR Rule 42.3(2)(c) requires identification of particular conduct which can be said to have been an abuse of process by the third party. It is pointed out that the rule is limited to and requires the identification of particular costs incurred by one of the litigants attributable to the third party's conduct. This can only be done after the conduct has taken place and the costs have been incurred. It follows that the mere act of funding litigation cannot be an abuse of process for the purposes of the rule. The primary judge was correct in distinguishing Project 28 and other authorities dealing with the stay of proceedings. 60 The various matters said to involve abuse of process were put to and rejected by the primary judge. They were factual findings which depended upon the particular circumstances of the case and his Honour as the trial judge was uniquely well placed to evaluate them. In any event leave to appeal would not be justified on that aspect of the case. It is pointed out that none of the instances of abusive conduct as such were repeated on appeal. 61 It was submitted that even if the stay authorities were applicable they would not assist the applicants as absolute control of the proceedings by the funder is fundamental to the reasoning in Project 28. The practical ability to bring the proceedings to an end by not funding them is not control. The finding that there was no control of the conduct of the proceedings by SST Consulting at first instance could hardly be challenged when the evidence of Mr Andrew Peter Quigley is taken into account. The same position obtained in the appeal proceedings, particularly as senior counsel and solicitors undertook the appeal on a speculative basis. SST Consulting never had to meet their fees. They could hardly influence the way in which counsel conducted the proceedings. Throughout, the legal right to conduct the proceedings remained with the plaintiff, citing clause 15.4 of the Deed of Company Arrangement. 62 It was submitted that SST Consulting's conduct could not amount to "trafficking" in litigation, whatever that may mean. The proceedings were commenced by the plaintiff on its own account. It was only after the plaintiff went into administration that the parties agreed to the funding arrangement. SST Consulting was a pre-existing creditor of the plaintiff. The Deed of Company Arrangement provided a regime which might have led to payment of some costs. It was only if there was a surplus that SST Consulting would receive repayment of the loans. This was an ad hoc arrangement. SST Consulting did not carry on litigation funding as a business venture. The Deed of Company Arrangement did contain an indemnity although capped in amount and not extending beyond 31 March 2001. Furthermore, SST Consulting did take on the substantial liabilities in connection with the costs including the funding of security. Those liabilities would provide a brake upon any tendency to lack of restraint. 63 It was submitted that the position of the applicants is to shift the balance between impecunious litigants and those who may fund them on the one hand and their opponents in the litigation on the other. The Court should not embark upon such a policy move, particularly because of the constraints imposed by the provisions of UCPR Rule 42.3. 64 Counsel then dealt with the question of the assignments of the causes of action held to be ineffective in the principal proceedings. That finding was challenged by the plaintiff on appeal and this Court expressly found it unnecessary to decide whether it was correct. It was submitted that the assignments were valid and that, even if they were not valid, there was no abuse of process. SST Consulting was not a party to the original Deed of Assignment. In relation to the later deeds to which it was a party, it was a pre-existing creditor of the plaintiff. Oppression was not established in the actual conduct of the assigned claims. There was no attempt to demonstrate any particular oppression relating to those claims. In any event the costs attributable to those matters alone would be small and there was no attempt to quantify them. 65 It was finally submitted for the SST Parties that an order for costs would not be mandatory even if an abuse of process were established. It was submitted that the discretion to make an order would not be exercised in this case. It was submitted that there was no reasons advanced for an order for costs on an indemnity basis. 66 On behalf of the SST directors and shareholders, it was submitted that all of the actions relied upon were corporate actions and there is no basis for lifting the corporate veil.

[126]

Funding without an indemnity 67 The broadest proposition is that a non-party with a commercial interest in the fruits of litigation commits an abuse of process if it funds litigation brought in the name of the insolvent plaintiff without providing the plaintiff with an indemnity against costs orders in favour of successful defendants. In my opinion that proposition is inconsistent with the proper construction of UCPR Rule 42.3 and with the dicta of Heydon JA in Wentworth cited by counsel. The starting point for the analysis is the decision of the High Court in Knight 174 CLR 178. 68 That case concerned the power of the Supreme Court of Queensland to award costs against third parties to the proceedings. The relevant provision was held to be Order 91 Rule 1 of the Rules of the Supreme Court of Queensland, which provided that, "[s]ubject to the provisions of the Judicature Act and these Rules, the costs of and incident to all proceedings in the Court, including the administration of estates and trusts, shall be in the discretion of Court or Judge …". It was held (by majority) that the discretion was not confined to orders against the parties to the proceedings. In particular the rule conferred jurisdiction to make an order for costs against the receivers of a company which is an unsuccessful party in proceedings, the receivers themselves not being parties to those proceedings. The decision of the House of Lords in Aiden Shipping Co Ltd v Interbulk Ltd [1986] AC 965 at 980 was approved. The judges in the majority in Knight (Mason CJ, Deane J (at 192), Dawson J (at 203) and Gaudron J (at 205)) took the view that there was no justification for reading down or implying a limit to the language of the rule. At 192-193 Mason CJ and Deane J said: "For our part, we consider it appropriate to recognise 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."

[143]

His Honour had earlier said that the area of operation of s 76(1) depended upon the scope of the provisions of other enactments dealing with costs e.g. Part 52A (at [161]). The other members of the Court (Fitzgerald JA at [1] and Davies AJA at [271]) agreed with the reasons of Heydon JA. 72 In my opinion s 98 of the Civil Procedure Act and the UCPR Rule 42.3 cannot be distinguished from the form of the legislation considered in Wentworth. It was submitted that Heydon JA's observations were obiter, but even so, in my respectful opinion, the decision is in this respect plainly correct. The present rule must be construed without regard to the decision of Mason CJ and Deane J in Knight 174 CLR 178 as to the "real party" to litigation. The general rule is now that there is no power to order costs against a third party and the circumstances under which such an order can be made are delineated by the present rule not by judicial exegesis as to the previous law. 73 The judgment of Mason CJ and Deane J in Knight does, however, give a clue to the provenance of Rule 42.3(2)(c). At 186-187 their Honours set out the following statement by Lord Abinger CB in Hayward v Giffard (1838) 4 M & W 194: "If we were at liberty to consult equity and justice, we should probably make this rule absolute. But the authority of the Courts at Westminster is derived from the Queen's writ, directing them to take cognizance of the suits mentioned in the writs respectively, and thus bringing the parties before them. This being so, they have no power to order any particular individual to come before them at their pleasure. In the present case, if it could have been shewn that Spencer had committed any contempt of Court, or been guilty, in respect of this suit, of any thing in the nature of barratry or maintenance, it would have been another matter; but we cannot make any order against an individual who is not party to any suit before us, nor has been guilty of any contempt, but merely because he has an interest in the event of the suit."

[145]

Later (again at 188) their Honours said: "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." 74 In my opinion, it is clear enough that the drafting of UCPR Rule 43.2 is inconsistent with there being any general principle that the jurisdiction can now be exercised against persons who are considered to be the "real parties". Furthermore, it is also clear enough that, by picking up the phrase "contempt or abuse" from Ram Coomar Coondoo, it was intended to refer to actual rather than prospective contempt or abuse of the proceedings. Authorities (such as Dymocks [2004] UKPC 39 and Life Therapeutics Ltd v Bell IXL Investments Ltd (No 2) [2008] FCAFC 158; (2008) 170 FCR 595) in relation to jurisdictions which do not have an equivalent to the current UCPR provisions are of no assistance. 75 The principal contention of the applicants is not consistent with UCPR Rule 42.3(1) as it is not within any of the exceptions in (2). The primary judge was correct in holding that an actual abuse of process must have been committed in order for an order for costs to be made against the third party. On that reasoning the element of control, which is omitted from the principal proposition, would not alter the situation. 76 The primary judge was also correct in taking the view that decisions as to a stay of proceedings are not determinative of the present case. The question as to whether Project 28 [2005] NSWCA 240 should be followed in the light of the later decision of the High Court in Campbells 229 CLR 386 does not arise in this appeal. 77 The only case to which we have been referred which considers the meaning of abuse of process within UCPR Rule 42.3(2)(c) is the decision of Austin J in In the matter of the Bauhaus Pyrmont Pty Ltd (in liq) [2006] NSWSC 879; (2006) 67 NSWLR 289 at [27]-[34]. The relevant finding was that a non-party who had received a subpoena to produce documents was guilty of an abuse of process because he made a baseless claim to privilege over certain documents, thus entitling the Court to make an order for costs against it pursuant to UCPR Rule 42.3(2)(c). The non-party concerned was not represented, although apparently some written submissions were made on his behalf. Austin J had decided that the person concerned was a "party" and the finding in question was an alternative finding. The finding was that there was a completed abuse of process prior to the order for costs being made. That is consistent in principle with the approach of the primary judge in this case. It is not necessary to consider the correctness of the finding as to whether there was an abuse of process in that case. The finding that a party who is subpoenaed to produce documents is a "party" for the purposes of costs is different to the question which arises here and the correctness of that finding also needs not be considered. 78 On this appeal, counsel for the SST Parties did not pursue the argument that abuse of process in UCPR Rule 42.3(2)(c) is limited to circumstances that could constitute the tort of abuse of process. Beyond agreeing with the primary judge that the abuse must have been "committed" it is not necessary to go further and attempt to give exhaustive definition as to what would constitute abuse of process for this purpose. 79 Even if the widest view of UCPR Rule 42.3(2)(c) were taken, the decision of the High Court in Campbells 229 CLR 386 makes success on an argument that litigation funding with or without control constitutes an abuse of process extremely difficult if not impossible (see particularly Gummow, Hayne and Crennan JJ at [83]-[95] - agreed with by Gleeson CJ at [1] - and Kirby J at [146]-[148]). 80 That decision substantially approved the decision in this Court in Fostif 63 NSWLR 203. The leading judgment was given by Mason P. His Honour dealt with the abuse of process issue at [124]-[152], in the light of what he had said concerning "Funding arrangements, public policy, abuse of process and trafficking in litigation" at [88]-[123]. There is nothing in that reasoning to support the principal proposition advanced by the applicants, even in the context of an application for a stay. 81 It was sought to distinguish Fostif as the solicitor concerned had undertaken to meet any costs awarded by the Court against the participants in the matter (see at [61]), and to rely upon the absence of any similar undertaking or indemnity in the present case. In the first place, that circumstance is not referred to by any of the judges who considered the matter. In the second place, such an undertaking or indemnity is for the protection of the plaintiff participants not for the benefit of the defendants. 82 Fostif, of course, was not a case dealing with insolvent plaintiffs.

[150]

Hopeless case 91 The primary judge did not, when he came to conduct his analysis of the case, deal with the argument on behalf of Allianz that the conduct of the proceedings amounted to an abuse of process as they were hopeless ([2006] NSWSC 791 at [92]-[99]). However, earlier in the judgment, he had said (at [60]): "… Nor were [the proceedings] of such a character that they were, or should have been seen to have been, hopeless. In this context, the fundamental flaws to which I referred in para [44] of my costs judgment were matters that could have been addressed in preparation; they were not inevitable." 92 There can be circumstances where a case is so hopeless that to permit it to continue is an abuse of the process of the Court (see UCPR Part 13 Rule 13.4 and Part 14 Rule 14.28 and the predecessors of each of these rules together with the commentary thereon in Ritchie's Uniform Civil Procedure NSW, LexisNexis Butterworths at [13.4.5]-[13.4.50] and [14.28.5]-[14.28.22]). Such relief is also said to be in the inherent power of the Court. That basis of abuse of process does not depend upon the intention of the plaintiff but, rather, looks to the effect upon the defendant. 93 The remedies of summary dismissal or striking out of a case as hopeless are sparingly exercised as they prevent a party pursuing a case. That factor does not exist where, as in the present case, the matter has been fully tried on the merits. However, in my opinion, the proposition that a failed case is, or may be, an abuse of process should be approached with caution. It not only smacks of re-litigation but may also involve scrutiny of the manner in which a case has been conducted. There also needs to be examination of the relationship of the third party to the litigation to the case and its conduct. These are sensitive topics. There is a line between a party who pursues arguments which are ultimately abandoned or rejected by the Court and a party who commences a proceeding which is misconceived in the sense of being incompetent or insupportable (Construction, Forestry, Mining & Energy Union v Clarke [2008] FCAFC 143; (2008) 170 FCR 574 at [29]). In my opinion, the primary judge is not shown to have been in error when concluding that the proceedings here were not so hopeless as to cross the line and amount to an abuse of process. The fact that a party has not obtained evidence to plug gaps in the case could be explained on any number of bases and is not sufficient to establish an abuse of process. The primary judge did not consider the case to be inherently incapable of succeeding. He did adhere to the view that the case against Allianz for consequential loss was hopeless but held that that matter did not infect the balance of the proceedings. When his Honour came to analyse the case for actual abuse put on the part of Allianz he did not refer to that issue. I shall return to it in below. 94 In any event there was little basis for implicating the SST Parties in any such abuse. The case had been framed and filed by solicitors. At all times during their involvement, the case was conducted by solicitors and counsel. That provides a significant barrier to concluding that the lay clients were party to the conduct or maintenance of the proceeding as an abuse. Furthermore, in my opinion, this head could not be established without establishing control of the proceedings by the SST Parties, that control having been negatived by findings of the primary judge based upon his assessment of the evidence, including oral evidence, which cannot be seriously challenged. I shall consider the case against Mr Rickard later.

[160]

The judge accepted the evidence of Mr Quigley, which supported the findings made by the judge as to Mr Rickard's role. 101 It is submitted for Mr Rickard that this basis for an order against him was not put to the primary judge. That would explain why the primary judge did not deal with it in terms. Unfortunately, the question as to whether or not Allianz relied upon this basis for the order before the primary judge is far from crystal clear. There were no pleadings or particulars. Written submissions were provided prior to the hearing. Those written submissions were supplemented by oral submissions at the close of evidence. Allianz was the only party to proceed against Mr Rickard. There is no doubt that Allianz pursued a case based upon actual abuse, seeking to take advantage of the findings by the primary judge in his earlier judgments, including the finding as to the pursuit of the hopeless case for consequential damages against Allianz. That case was a relatively minor aspect of the submissions that were made, the major concentration being upon funding and control. It is also fair to say that the forensic concentration was upon endeavouring to tie the SST Parties to control. The SST Parties called Mr Quigley who was instructed as the solicitor to conduct the proceedings in about April 2001. The effect of his affidavit evidence was that he took instructions from Mr Rickard. He was cross-examined to suggest that he in fact took instructions from Mr Peter Sweeney on behalf of the SST Parties. In cross-examination he reaffirmed the fact that Mr Rickard gave all relevant instructions. The primary judge accepted Mr Quigley's evidence. As I said previously, Mr Quigley was not cross-examined to suggest that the claim against Allianz was known to be hopeless or that it was proceeded with in order to apply commercial pressure for a settlement of the whole case. 102 Counsel for Mr Rickard suggested in his final submission to the trial judge that the case against his client did not involve any act or omission amounting to actual abuse of process. He contended that the case was limited to the signing of the Deed of Company Arrangement and funding issues. He also pointed to the primary role attributed to SST Consulting. Counsel for Allianz replied as follows: "Mr Reuben this morning has submitted that there was no act or omission by Mr Charles Rickard which would render him liable for a third party cost order.

[162]

No complaint was made by counsel for Mr Rickard after that statement nor was any application made to his Honour to re-open the evidence. I am satisfied that Mr Rickard's involvement in giving the day to day instructions in the case was a basis put to the trial judge for the making of an order for costs against him because of the pursuit of the untenable claim. 103 As the primary judge did not deal with the issue, it should be sent back for determination unless either it is apparent that it could not succeed or if this Court can satisfactorily dispose of the issue. I do not think it can be said that Allianz could not possibly succeed. However, I am satisfied that this Court is in a position to come to a view on the merits of the issue. On the basis of the primary judge's acceptance of Mr Quigley's evidence (and I can see no reason for departing from it), the issue turns upon the inferences to be drawn from an established body of evidence. 104 In my opinion Allianz did not establish a case sufficient to warrant an order for costs being made against Mr Rickard based upon the pleading of and persistence in the claim for consequential losses against Allianz until shortly before trial. For the purposes of argument, it can be assumed that those circumstances constituted a relevant abuse of process on the part of Rickard Constructions. There is no doubt that Mr Rickard was responsible for giving instructions to the solicitors from April onwards and I would infer that he was in the same position, as the principal of Rickard Constructions, in relation to the solicitors who had acted prior to Mr Quigley. 105 In my opinion that is an insufficient basis on which to find that Mr Rickard "committed an abuse of process". I have no difficulty with the proposition that a person in Mr Rickard's position might commit an abuse of process by giving instructions on behalf of a corporate plaintiff. However, the fact that a lay person may be responsible for giving day to day instructions concerning the conduct of litigation does not implicate that person in an abuse of process because of a particular step taken in the case. It cannot be assumed that such a person would know of a particular step or understand the consequences of a particular step without more evidence. The plaintiff was represented by solicitors at all material times and by counsel for a good part of the time. In my opinion the fact that Mr Rickard did not give evidence does not gainsay that situation. The opportunity to cross-examine Mr Quigley on that point was not taken - probably because his likely answer was not known to the cross-examiner.

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