Li & Ors v Bai & Ors (Ruling)
[2025] VCC 1665
•18 November 2025
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
GENERAL LIST
Case No. CI-23-05798
| TONG LI & ORS (according to the attached schedule) | Plaintiffs |
| v | |
| ZI CHUAN BAI & ORS (according to the attached schedule) | Defendants |
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JUDGE: | HER HONOUR JUDGE A RYAN | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | On the papers – written submissions filed 17, 20, and 24 October 2025 | |
DATE OF RULING: | 18 November 2025 | |
CASE MAY BE CITED AS: | Li & Ors v Bai & Ors (Ruling) | |
MEDIUM NEUTRAL CITATION: | [2025] VCC 1665 | |
RULING
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Subject:PRACTICE AND PROCEDURE – COSTS
Catchwords: Non-party costs order – third parties to the litigation filed an application seeking interlocutory relief over funds held in trust – application for relief subsequently withdrawn – whether costs orders should be made against directors of the third parties
Legislation Cited: County Court Act 1958; County Court Civil Procedure Rules2018; Evidence Act2008
Cases Cited:Kyne v Brandrick & Associates [2025] VSCA 17; MC Wholesaling Pty Ltd v Zheng (aka ‘Rocky’) [2024] VSCA 248; Knight v FP Special Assets Ltd (1992) 174 CLR 178; Gdanski v Palms Court Management Pty Ltd [2017] VSCA 348; JAB Nominees (Aust) Pty Ltd v Auswild [2020] VSC 731
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr H De Kock | Leo Legal Pty Ltd |
| For the First and Second Defendants | Mr J Petras | Herald Legal |
| For the Third to Fifth Defendants | Mr T Purdey | GFS Legal |
| For the Sunicorn Parties | Mr L M Stanistreet | SLF Lawyers |
HER HONOUR:
1This ruling deals with an application for costs orders against non-party directors of the so called “Sunicorn parties”.[1] The Sunicorn parties are not parties to this proceeding. They sought leave to intervene claiming equitable relief over funds held in a solicitors’ trust account.
2The plaintiffs and the first to fifth defendants seek an order for costs against the non-party directors of:
(a) the Sunicorn parties’ summons filed 26 March 2025; and
(b) the plainitffs’ and defendants’ summonses for security for costs filed 19 September 2025.
3The Sunicorn parties do not oppose an order they pay the plaintiffs’ and defendants’ costs of the Sunicorn summons and security for costs applications on a standard basis. They do, however, oppose the order sought that their directors pay the costs of these applications personally.
4.For the reasons that follow, I am not persuaded a non-party costs order should be made against the directors of the Sunicorn parties. I will order instead that the Sunicorn parties pay the plaintiffs’ and the defendants’ costs of the Sunicorn summons and the security for costs applications on the standard basis.
[1] The Sunicorn parties are defined in paragraph 10 of this ruling.
Background
4In order to understand the context in which the non-party costs order is sought, it is necessary to refer briefly to the parties and the background circumstances.
5The first plaintiff, Tong Li (“Lydia”[2]) is:
(a) a director of the third plaintiff, Defoe International Pty Ltd (ACN 606 340 630);
(b) previously, the sole director and shareholder of the fourth plaintiff, Sherbrook Property Pty Ltd (ACN 625 760 027);
(c) a director and shareholder of the fifth plaintiff, HC Sherbrook Management Pty Ltd (ACN 631 689 300); and
(d) married to the second plaintiff, Qiang Ma (“Ma”).
[2]The parties have referred to the various parties by their first names in the submissions filed – for ease of reference the court will do the same.
6The second plaintiff is:
(a) a director of the third plaintiff; and
(b) the sole director and shareholder of the fourth plaintiff.
7The fifth plaintiff was incorporated by the first defendant, Zi Chuan Bai (“Charles”) and has a share capital of 100 ordinary shares held by:
(a) the first plaintiff as to 50 shares;
(b) the second defendant, Bigbai Pty Ltd (ACN 620 097 850) as to 25 shares
(c) the fourth defendant, Yaozhi Zhang Pty Ltd (ACN 613 024 203) as to 25 shares.
8The first defendant is the sole director of Bigbai and until about 23 June 2020, was a director of the fifth plaintiff.
9The third defendant, Ran Zhang (“Tina”) is the sole director and shareholder of the fourth defendant and the fifth defendant, Tina Zhang Pty Ltd (ACN 622 350 378).
10The following third parties are collectively referred to as the “Sunicorn parties”:
(a) Sunicorn Pty Ltd (ACN 605 438 033) ATF Sunicorn Trust;
(b) K.S.J.D Investments Pty Ltd (ACN 120 189 022) ATF S.K.J.D Family Trust; and
(c) H.S.SU Pty Ltd (ACN 625 822 111) ATF H.S.SU Family Trust.
11The following individuals are directors of the Sunicorn parties (“the directors”):
(a) Wee Lin Ng (“Steven”), director of Sunicorn Pty Ltd;
(b) Jack Jian Huan Dong (“Jack”), director of K.S.J.D Investments Pty Ltd; and
(c) Haosen Su (“Sam”), director of H.S.SU Pty Ltd.
12On 3 March 2018, the first and second plaintiffs, and the first and third defendants, agreed to make an offer on two adjacent properties located at 30 and 32 Sherbrook Avenue, Ringwood (“Sherbrook properties”), for the purpose of development.
13On 5 March 2018, the second plaintiff and first defendant signed a contract of sale for the Sherbrook properties.
14In January 2019, the second defendant and fourth defendant entered into “entrusted shareholder agreements” (“ESAs”) with each of the Sunicorn parties. The ESAs provided that in consideration for each of the Sunicorn parties paying 10 per cent of the costs and expenses of the Sherbrook properties, they would beneficially own a 10 per cent interest in the properties. The plaintiffs allege the ESAs were entered into without their knowledge. Pursuant to the ESAs, the Sunicorn parties paid a total of $971,550.
15On 17 March 2022, the Sherbrook Properties were sold. Settlement occurred on 15 December 2022. An amount of $462,907.21 from the sale was held in trust by Blue K Lawyers on behalf of the fifth plaintiff (“the trust funds”).
16The Sunicorn parties issued proceedings in the County Court of Victoria (No. CI-21-04799) against the first to fourth defendants (“Sunicorn proceedings”).
17The trial of the Sunicorn proceedings commenced on 12 September 2023. The Sunicorn parties made six claims described as joint venture agreement, fraudulent misrepresentation, misleading and deceptive conduct, uncertainty, money had and received, constructive and/or resulting trust.
18On the first day of trial, the plaintiffs abandoned the fraudulent misrepresentation, money had and received and trust claims. A claim for moneys due under the ESAs was subsequently introduced, which debt was admitted by the second and fourth defendants. The remaining claims failed. The Sunicorn parties were ordered to pay the costs of the Sunicorn proceedings.
19The plaintiffs filed a writ in this proceeding on 23 October 2023.
20This matter was listed for trial on 17 March 2025. After opening submissions, the court made orders directing the parties to attend mediation.
21On 18 March 2025, the plaintiffs submitted minutes of proposed consent orders to the court to give effect to the settlement reached at mediation. The minutes contained an order that the trust funds be paid to the third and fifth plaintiffs, and second and fifth defendants, in the amounts identified.
22On 26 March 2025, the Sunicorn parties filed a summons (“Sunicorn summons”) seeking to be joined to the proceeding and claiming relief against the other parties, including an equitable entitlement to the trust funds.
23On 11 April 2025, the Sunicorn parties were placed into voluntary administration. On 14 April 2025, Mr Manuel Hanna of Romanis Cant was appointed administrator of each of the Sunicorn parties. His report dated 19 May 2025 stated that the Sunicorn parties became insolvent on 10 April 2025. The reason was due to a costs order in the sum of $213,710 being made against each company in favour of Tina, upon which statutory demands were served on 20 March 2025. The 21 day statutory period to pay concluded on 10 April 2025.
24On 3 June 2025, the Sunicorn parties entered into a deed of company arrangement, which ended the voluntary administration. Control of the Sunicorn parties returned to their directors, including any rights in the Sunicorn summons. On 13 June 2025, the lawyers for the Sunicorn parties informed the court and the parties that the Sunicorn parties wished to proceed with their summons.
25On 19 September 2025, the plaintiffs and defendants filed applications for security for costs against the Sunicorn parties.
26On 9 October 2025, the Sunicorn parties sent an email to the court and the parties advising they wished to withdraw the Sunicorn summons. The basis stated for the withdrawal was that “the Sunicorn Parties are unable to satisfy the amounts claimed by the other parties for security for costs and that they do not have capacity to fund the matter to the hearing of the Summons.”
27On 13 October 2025, the court made orders:
(a) giving effect to the minutes of proposed consent orders submitted 18 March 2025;
(b) giving the Sunicorn parties leave to withdraw the Sunicorn summons;
(c) dismissing the plaintiffs’ and defendants’ applications for security for costs;
(d) giving leave to the plaintiffs, defendants, and Sunicorn parties to file submissions on costs.
28Extensive written submissions were provided as follows:
(a) the plaintiffs’ submissions on costs dated 17 October 2025;
(b) costs submissions of the third to fifth defendant dated 17 October 2025, together with a further affidavit of the third defendant dated 17 October 2025;
(c) costs submissions of the first and second defendants dated 20 October 2025; and
(d) the Sunicorn parties’ submissions on costs dated 24 October 2025.
Legal principles
29The ability of the court to make a non-party costs order is not in dispute. Section 78A of the County Court Act 1958 provides that the costs of and incidental to all proceedings are in the discretion of the court and the court may determine by whom and to what extent the costs are to be paid.
30The parties referred to a number of cases relating to non-party costs orders, the most recent being a decision of the Court of Appeal in Kyne v Brandrick & Associates (“Kyne”).[3] In that case, the Court confirmed that costs orders against a non-party are “exceptional” or “extraordinary”.[4]
[3] [2025] VSCA 17 (“Kyne”)
[4]Kyne, [35], citing MC Wholesaling Pty Ltd v Zheng [2024] VSCA 248 (“MC Wholesaling”), [90] (per Macaulay J)
31The Court set out the following passage from the judgment of Mason CJ and Deane J in Knight v FP Special Assets Ltd,[5] which identified a well-established category of case where a court has discretion to make a non-party costs order:
For our part, we consider it appropriate to recognise a general category of case in which an order for costs should be made against a non-party and which would encompass the case of a receiver of a company who is not a party to the litigation. That category of case consists of circumstances where the party to the litigation is an insolvent person or man of straw, where the non-party has played an active role in the conduct of the litigation and where the non-party, or some person on whose behalf he or she is acting or by whom he or she has been appointed, has an interest in the subject of the litigation. Where the circumstances of a case fall within that category, an order for costs should be made against the non-party if the interests of justice require that it be made.[6]
[5](1992) 174 CLR 178
[6] Kyne, [36], quoting Knight 192-3
32The Court outlined the following additional legal principles (citations omitted):[7]
[7] Ibid, [35]-[41]
37. In Knight, Dawson J also stated:
The cases therefore establish a long-asserted jurisdiction to award costs in appropriate cases against a person who is not a party to the proceedings where that person is the effective litigant standing behind an actual party or where there has been a contempt or abuse of the process of the court.[8]
[8]Ibid, [37]
38. In Gdanski v Palms Court Management Pty Ltd,[9] this Court described the informing principle which enlivens the “Knight discretion” as follows:
… if a party to litigation is liable to pay the costs of the successful party but is unable because of insolvency to do so, justice may require the costs to be paid by a non-party if it can be shown that the non-party played an active part in conducting the litigation and stood to benefit from a successful outcome. … .[10]
39. The Court [in Gdanski] also stated:
Decisions since Knight have drawn on the language used in the joint judgment, as well as that of Dawson J, to describe the twin requirements that the non-party have an active role in the litigation and an interest in its subject matter as a single requirement that the non-party be ‘a real party’ to the litigation in ‘critical’ and ‘important’ respects. This formulation was approved by the Full Court of the Federal Court in Keboro Pty Ltd v Saunders, in passages cited with approval by this Court in Ipex ITG Pty Ltd (in liq) v Victoria. It may therefore be convenient to describe the threshold issue as being whether the non-party is ‘a real party’ to the litigation. Whether or not that language is apt to describe every situation in which the Knight discretion is attracted need not be explored in this case, as the parties accepted the formulation for the purposes of the present appeal.[11]
(Footnotes omitted.)
[9][2017] VSCA 348 (“Gdanski”)
[10]Ibid, [66]
[11]Ibid, [69]
40. The Court therefore considered that, unless the non-party could be properly characterised as a “real party”, no question of the interests of justice — or of exceptional circumstances — arises. In other words, there is in effect a threshold requirement that the non-party be a “real party” to the litigation.
41. Ultimately, the Court held that the material did not establish that Mr Gdanski’s role in conducting the litigation extended beyond what would be expected of him as a director. Although he acted as the solicitor for the company, and also lent money to it through another company he controlled, the court found that he did not play an active part in his personal capacity, nor did he have any personal interest. It followed that the Knight discretion was not enlivened.
33The Court of Appeal in Kyne concluded the approach adopted in Gdanski was correct, being that “there is in effect a threshold requirement for the Knight discretion to be enlivened, namely, that the non-party be a ‘real party’”.[12] Additionally, the insolvency of the company was a necessary but insufficient basis for enlivening the Knight discretion.[13]
[12] Kyne, [42]
[13] Ibid, [78]
34In MC Wholesaling Pty Ltd and Anor v Che & Ors (No 5) (“MC Wholesaling”),[14] Delany J summarised the following factors that may be relevant to the exercise of the court’s discretion:
[14][2023] VSC 267, [127-130]. His Honour’s decision was upheld by the VSCA in MC Wholesaling Pty Ltd v Zheng [2024] VSCA 248, [87]-[90].
(a) the extent to which the non-party has funded the litigation;
(b) the extent to which the non-party has a real interest in the fruits of the litigation if the assisted party were successful;
(c) the level of control the non-party exercised or was entitled to exercise over the conduct of litigation, including its resolution;
(d) whether or not the non-party attended any mediation of the dispute;
(e) the financial position of the assisted party;
(f) whether the conduct of the litigation by the assisted party or if applicable, the funding non-party in either prosecuting or defending the claim was unreasonable, improper or an abuse of process;
(g) where security of costs was previously sought;
(h) whether a timely warning was given by the successful party to the non-party the costs would be sought against it;
(i) the extent of the impact on the court of the involvement of the non-party; and
(j) whether the non-party agreed to provide an indemnity to the assisted party for any adverse costs order.
35Delany J in MC Wholesaling also referred to a decision of Riordan J in JAB Nominees (Aust) Pty Ltd v Auswild.[15] His Honour had noted that something more than the typical conduct of a company director acting in accordance with their duties is required to enliven the discretion to order that costs be paid by the non-party director of a corporate litigant. The discretion may be enlivened if the director gave instructions to pursue a claim with no real prospects of success or caused the institution of a proceeding based on fraud without reasonable grounds, or continued such proceeding on a “stubbornly or totally unreasonably” held belief.
[15][2020] VSC 731 (“JAB Nominees”), [273]
Plaintiffs’ submissions
36The plaintiffs argue the non-party costs jurisdiction is enlivened in this case as it falls within the recognised category identified in Knight because:
(a) the Sunicorn parties are insolvent. They are impecunious litigants and were so prior to the issue of the Sunicorn summons;
(b) the directors have played an active part in the litigation. All three have sworn affidavits on behalf of the Sunicorn parties. Mr Ng (Steven) asserted that the Sunicorn parties’ position is that they have an interest in the trust funds;
(c) all three directors have an interest in the respective entities of which they are directors. Each of the Sunicorn parties acts as a trustee of the family trust, although in the case of Sunicorn Pty Ltd, the trust was never successfully established. Win Ng (Steven) and Jack Dong (Jack) are listed in the proposal for the deed of company arrangement as related creditors to the Sunicorn parties. Therefore, they have a direct interest in the outcome of the Sunicorn summons.
37Relying upon the factors outlined in MC Wholesaling, the following additional matters support the making of a non-party costs order:
(a) the Sunicorn parties did not have the financial means to fund the litigation. Therefore, the funding must have come from external sources – the most likely source would be the directors. The directors provided funds for placing the Sunicorn parties in administration;
(b) the directors have a high level of control over and extensive involvement in the conduct of the litigation;
(c) the directors gave instructions to pursue a claim that had no real prospects of success and continued this proceeding on a “stubbornly or totally unreasonably” held belief. The statement made by Mr Ng (Steven) as to his belief the Sunicorn parties have an interest in the funds held in the lawyers trust account is not a reasonably held belief. The Sunicorn parties have been put on notice by the plaintiffs’ solicitors in a letter dated 27 March 2025 that their summons was seeking to litigate the claims that had already been abandoned or adjudicated on by the court and they had no reasonable prospect of success. Despite this, the directors continued on and sought to prosecute the claim for over six months. This resulted in the plaintiffs having to incur costs to prepare affidavits in opposition to the Sunicorn summons and to prepare their application for security for costs. Pursuing a claim that was previously abandoned in the Sunicorn proceeding is an abuse of process.
(d) from the outset, the plaintiffs put the Sunicorn parties on notice they would be seeking security for costs.
38The Sunicorn parties said they would not proceed for the reasons set out in an email to the court dated 9 October 2025. The plaintiffs say this email lacks candour as the reason for withdrawing was the lack of funds to prosecute the summons. However, there was no change in the financial circumstances of those parties between 26 March and 9 October 2025. From the reports of the administrator, it was clear that the Sunicorn parties were insolvent prior to the filing of the Sunicorn summons. The directors must have known the Sunicorn parties lacked funds but decided to press on and then changed their minds. In such circumstances, they should be personally answerable for the plaintiffs’ wasted costs.
First and second defendants’ submissions
39The first and second defendants adopt the submissions made by the plaintiffs and the third to fifth defendants. They refer to an email their solicitors sent to the Sunicorn parties dated 28 March 2025, in which they said the application was an abuse of process and costs would be sought on an indemnity basis. The email also foreshadowed the first and second defendants’ intention to make an application for security for costs against the Sunicorn parties. Despite this, the Sunicorn parties persisted. The discontinuance of their summons can only be described as a capitulation.
40As to the liability of the directors, the Sunicorn parties must have known they were insolvent at the time they brought their summons. While it would be inappropriate to consider the merits of the Sunicorn summons, the court can refer to the material before it in assessing whether the conduct of the directors is unreasonable, improper or an abuse of process.
41In similar vein to the other parties, these defendants rely upon the following factors:
(a) the Sunicorn parties commenced its summons knowing that each of them was insolvent;
(b) there had been a conscious and deliberate removal of the allegations of implied, resulting or constructive trust in the earlier Sunicorn proceeding;
(c) each of the directors have funded the Sunicorn parties’ administration;
(d) there was a lack of any explanation as to why no action was taken until 27 March 2025, despite the Sunicorn parties knowing of the existence of this proceeding from 28 May 2024 at the latest;
(e) there was a lack of any explanation at all by the Sunicorn parties as to why they failed to press the trust claims in the Sunicorn proceeding.
Third to Fifth Defendants’ submissions
42The third to fifth defendants say there is no question that the Sunicorn parties are insolvent or persons of straw. The administrator said that each of them were insolvent when he was appointed administrator in April 2025. When the companies were returned to their directors in June 2025, the related creditors’ debts remained undischarged and intact. Further, the email to the court dated 9 October 2025 made it clear the companies were insolvent. There was no funding available for them to pay any security for costs that may have been ordered or to fund the ongoing conduct of the litigation.
43The next question identified is whether either Steven, Jack and/or Sam is “a real party” to the litigation as discussed by the Court of Appeal in Kyne.
44All of them were active in the conduct of the litigation. Sam was seeking to engage with Tina before the letter of demand was sent and the summons was issued. He was also present at the trial of the proceeding. Steven made the affidavit in support of the summons and was the proponent of the deed of company arrangement, which for three non-trading companies was chiefly concerned with proceeding with the summons. It is submitted that the process of placing the Sunicorn parties into administration and proposing a deed of company arrangement should be properly seen as part of the litigation. The reason being the only asset of the companies was the judgment debt obtained in the Sunicorn proceeding and its recovery was the only business each company was conducting. The summons claimed beneficial ownership of the money in trust which was essential to that recovery process. The effect of that process has led to the Sunicorn parties extinguishing Tina’s judgment debt. It was said that they control the conduct of the litigation on behalf of the Sunicorn parties.
45Each of the directors had a clear interest in the litigation. As Sam said to Tina on 26 February 2025, “in 2019 Jack, Janni, Steven and I collectively invested over $970,000. Six years have passed and not a single dollar has been recovered”.[16] The summons was claiming beneficial ownership of the moneys held in trust. The administrator’s report showed that Steven and Jack were creditors of Sunicorn Pty Ltd and K.G.S.D Investments Pty Ltd, respectively. Sam did not appear as a creditor of H.S.SU Pty Ltd, but he is its major shareholder, and his words and actions were indicative of someone with an interest in the outcome of the litigation. The administrator’s reports also showed the directors had procured $15,000 for each of the three companies at the start of the administration and that Steven was responsible for paying the remaining $45,000 under the terms of the deed of company arrangement. This is also evidence that supports a finding that Steven, Jack and Sam had an interest in the litigation. Given the history of the matter, it was submitted that each of Steven, Jack and Sam is a real party and as such the Knight discretion is enlivened.
[16]Tina affidavit 3 at paragraph [4]
46It was obvious the Sunicorn summons was bound to fail because of the abandonment at the trial of the Sunicorn proceeding of the claims based on constructive or resulting trust, or any equitable claim at all in respect of the net proceeds of sale of the Sherbrook properties. A decision was made to remove these claims from their pleadings and replace it with a claim for moneys due under the ESAs, which claim was admitted. They obtained money judgments as a result.
47Any rights had merged in the judgment and res judicata applies to the claims which the Sunicorn parties made in their summons. In addition, Anshun estoppel clearly applies, such that the claims under the summons were an abuse of process. This was pointed out to the Sunicorn parties on the issue of the summons and again on appointment of the administrator.[17] Despite this, the Sunicorn parties pressed for a further six months, causing the plaintiffs and the defendants to incur substantial costs and suffer the delay of final orders being made.
[17]Tina affidavit 1 at paragraphs [25]-[27]
48Further, the Sunicorn parties knew they did not have funds when they issued the summons in March 2025. This is demonstrated by Sam’s messages to Tina in late February 2025 and the subsequent appointment of the administrator in April 2025. Tina had served her statutory demand on 20 March 2025.
Sunicorn parties’ submissions
49The Sunicorn parties argue that a matter which militates heavily against non-party costs orders being made against the directors is the lack of expedition by the plaintiffs or defendants in bringing a security for costs application against the Sunicorn parties. If the parties did have genuine concerns about the latter’s solvency, they could have brought an application for security for costs more promptly. Absent compliance with an order that security be provided, the Sunicorn summons would have been stayed. The fact that the other parties delayed until September 2025 in making the application ought to weigh heavily in an exercise of a discretion in relation to non-party costs.
50The Sunicorn parties’ directors are not “real parties” in the Knight sense. The fact that the directors provided affidavits is of no effect. Steven affirmed an affidavit in respect to the Sunicorn summons. He is the sole director of that company. It was done so in compliance with the self-executing order made by the court. It is irrelevant that Sam had attended the trial of this proceeding and there was no evidence that he did so, other than in his capacity as a passive observer.
51The allegation that the directors funded the litigation does not rise above mere assertion. The relevant litigation is the Sunicorn summons in this proceeding – not the Sunicorn proceeding, nor the administration process. There is no evidentiary basis to support a finding that the directors funded this litigation. In fact, the administrator noted that Angela Dong and Martin Yu submitted proofs of debt in relation to the fees paid by them on behalf of the Sunicorn parties.[18]
[18]Affidavit of Chun Lau dated 19 September 2025, page 135 of CL-1
52The plaintiffs seek to breach the obvious lacuna in their arguments by pointing to various payments made by the directors in respect to the administration process, asserting that “this should properly be seen as part of the litigation”. That submission ought to be rejected. The primary asset of each of the Sunicorn parties was the judgment debt of $296,481 owed to each of them in the Sunicorn proceeding. The administrator noted that a demand had been made for payment of the judgment debt owed by Bigbai and YZ in the Sunicorn proceeding. In the administrator’s opinion, the Sunicorn parties were not insolvent before 10 April 2025 (being the expiry of the 21-day period following the service of the statutory demands by Tina for payment of her taxed costs). In the circumstances, there was no vice in the directors acting consistently with their duties and availing themselves of the administration procedure in response to the predicament created by the statutory demands. The court should not impermissibly conflate the administration, including its funding, with this litigation.
53The argument that the directors had an interest in the litigation (in a Knight sense) should also be rejected. As observed in Gdanski, an interest as a creditor is of little moment.
54It is incorrect to say that by the email of 9 October 2025, the Sunicorn parties admitted they were impecunious or insolvent and their financial position had not changed between 26 March and 9 October 2025. The email of 9 October 2025 simply stated that the Sunicorn parties were unable to satisfy the total security for a costs amount and fund the matter to the hearing of the summons. In those circumstances, the Sunicorn parties made a commercial decision to withdraw the Sunicorn summons.
55The parties also contend that the Sunicorn parties are insolvent by reference to the administrator’s report dated April 2025. The Sunicorn parties note the report states the Sunicorn parties had an excess of assets over liabilities. As a result, all relevant debts owing at the time of the administration were extinguished. Each of the Sunicorn holds a judgment in their favour in the sum of $296,481 in the Sunicorn proceeding. On any objective measure following the deed of company arrangement, the Sunicorn parties are in a superior financial position than when they entered voluntary administration.
56The court should not attempt to engage in an assessment of the merits of the Sunicorn parties’ claims for the purpose of establishing whether the case falls into any of the territory identified by Riordan J in JAB Nominees. The parties were due to file written submissions but this was overtaken by the withdrawal of the summons. However, it suffices to raise two points in opposition to the parties’ contentions on this issue. The first is that res judicata only applies to the parties to the original litigation. Of the ten parties to this proceeding, only Tina, Charles Bigbai and Yaozhi were also parties to the Sunicorn proceeding. While the Sunicorn parties are parties to this proceeding for the purposes of r68A.01(1), they are not parties in a formal sense. Secondly, any application of Anshun is a vexed question in circumstances where parties made admissions in the Sunicorn proceeding in relation to the Sunicorn parties’ entitlement to the proceeds. Reference was then made to excerpts in transcript before her Honour Judge Marks. These statements are admissions and were made with authority for the purposes of s87 of the Evidence Act 2008 (Vic).
Analysis
57The starting point to bear in mind is that the making of a non-party costs order is exceptional or extraordinary. Whilst various categories have been identified as justifying the making of such an order, each case must turn on its own facts.
58The moving parties rely upon the recognised category identified in Knight, being where the party to the litigation is insolvent, the non-party has played an active role in the conduct of the litigation or has an interest in the subject of the litigation.
59As recognised in Kyne, there is a threshold requirement before the discretion can be enlivened, namely, that the non-party must be a “real party”.
Are the directors real parties?
60The plaintiffs and defendants argue the directors are real parties to the litigation since they were all active in the conduct of the litigation. Specifically, they were present at the trial and swore affidavits. The Sunicorn parties funded both the litigation and the administration. Indeed, entering into administration and proposing a deed of company arrangement itself formed part of the litigation. They also point to the fact that the directors are major shareholders and creditors of the Sunicorn parties and hence have a direct interest in the outcome of the Sunicorn summons.
61The Sunicorn parties say the directors are not real parties to the proceeding. Their involvement in the proceeding was limited to the ordinary and proper discharge of their duties as directors. It is necessary therefore to consider the role of the individual directors against whom the costs order is sought to determine whether they are a “real” party.
62The evidence shows that Steven swore an affidavit in order to comply with an earlier court order giving leave to Sunicorn to bring its application. Steven and Jack are creditors of Sunicorn Pty Ltd and K.S.J.D Investments Pty Ltd, respectively. Sam did not appear as a creditor of H.S. SU Pty Ltd but he is its major shareholder. Sam attended at the trial held in March 2025 and engaged with Tina by email beforehand in relation to the claim over the trust funds. It can be readily inferred that all three directors were giving instructions in their capacity as directors.
63As observed in Gdanski,
a company is an artificial legal entity which must, of necessity, conduct its commercial activities through natural persons, who represent it in commercial dealings and make decisions on its behalf. Likewise, when it engages in litigation, the company must do so through natural persons, who act as its legal representatives.[19]
[19] Gdanski, [72]
64In Kyne, the Court held that there was nothing unremarkable about a sole director or shareholder making decisions which impacted the parties, or funding the litigation.[20]
[20] Ibid, [69]
65It is therefore not surprising that the directors would swear affidavits and attend the trial. The directors’ conduct, in the circumstances, is consistent with the conduct of a director complying with their duties, rather than indicative of the directors being “real parties” to the litigation. I am not persuaded the directors’ role went beyond that of a director merely directing litigation on behalf of a company.
66Funding litigation is not of itself sufficient as noted by the Court in Kyne as “[t]here is also nothing unusual nor necessarily inappropriate in a director lending money to a company, particularly so as to enable that company to defray a liability reasonably incurred”.[21]
[21] Ibid, [72]
67There is a dispute on whether the Sunicorn directors are funding this litigation in contrast to the company administration. They did provide funds for the administration and procured $15,000 for each of the three companies at the start of the administration and Steven was responsible for paying the remaining $45,000 under the terms of the deed of company arrangement, according to the administrator’s reports. There is no direct evidence that the directors are funding this litigation. The defendants simply assert that they must be doing so. There are external creditors of the Sunicorn parties as disclosed in the administrator’s report who have provided funds. Consequently, there is a lack of direct proof that the directors are funding the prosecution of the Sunicorn summons. But even if they were, this alone would not be a persuasive reason to order non-party costs against them.[22]
[22] Cf Kyne, [72]
68The other issue to consider is whether the directors had an interest in the litigation. All three are shareholders of the Sunicorn parties. If their application had succeeded, then each of the three companies potentially stood to gain some portion of the trust funds. Steven and Jack are creditors of their respective companies. However, merely standing to gain some indirect benefit as a shareholder or creditor is not enough to enliven the discretion, as was noted in Kyne.[23]
[23] Ibid, [77]
69Although the facts are different, in Kyne the Court also commented on the fact that the company’s financial circumstances were such that it was appropriate for the applicant to make decisions to reduce the company’s liability. Similarly, here, voluntary administration may have been an appropriate course for the directors to take if the Sunicorn parties’ liabilities exceeded their assets.
Are the Sunicorn parties insolvent?
70There is a dispute on the evidence as to whether the Sunicorn parties are in fact insolvent. The administrator noted they became insolvent on 10 April 2025 after failing to comply with a statutory demand for payment of costs. The relevant demand was served on 20 March 2025. The Sunicorn summons was filed on 26 March 2025 so by that time, the directors were aware of the statutory demand and the likely consequences of non-compliance.
71So whilst arguably not insolvent at the time of issuing the Sunicorn summons, there is no question that these parties have been insolvent since 10 April 2025 and yet continued to pursue the Sunicorn summons. The Sunicorn parties say the administrator’s report records that they have assets in excess of liabilities but that alone does not resolve the issue of insolvency. The administrator has stated they are insolvent. There is nothing to indicate that position has since changed. The fact that the Sunicorn parties remain in difficult financial circumstances is confirmed by the email sent to the court and the parties on 9 October 2025, in which they chose to withdraw their summons due to an inability to meet any orders for security and to fund the costs of this litigation. Had it been necessary to do so, I would have been satisfied the Sunicorn parties were insolvent and therefore, that element of the recognised Knight category was made out. In any event, as noted by the Court of Appeal in MC Wholesaling, the discretion can still be exercised even if a party is not technically insolvent.[24] There might be good reasons why a court might consider that a successful party has no realistic expectation of recovering costs, even if the corporate party is technically solvent. Given the materials filed, I would be satisfied that the moving parties had no realistic expectation of recovering their costs from the Sunicorn parties.
[24] [2024] VSCA 248, [97]
Delay in bringing applications for security for costs
72Another discretionary factor to take into account is whether an applicant could have made an application for security for costs at an earlier stage. In this case, the plaintiffs and defendants applied for security for costs in September 2025.
73The Sunicorn parties contend the lack of expedition in the plaintiffs and defendants applying for security for costs is a reason to refuse the non-party costs order. The plaintiffs and defendants knew as early as late February 2025 that the Sunicorn parties may not have had sufficient means to meet a costs order. They refer to McHugh J’s dissent in Knight, as well as the majority who observed:
The availability of an order for security for costs at an earlier stage of the litigation would, in many situations, be a strong argument for refusing to exercise a discretion to order costs against a non-party, but discretion must be distinguished from jurisdiction.[25]
[25] Knight 191, [28]
74The Sunicorn parties’ submissions on security for costs are not compelling, given the delay in the security for costs applications was largely a consequence of the Sunicorn parties’ administration. The court initially gave leave to the plaintiffs to apply for security for costs by 6 May 2025. The plaintiffs informed the court on 30 April 2025 that the Sunicorn parties were placed into administration on 11 April 2025. On 6 May 2025, the court ordered that the Sunicorn summons could not proceed, having regard to section 440D of the Corporations Act 2001 (Cth). A new timetable for the security for costs applications was only ordered by the Court on 28 August 2025, after the administrator reported to the Sunicorn parties’ creditors and a directions hearing was held. The plaintiffs and defendants complied with the orders of 28 August 2025 and filed security for costs applications in September 2025. Therefore, I am not persuaded there was any undue delay on their part which would preclude an order for non-party costs being made, assuming the other criteria for doing so had been met.
75In any event, as noted by the majority in Knight,[26] the timing of an application for security for costs is not necessarily determinative. The inability of the plaintiffs and defendants to satisfy the requirement that the directors be “real parties” to the litigation outweighs any submissions on the effect of any delay in issuing the security for costs applications.
Lack of merit of Sunicorn summons
[26] Ibid
76The plaintiffs and defendants say the court should also take into account the fact that the Sunicorn summons had no real prospects of success, particularly, given the Sunicorn parties abandoned their equitable claims in the Sunicorn proceedings. The plaintiffs cite Riordan J in JAB Nominees (Aust) Pty Ltd v Auswild, who stated that the Knight discretion may be enlivened if the director gave instructions to pursue a claim with no real prospects of success or caused the institution of a proceeding based on fraud without reasonable grounds, or continued such a proceeding on a ‘stubbornly or totally unreasonably’ held belief.[27]
[27] JAB Nominees (Aust) Pty Ltd v Auswild [2020] VSC 731, [273]
77The moving parties argue that issuing and pursuing the Sunicorn summons was an abuse of process. This lack of merit argument turns on the assumption that it is impermissible for the Sunicorn parties to make a claim over the trust funds in circumstances where they abandoned their claims based on trust claims in the earlier Sunicorn proceeding. The issues of res judicata and/or Anshun estoppel would prevent them from doing so. These issues might ultimately have succeeded as a defence if the Sunicorn summons had been determined by the court. But is not possible at this stage to make a positive finding that by issuing and continuing on with the Sunicorn summons, the Sunicorn parties’ actions amount to an abuse of process.
78The Sunicorn parties had leave to file and serve written submissions in support of the Sunicorn summons by 3 October 2025, and the plaintiffs and defendants in reply by 24 October 2025. The hearing of the Sunicorn summons had not yet been listed for hearing, pending the resolution of the security for costs applications. In this context, it is difficult to assess the merits of the Sunicorn summons.
79For the reasons articulated by the Sunicorn parties in their submissions, the application of the issues of res judicata and Anshun estoppel to the facts of this case is not free from doubt. The mere fact that the other parties wrote letters to the Sunicorn parties stating the claim was hopeless is not the end of the matter. It maybe that the Sunicorn parties’ claim over the trust funds was weak but that alone is insufficient to find that by pursuing it, the directors acted improperly or totally unreasonably so as to sanction the making of a personal costs order against them.
80The end result is that the application fails at the first hurdle as I am not satisfied the Sunicorn directors were “real parties”, having regard to the applicable principles. Therefore, the threshold requirement identified in Kyne was not met. Nor was I persuaded that a non-party costs order should be made because the directors acted improperly or unreasonably in issuing and pursuing the Sunicorn summons. It was not demonstrated on the materials filed that their actions in doing so amounted to an abuse of process.
Conclusion
81The application for non-party costs orders against the directors of the Sunicorn parties is refused.
82I will make the usual order for costs of the summonses in the terms agreed to by the Sunicorn parties.
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Certificate
I certify that these 23 pages are a true copy of the Reasons for Ruling of Her Honour Judge A Ryan delivered on 18 November 2025.
Dated: 18 November 2025
Associate to Her Honour Judge A Ryan
SCHEDULE OF PARTIES
BETWEEN
| Tong Li; also known as Lydia | First Plaintiff |
| Qiang Ma Defoe International Pty Ltd (ACN 606 340 630) Sherbrook Property Pty Ltd (ACN 625 760 027) HC Sherbrook Management Pty Ltd (ACN 631 689 300) | Second Plaintiff Third Plaintiff Fourth Plaintiff Fifth Plaintiff |
| and | |
| Zi Chaun Bai; also known as Charles | First Defendant |
| Bigbai Pty Ltd (ACN 620 097 850) Ran Zhang; also known as Tina Yaozhi Zhang Pty Ltd (ACN 613 024 203) | Second Defendant Third Defendant Fourth Defendant |
| Tina Zhang Pty Ltd (ACN 622 350 278) | Fifth Defendant |
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