Third Party Funders and Costs Orders

In the evolving landscape of litigation funding, third-party funders have become increasingly prevalent, offering financial support to clients who might otherwise lack the resources to pursue or defend legal claims. This shift has significant implications, particularly regarding the potential for third-party costs orders. In New South Wales, the regulatory framework governing these orders is outlined in section 98(1) of the Civil Procedure Act 2005 (NSW) and provides that ‘subject to the 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 an indemnity basis.’

Accordingly, the Court possesses broad discretion on costs orders. This discretion has slowly been expanded following the repeal of Rule 42.3 of the Uniform Civil Procedure Rules 2005 (NSW). As a result of the repeal the courts have discretion to issue costs orders against non-parties, such as third-party funders.

Moreover, as litigation costs continue to increase, the involvement of professional funders and ad-hoc financial assistance has become commonplace, with high-profile cases like Ben Roberts-Smith’s defamation proceedings highlighting the potential for significant financial implications. This article explores the intersection of third-party funding and costs orders, offering insights into the legal principles and practical considerations for parties navigating this complex area of law.

 

Legal Principles arising from FPM Constructions v Council of the City of Blue Mountains [2005] NSWCA 340 (‘FPM Constructions’)

In the matter of FPM Constructions the New South Wales Court of Appeal (‘NSWCA’) established a list of five criteria that must be meet to qualify for third party costs orders. These include:

• The unsuccessful party to the litigation was the moving party;
• The source of funds for the litigation was the third party;
• The conduct of the litigation was unreasonable or improper;
• The third party either had a general interest which was equal to or greater than that of the unsuccessful party, or had a financial interest which was reasonably substantial; and
• The unsuccessful party was insolvent.

Accordingly, if a party can meet the above requirements, they may be able to apply for third-party costs orders. Please see the below case where we will examine how these legal principles have been implemented at common law.

 

Brand2Content t/as Franchise Works v Dalby [2019] NSWCA 16 

Facts

In November 2016, Brand2Content sued three companies and their director, Mr Dalby, for breaches of contract and misleading conduct. After losing at trial, the companies, with Mr Dalby’s financial backing, appealed to the NSWCA. Despite the appeal Mr Dalby entered into financial difficulty with one of his companies entering into voluntary liquidation. As a result, Mr Dalby ceased his relationship with his lawyers and failed to attend the hearing, leading to the dismissal of his appeal. Brand2Content sought costs from Mr. Dalby, claiming that while he was a third-party, he was the funding source and had a substantial interest in the matter.

Held

Simpson AJA ruled that Mr Dalby should pay the appeal costs on an indemnity basis. She held that Mr Dalby meet the criteria established in FPM Constructions by personally funding the appeal and having a substantial interest in its outcome.

Takeaways

This case is an important lesson to third-party funders demonstrating that they can be held responsible for costs if they meet the criteria established in FPM Constructions.

 

How we can help?

At Chamberlains Law Firm we can help you to sufficiently understand the legal requirements of third-party funders and costs orders. If you have any questions regarding cost orders please contact Mr Stipe Vuleta of our office.

 

*This article was prepare with the assistance of Annabel Randall