Playing the man and not the ball: When non-party cost orders are available in Court
All litigants like winning cases. An order for costs never hurts either. However, some litigants don’t properly consider the recoverability of cost orders prior to instituting proceedings.
When can a party not named as a litigant be responsible for the payment of costs (cost orders) in a legal proceeding?
The making of an order for costs against a non-party is an exceptional course for a court to take. The usual order, of course, is that the losing party pays the successful party’s costs of the proceeding. There are, however, recognised sets of circumstances in which express provisions authorise, or the interests of justice require, the making of a non-party order for costs.
Our firm recently dealt with this issue in the case of Royal Fresh International Pty Ltd v Nutracare Life Sciences Pty Ltd (in liq) as Trustee for the Nutracare Life Sciences Unit Trust [2019] VCC 553 (29 April 2019).
The power to make a non-party costs order can arise where:
- a named party is insolvent;
- the non-party played a sufficiently active role in the conduct of the litigation;
- the non-party has a sufficient interest in the litigation;
- the interests of justice require it.
In the Royal Fresh case, a company was shocked to discover that in Australia the law does not bestow personal liability for costs upon directors.
An unsuccessful attempt was made by a litigant to recover costs from the directors personally. The Court reaffirmed that a company has an independent legal personality distinct from that of its shareholders and neither shareholders nor directors, as a general proposition, are personally liable for a company’s acts and defaults.
In some exceptional cases, where the non-party is a real party to the litigation and is also actively involved and personally interested in the proceeding, the Court may have jurisdiction to consider making a cost order against the non-party.
Courts will not underwrite bad commercial decisions. A litigant that sues a company with no assets is often setting themselves up for a double disappointment.
If you have any litigation questions, please do not hesitate to contact Simon Abraham or a member of our firm’s litigation team.
