In Jeffery & Katauskas Pty Ltd v SST Consulting Pty Ltd; Jeffery & Katauskas Pty Ltd v Rickard Constructions Pty Ltd (subject to Deed of Company Arrangement) (2009) 239 CLR 75, the High Court considered the issue of whether the Supreme Court of NSW has the power to order costs against a nonparty (namely, a litigation funder) which, for a contingency fee, has funded an impecunious corporate plaintiff without providing the plaintiff with an indemnity for adverse costs orders. The question of whether the Supreme Court has the power depends upon whether the litigation funder has "committed ... an abuse of process of the Court", thus attracting the application of r 42.3(2)(c) of the Uniform Civil Procedure Rules 2005 (NSW).
The High Court found that there was no such abuse of process by the litigation funder not being in a position to meet an adverse costs order against the funded party. The High Court held that a funding agreement was not, of itself, an abuse of process and nor was the absence of an indemnity for the costs awarded against the funded party. Therefore, the litigation funder who had failed to provide an indemnity for an adverse costs order could not be forced to pay the successful party's costs because it was not a party to the litigation.
This case will have ramifications for litigation against the Commonwealth or NSW governments in NSW (and possibly other jurisdictions with similar procedural rules) where the litigation brought by plaintiff/s is being funded by litigation funders. If the litigation funders have not agreed to indemnify the plaintiff/s in relation to an adverse costs order, the defendant would not be able to seek to recover these costs from the litigation funder directly. That is, the defendant could only seek to recover costs from the plaintiff/s directly and only to the extent that they have the financial capacity to meet any adverse costs order.
Following this case, many have called for procedural rules to be amended to address this issue.
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