Costs Order against a Non-Party

I’m a director of a company being sued – I won’t be liable for cost ordered against the company, right?

It is not often that the Court orders a non-party, such as a director, personally liable to pay costs of a legal proceeding. However, in the recent decision in Murphy v Mackay Labour Hire Pty Ltd [2018] QCA 90 (Murphy), the Court held that a director who was not a party to the litigation could be made liable to pay costs, as the Court considered that the interests of justice required it.

On appeal, the Court found that Murphy as the director of the insolvent company (despite not being party to the litigation) and in defending the company, had played an active part in the conduct of the litigation.

The facts in Murphy satisfied the three criteria set out by the High Court in Knight v FP Special Assets (1992) 174 CLU 178, where the award of non-party cost order was considered just and appropriate, as follows:

  • the party to a litigation is an insolvent person/entity or ‘a man of straw’;
  • the non-party has played an active part in the conduct of the litigation; or
  • the non-party has an interest in the litigation.

Evidentially, the non-party cost order in Murphy was justified because Murphy was effectively the real party to the litigation and the company was unable to pay the costs. Consequently, Murphy’s appeal to have the order requiring him to pay costs, was dismissed.

Additionally, Murphy’s case demonstrates the responsibility on directors, for transparency if the company is in financial hardship. On appeal, the Court agreed with the findings of the primary judge in the original proceedings that Murphy allowed the trial to run without disclosure of the company’s financial hardship to the opposing party. Murphy’s omission of this fact, had allowed the defendant to expend further legal costs on a claim which would be unenforceable. As a result, failure to disclose information about financial difficulty resulted in an adverse non-party costs order against Murphy.

The Supreme Court’s power to award a costs order

In Queensland, the Supreme Court’s power to award costs against non-parties is contained in rule 681 of the Uniform Civil Procedure Rules 1999 (Qld) (UCPR) which provides that:

‘costs of a proceeding are in the discretion of the court but follow the event, unless the court orders otherwise’

The decision in Murphy illustrates that in particular cases, the Courts may be prepared to lift the corporate veil and use their discretion conferred by rule 681 of the UCPR to order costs against directors who are non-parties to the litigation.

Costs Order: Do you require assistance regarding

If you are a director of a company the subject of current legal proceedings, or know someone who is, and want to know more, please contact the Commercial and Corporate Lawyers at Rostron Carlyle Rojas Lawyers on (07) 3009 8444 or email us at [email protected].

Please note that this article has been prepared by Daryl Hamley, Law Clerk and settled by Sarina Mari Alwi, Senior Associate of Rostron Carlyle Rojas Lawyers. Its contents are for general information purposes only and does not by any means constitute legal advice, nor should it be relied upon.

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