Paper Mache Tiger Limited v Lee Mathews Workroom Pty Ltd (in Liquidation)

A non-party costs order under section 51 of the Senior Courts Act 1981 is exceptional and depends on whether it is just in all the circumstances. Control or funding of litigation are relevant indicators, but they are not a checklist. The central question is whether the non-party obtained, or sought, a personal benefit and was the real party to the litigation.

Where litigation was conducted for the benefit of an insolvent company, serious impropriety or bad faith may justify an order. Such conduct must ordinarily be causatively linked to costs unnecessarily incurred. Knowledge that a company is financially precarious, or that its assets have been transferred, does not by itself justify an order. The application was dismissed.

Paper Mache Tiger Ltd obtained judgment against Lee Mathews Workroom Pty Ltd under an agency agreement. The defendant later entered liquidation and could not satisfy the judgment or associated costs.

The claimant applied under section 51 of the Senior Courts Act 1981 for a non-party costs order against Ms Lee Mathews, the defendant’s sole director and shareholder. It alleged that she was the real party to the litigation and had caused serious misconduct by restructuring the business, giving misleading information about insolvency, delaying engagement and maintaining an inadequate defence.

The central issues were whether Ms Mathews personally benefited from the litigation and whether the conduct relied upon made it just to impose liability for the claimant’s costs.

1. Application dismissed. The court was not satisfied that justice required a non-party costs order against Ms Mathews.
2. The governing principles were those summarised in Goknur v Aytacli. An order is exceptional. The touchstone is whether the non-party was the real party to the litigation. Control and funding are relevant, but remain indicia rather than mandatory checklist items. If proceedings were pursued for the company’s benefit, some further factor, commonly serious impropriety or bad faith causatively linked to unnecessary costs, is ordinarily required.
3. Ms Mathews controlled the defendant and was probably funding the litigation indirectly through LMA. Those matters did not establish that she was the real party. The evidence showed that the litigation concerned the defendant’s liability under the agency regulations and was conducted for the defendant’s benefit. A settlement would have been legally and factually a settlement by the defendant.
4. The transfer of assets to LMA did not make Ms Mathews the real party. Any challenge to the transfer was a matter for the Australian liquidators. The transfer occurred before proceedings began, and any benefit from it did not show that the subsequent litigation was pursued for Ms Mathews’ personal benefit.
5. The alleged misconduct was not established at the required level. Descriptions of the defendant as a small company with effectively no assets were not materially misleading. The communications about insolvency substantially reflected a proposed orderly winding-up. The failure to explain the later change in terminology, the pleading concerning pipeline commission, delays in disclosure and the limited activity before liquidation did not amount to serious misconduct causing unnecessary costs.
6. The defendant engaged with the proceedings, provided useful information, instructed experts, prepared witness evidence and made applications when required. The claimant knew that the defendant was financially precarious and independently chose to proceed to judgment. Nothing done by the defendant materially caused that decision.