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  • It has become increasingly common for third parties to play a role in funding clients in litigation.
  • A costs order may be ordered against a non-party to the proceedings where the party is a ‘man of straw’ and if the third-party played an active part in the litigation.
  • While section 98 of the Civil Procedure Act confers a wide discretion on the court with respect to costs, there are practical steps that practitioners can take to mitigate the risk.

As the costs of litigation continue to increase, it has become more common for third parties to play a role in funding clients. Both professional litigation funders and ad-hoc financial assistance have become common in litigation of varying sizes. Well publicised cases include the recent defamation proceedings brought by Ben Roberts-Smith. With third-party funding comes the risk of third-party costs orders. This article summarises some of the issues raised by the interrelationship between third-party funding and third-party costs orders, and provides some practical guidance.

The principles

In NSW, the power to make third party costs orders is found in s 98 of the Civil Procedure Act (NSW) (‘CPA’) and in r 42.1 of the Uniform Civil Procedure Rules 2005 (NSW) (‘UCPR’). Section 98 of the CPA confers a wide discretion on the court with respect to costs. The ‘general rule’ is that court costs follow the event unless the court makes ‘some other order’ pursuant to the discretion conferred by UCPR r 42.1. The repeal of UCPR r 42.3 removed restrictions on the making of costs orders against non-parties (Arena Management Pty Ltd (Receiver & Manager Appointed) v Campbell Street Theatre Pty Ltd [2011] NSWCA 128 at [24]–[25]). The Court may exercise that power whenever the circumstances warrant, having regard to the scope and purpose of s 98 (Oshlack v Richmond River Council (1998) 193 CLR 72; Hamod v State of NSW [2011] NSWCA 375 at [813]).

In FPM Constructions v Council of the City of Blue Mountains [2005] NSWCA 340 (‘FPM Constructions’), Basten JA listed five criteria that tend to apply where third party costs orders had been made (at [210]):

  • the unsuccessful party to the litigation was the moving party and not the defendant;
  • the source of funds for the litigation was the third party or its principal;
  • the conduct of the litigation was unreasonable or improper;
  • the third party had an interest (not necessarily financial) which was equal to or greater than that of the unsuccessful party or, if financial, was a substantial interest;
  • the unsuccessful party was insolvent or could otherwise be described as a person of straw.

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