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28 September 2004
In Dymocks Franchise Systems (NSW) Pty Ltd v Todd(1) the Privy Council considered the question of when an award of costs against a non-party might be appropriate. The Privy Council's decision has since been endorsed by the High Court in Impact Collections Limited v BNZ.(2)
In the Dymocks Case long-established Australian booksellers Dymocks entered into three franchise agreements with the Todds, allowing them to open three bookstores in New Zealand. When Dymocks summarily terminated the agreements, both Dymocks and the Todds issued proceedings: Dymocks for a declaration that its termination of the agreements was lawful (with the Todds counterclaiming damages for repudiation) and for an order enforcing its contractual option to take over the assets of the three bookstores; and the Todds for damages for misrepresentation.
Various appeals resulted in the case coming before the Privy Council, where Dymocks' appeal was upheld and the Todds were ordered to pay Dymocks' costs. This order was sealed. The Todds subsequently went bankrupt and their companies, Bigola Enterprises Ltd and Lambton Quay Books Ltd, were put into liquidation. There were no funds available to pay the costs awarded by the Privy Council, so Dymocks sought an order that Associated Industrial Finance Pty Ltd pay the costs of the appeals. This application was brought under Rule 46 of the High Court Rules, which provides that: "All matters relating to the costs of and incidental to a proceeding or a step in a proceeding are at the discretion of the court."
Associated was a private company owned by Mrs Todd's family and was a subsidiary of the family's holding company Parkes Holdings Pty Ltd. A substantial amount of evidence was put before the board concerning Associated's involvement in, and control over, the appeal proceedings, including the advancement of money to the Todds to fund the Court of Appeal and Privy Council proceedings.
In determining whether an award of costs against Associated as a non-party was appropriate, the Privy Council considered the following three central issues:
Jurisdiction to make a supplementary costs award
Associated unsuccessfully contended that following the making and subsequent sealing of the board's order, the Privy Council's jurisdiction was exhausted and no further costs orders could be made. The Privy Council was of the clear view that where the order being sought is one against a non-party, it is in the strictest sense supplemental to the judgment already pronounced and sealed, and in no way varies it. The existence of a sealed order is therefore no bar to such an application.
It was noted that the Todds remained liable pursuant to the initial order given, and that any order made against Associated would be separately enforceable, although Dymocks was only entitled to recover in total up to the total of its costs.
The Privy Council adopted a 'but for' test with regard to the issue of causation - but for Associated's involvement, the Todds would not have pursued their appeal to the Court of Appeal and thus occasioned the costs both in that court and on the further appeal to the Privy Council. A non-party will therefore not ordinarily be liable for costs if those costs would in any event have been incurred even without the non-party's involvement in the proceedings, implying that non-party funding must be necessary for the continuation of the proceeding.
The Privy Council considered the following four principles by which the discretion to order costs to be paid by a non-party is to be exercised:
The Privy Council also determined the following:
The Privy Council was in no doubt that Associated had funded the appeals before the Court of Appeal and the Privy Council, and stood to benefit from any success on those appeals. It was also in Associated's interest that the appeal to the Court of Appeal was brought and the further appeal to the Privy Council defended. Despite Associated having played little, if any, role in the actual conduct of the appeals, it had taken on the all-important decision to fund and thereby promote the appeals. Accordingly, Associated was the 'real party' to the proceedings and the Privy Council ordered that Associated be liable for Dymocks' costs in the Court of Appeal and the Privy Council, as well as the costs of the petition for the non-party order for costs.
The ability to seek costs against a non-party in New Zealand after a judgment
has been entered and sealed is now beyond doubt. However, when litigating it
is advisable to consider the ability of the other party to pay costs at the
outset, and it is preferable to make an application for costs during the substantive
For further information on this topic please contact John Turner or Natalie Curtis at Buddle Findlay by telephone (+64 9 358 2555) or by fax (+64 9 358 2055) or by email (email@example.com or firstname.lastname@example.org). The Buddle Findlay website can be accessed at www.buddlefindlay.com.
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