Gasparin & Anor v Kelly

[2005] HCATrans 42

[2005] HCATrans 042

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S28 of 2004

B e t w e e n -

FRANCESCO GASPARIN

First Applicant

WILISPA PTY LIMITED

Second Applicant

and

RITA JEAN HERIOT KELLY

Respondent

Application for special leave to appeal

McHUGH J
HEYDON J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 11 FEBRUARY 2005, AT 11.55 AM

Copyright in the High Court of Australia

MR P.L. BRERETON, SC:   May it please the Court, I appear for the applicants.  (instructed by Barkus Edwards Doolan)

MR J.E. ARMFIELD:   I appear for the respondent, if your Honours please.  (instructed by the respondent)

McHUGH J:   Can these matters be heard with the Wilson matters or what, Mr Brereton?

MR BRERETON:   The issues are really separate, your Honour.  In our submission, they should proceed as two separate matters.

McHUGH J:   All right, thank you.  Yes, Mr Brereton.

MR BRERETON:   May it please the Court, in our system of justice, the use of lawyers to conduct litigation is fundamental.  Generally speaking, though it might be said that this case and the one which follows is not the paradigm, a party without a lawyer is seen to be at a handicap, and generally speaking, though it may be presumptuous for counsel to say so, the court unassisted by legal representation is thought to be disadvantaged.

The basic element of the right to a fair hearing is what might in older language have been called an equality of arms, and in more modern parlance, a level playing field.  In matrimonial litigation, it is a commonplace that one of the spouses, typically but not invariably the wife, has to embark on complex proceedings against a well‑heeled spouse, including extensive financial investigations and circumstances that she is bereft of the funds and resources with which to do so. 

Sometimes, as in the cases such as Breen v Breen, which came to this Court, that can be addressed by a preliminary costs order against the other party.  But oftentimes, particularly when the other spouse is not quite so well‑heeled as Mr Breen, the poorer spouse will have to borrow from relatives or friends to fund the litigation, and will do so on the basis that the loan will be repaid from the proceeds of the property settlement.  That is one of the means by which, in matrimonial litigation, a level playing field is commonly achieved.

In this case, perhaps atypically, it was the husband who, after unhappier earlier litigation with his sons, was bereft of resources to finance the matrimonial litigation, and it was his friend, Mr Gasparin, as opposed to his parents, who provided the wherewithal to pay out the judgment that the sons had obtained against him and to provide the resources to fund the matrimonial litigation.

In the proceedings before Justice Coleman which are the original proceedings in respect of which the costs order was ultimately made, Mrs Kelly, for whom my learned friend appears today, or for whose estate my learned friend appears today, was represented by counsel, indeed, by my learned friend.

If it is right in principle to order costs against those in the position of Mr Gasparin who fund litigation to achieve or assist the achievement of a level playing field on the basis that he is sympathetic to the husband, and on the basis that he will be repaid, then the potential liability of such fund is unlimited and no person is likely to run the risk of such open‑ended liability.  If costs orders are made against such funders, such funding will cease to be available, genuine claims will be stifled, and in matrimonial litigation, the spouse without funds will be seriously disadvantaged.

This is contrary to the general policy of the law that it is preferable that a successful defendant should suffer the injustice of irrecoverable costs than that a claimant with a genuine claim should be prevented from pursuing.  The unfunded party’s ability to recover costs must yield to the funded party’s right of access to the courts to litigate the dispute in the first place.

As was illustrated by the judgment of the Court of Appeal of England and Wales in Hamilton v Al Fayed, of which your Honours have a copy, particularly in the judgment of Lord Justice Simon Brown, particularly at paragraphs 45 on page 1195 and paragraph 48 on the top of page 1197 of that judgment, where his Lordship concluded:

So long as the law continues to allow impoverished parties to litigate without their having to provide security for their opponent’s costs, those sympathetic to their plight should not be discouraged from assisting them to secure representation.  Thus is access to justice promoted, and another benefit too-fewer litigants in person.

The proposition that a funder such as Mr Gasparin should be liable to pay costs fails to give weight to the key policy considerations that access to justice is a fundamental human right.

The Full Court dealt with this argument at application book page 69, or culminating application book page 69.  It noted the argument at 65, paragraph 55, then set out his Honour’s judgment and at page 69, paragraph 57, dismissed the argument with the somewhat breathtaking statement that:

although such matters may have been relevant, they could only have been of little weight . . . and the trial judge did not err in failing to take them into account.

In my submission, the concession that they were relevant or may have been relevant, cannot sit with the finding that the trial judge did not err in failing to take them into account.  In a case such as this, as the judgment of the English Court of Appeal shows, such considerations are not just relevant, but very, very powerful, and that is a fundamental error in the judgment and approach of the Full Court.

McHUGH J:   The problem you have to face to is the applicants were actively involved in funding and directing the litigation, were they not?

MR BRERETON:   Only in funding, in my submission.  So far as directing is concerned, the highest it ‑ ‑ ‑

McHUGH J:   Well, steps were not taken without their consent.

MR BRERETON:   That is so, your Honour.  Their concurrence to the incurring of costs was required.  In my submission, that does not affect the position that to make an order against them is no different to making an order against the wife’s father or the wife’s mother or the wife’s friend in any of this litigation.

Now, aside from that important issue, the present case involves two issues of principle pertaining to the dictum in Knight which is said to establish a principle for the exception to the rule that, prima facie, the court does not make costs orders against third parties.  That principle is stated in the judgment in Knight, which your Honours have, at page 193 at the very top of page 193.  It concludes with the words:

has an interest in the subject of the litigation.

Two issues in this case arise about that statement in Knight.  The first is the scope of what might be called the interest element of the test, that last phrase, and the second is whether there is or should be an additional causation component of the test.  As to the scope of the interest element, the interest of which their Honours spoke was or should have been limited to such an interest which made the non-party funder, in substance, the real party in the litigation so that the litigation was in substance being conducted for the benefit of the non-party, and not for the benefit of the nominal party.

A mere indirect or incidental interest in the outcome of the litigation such as in this case the expedition of the time at which a loan made by the wife would be recovered by her estate, which might permit an order against the wife’s estate more readily to be fulfilled, which might permit the funder to recover his advances sooner, should not be sufficient to expose a funder to a liability for costs under the Knight principle, at least if it can be said that in substance the litigation was still being conducted for the benefit of the nominal party.

In my submission, the test in Knight has to be read in the context of what went before it in the judgment of Justices Mason and Deane, and the consistent references to the real party to the litigation.  Starting at page 187 in that judgment at about point two to point three, their Honours deal with ejectment actions and say at about point three:

the making of an order for costs was put upon the basis that the order was made against “the real party to the suit”.

In the fourth last line on that page, another reference to the party –

who was the real party –

at page 188 in the citation from Ram Coomar Coondoo in the fifth and sixth lines:

The Courts have also ordered the real parties to pay the costs in actions of ejectment –

the very last line on that page –

could be exercised against persons who were considered to be the “real parties” to the litigation.

page 189 in the citation from Lord Denman at point five in the third line:

to avoid payment of costs, when he has, in fact, been the relator –

and at the top of page 190, fifth line –

was considered to be the “real party” -

page 191, third line -

to make an order for costs against the “real party” at the end of the trial of an action.

All of that illustrates what is summarised, in my submission, in the passage cited from Hearsey v Pechell at page 187, where Chief Justice Tindal had said:

“The real question is, whether this is the action of the Plaintiff, or substantially the action of Mr. Wood . . . But it is not clear to me that this is an action which the Plaintiff would not have brought without the instigation of Wood.”

So, in my submission, their Honour’s statement about the interest element must take its colour and has to be read in the context of those repeated references to “real party”.  When their Honours spoke of a party or a non‑party having an interest in litigation, they were intending to speak or ought to have intended to speak of a non-party who was in substance the real party whose litigation it really was.

McHUGH J:   Well, it is very difficult to accept that that is what their Honours meant.  They stated a general category of cases and they stated the indicia of that category, and they go beyond what they had earlier referred to as the discussion and the authorities.

MR BRERETON:   While there ‑ ‑ ‑

McHUGH J:   There is no point of principle in this case, Mr Brereton, is there?  It is simply the application of a principle which has now existed for 12 years over my dissent in that particular case, and it is a question of its application to the particular facts of this case.  As a matter of fact, your side lost.

MR BRERETON:   Putting aside the first question, the public policy issues, which in my submission are plainly a question of principle, there is a question of principle and the dual questions of principles, and that is the extent of what was meant, what was intended by the interest component of the test stated in Knight, because if it is not limited in the way in which I submit it is or ought to be limited, then that gives a very wide content indeed to the liability of the wife’s father, the wife’s family, anyone else who comes to her aid in matrimonial litigation ‑ ‑ ‑

McHUGH J:   Well, that may be so, but their Honours limited the third limb by specifying two other conditions:  that the party to the litigation must be an insolvent person or a man of straw, and that the funder must have taken an active part in the conduct of the litigation.

MR BRERETON:   Quite so, but that must be a commonplace in matrimonial litigation where one spouse has none of the assets in her name and where, typically, her parents might say “We will lend you the money, but you are not to spend any without consulting us first”.

McHUGH J:   Well, the principle has now been established for 12 years.  It has to be applied in a variety of cases, and it is a matter for the judges of the Family Law Court as to whether it applies to a particular case.  It does not mean that it is going to be automatically applied in every case of funding.  One would think it ordinarily would not.  This is a very exceptional case.

MR BRERETON:   The final aspect and the final question of principle is the causation element.  The rule in Knight should apply only in the event that the non‑party’s role caused the cost, recovery of which is sought against him to be incurred, and that involves showing that the litigation would not have continued and the costs not been incurred but for the intervention of the non‑party.  That is the law in England as Hamilton v Al Fayed, particularly at paragraphs 54 and 57 shows.  The Full Court rejected that proposition ‑ ‑ ‑

McHUGH J:   Yes, but even if causation must be established, the trial judge found that there was overwhelming evidence that the husband was a man of straw with no financial capacity to conduct the litigation and it was extensive litigation, which would not have been conducted in the way it was without your client’s intervention.

MR BRERETON:   It may not have been conducted to the extent that it was, but that is far from saying that there would not have been litigation, remembering, of course, that the husband was the respondent to proceedings initiated by the wife.

McHUGH J:   Well, I know, but there was a finding of fact, was there not, by the trial judge that although Miller Harris continued to take instructions from Mr Wilson, they could not be put into effect without the authorisation to incur the expenditure of Mr Gasparin.

MR BRERETON:   Quite so.  In my submission, that is not to say that were the funds not there, the husband, as a respondent to his wife’s and subsequently her estate’s application, would not still, without lawyers, have contested the proceedings which she brought and sought what means he could to bring Mrs Kelly into the proceedings.  But on the question of causation, in my submission, the Full Court rejected the proposition the respondents, in their submissions, apparently concede the argument that that rejection is untenable, but raise the issue which your Honour has just raised with me and contend that the point is moot.

In my submission, Justice Waddy’s finding that the proceedings would not have been conducted as they were without the funds, is not a complete answer to the proposition because it does not deal with the likelihood that there would have been, in any event, litigation even if

unrepresented, which would have then caused Mrs Kelly to incur costs.  Those are our submissions.

McHUGH J:   Thank you.  The Court need not hear you, Mr Armfield.

The Court is of the view that in this matter no question of principle is raised other than in respect of the causation question.  The case simply concerned the application of a principle, established now for 12 years, to the particular facts of the case.  The causation question to which Mr Brereton referred does raise a question of principle, but given the trial judge’s findings of fact in this case, it appears to us that the case is not one where the applicant has sufficient prospects of succeeding on the point, even if it seems likely he could establish that the English Court of Appeal decision in Hamilton v Al Fayed concerning causation does apply.

For those reasons, the application must be dismissed with costs.

AT 12.13 PM THE MATTER WAS CONCLUDED