Hardingham v RP Data Pty Limited (Third Party Costs)

This judgment sits at the end of a longer copyright dispute. The Court was not deciding again whether RP Data had infringed copyright. That had already been fought through a trial, an appeal to the Full Court and a further appeal to the High Court. The issue here was narrower but commercially important: after RP Data ultimately succeeded and the applicants could not pay the costs already ordered against them, should the Court order the litigation funder to pay those costs instead?

The funded applicants were Mr James Hardingham and Real Estate Marketing Australia Pty Ltd, or REMA. Mr Hardingham was a professional photographer and the sole director of REMA. REMA had been engaged by real estate agencies to create photographs and floor plans for property marketing campaigns. Those materials were uploaded to the realestate.com.au platform and remained available there after the sale or lease. They were also supplied by REA under contract to RP Data for publication on RP Data's website.

The applicants later alleged that the agencies only had a limited licence and that RP Data's publication infringed copyright.

RP Data defeated that claim at first instance. The matter then moved through appeals. The Full Court later allowed the applicants' appeal, but the High Court reversed that result in December 2022. That meant the original primary costs orders in RP Data's favour were again operative. RP Data then turned to Court House Capital Pty Ltd, the commercial funder behind the original proceeding, and asked the Federal Court to make a non-party costs order under section 43 of the Federal Court of Australia Act 1976 (Cth).

The funding agreement was signed on 20 June 2018, before the proceeding started. On its terms, Court House agreed to provide funding for the applicants' solicitors, senior counsel, junior counsel and disbursements. In return, if there was a judgment or settlement, the applicants had to repay the funding and also pay an additional sum calculated as 15% of the final amount.

The agreement also contemplated that a further funding agreement could include funding for adverse costs, but the actual agreement in evidence did not indemnify the applicants against an adverse costs order and expressly said Court House was under no obligation to provide any further funding or indemnity.

The agreement preserved the applicants as the instructing clients, but not without qualification. They had to consult Court House on issues arising from the conduct or progress of the proceeding, and they could not compromise the claim without prior consultation with and consent from Court House. Those rights mattered because they showed Court House was not merely a passive outsider writing cheques and walking away.

A key factual clarification in this judgment is that Court House did not, in practice, pay all of the legal costs described in the agreement. In its initial submissions it said the agreement funded the applicants' legal expenses and disbursements. In reply, however, it said it had only actually paid senior counsel's fees. Its chief executive officer gave affidavit evidence that the solicitors and junior counsel acted on a no win no fee basis in the principal proceeding.

The Court expressly said it would proceed on that basis. That point is important because the order was made even though the funder's actual financial contribution was more limited than the agreement might first suggest.

The Court still regarded the funding as substantial in context. Court House stood to receive repayment of what it funded plus 15% of any damages or settlement. It also had settlement-related rights and a representative attended the mediation on 27 March 2019. Taken together, those features gave the funder a real commercial stake and a real connection to the conduct of the case.

The legal issue was whether the Court should exercise its discretion under section 43 to order Court House, a non-party, to pay RP Data's costs. It was common ground that the Court's costs power can extend to non-parties. The real questions were whether Court House had a sufficient connection to the litigation and whether making the order was fair in all the circumstances.

The judgment explains that statements saying non-party costs orders are rare or exceptional are not especially helpful if treated as rigid rules. Costs usually fall on the parties because most litigation is pursued or defended by parties for their own benefit and at their own expense. But where a third party has a sufficient connection to the litigation and fairness supports it, a third party costs order is a normal outcome.

The Court said it is certainly not exceptional to order costs against a litigation funder who facilitates litigation for its own commercial gain.

Court House argued that RP Data should instead have sought security for costs during the primary proceeding. It also argued that a costs order would be disproportionate because its funding was only partial in practice and that such an order would be penal. The Court therefore had to assess not only the funder's connection to the case, but also whether RP Data's earlier procedural choices and the limited actual funding should prevent relief.

Thawley J ordered Court House to pay RP Data's costs of the proceeding excluding the cross-claim, on the same basis already ordered against the applicants: party and party costs up to 11.00 am on 28 June 2019 and indemnity costs thereafter. Court House was also ordered to pay RP Data's costs of the interlocutory application dated 3 February 2023. The costs were to be paid by way of lump sum, with a Registrar to fix the amount if the parties could not agree.

The Court's reasoning was direct. Court House was a commercial litigation funder seeking to profit from the principal proceeding. Litigation funding was described as legitimate and commonplace, but one obvious risk of that business model is exposure to an application to pay the successful party's costs if the funded litigation fails. The Court said that risk exists whether or not the funder agreed to indemnify the claimant against an adverse costs order.

The Court rejected Court House's submission that a costs order would be disproportionate because it had only partially funded the case. The point, in the Court's view, was that Court House chose to fund the litigation for its own commercial gain. The claim was ordinary commercial litigation from the applicants' perspective, and it was plain from the essential facts that the claim might well fail. It was therefore fair that Court House also bore the risk in seeking to profit from the litigation.

The Court considered its level of funding substantial, noted the settlement participation rights in the agreement, and relied on the fact that a representative attended mediation. The Court also observed there was no evidence suggesting Court House had not been consulted in relation to the circumstances that later gave rise to the indemnity costs order.

On that basis, Court House and its activities had a sufficient connection with the proceeding to justify a non-party costs order.

A useful part of the judgment is the Court's treatment of security for costs. Court House said RP Data should have applied for security in the primary proceeding and that this was the proper course. The Court disagreed. It accepted that security for costs was an available option, but not the only one, and held that RP Data's failure to seek it did not prevent a later third party costs order.

The Court gave several reasons. When the proceeding was commenced, there was nothing to indicate that a funding arrangement existed. The evidence on the costs application did not establish any reason to think Mr Hardingham or REMA was impecunious at or around commencement. Their inability to meet the costs orders made in December 2019 was at least partly due to a business downturn caused by the COVID-19 pandemic and lockdowns in early 2020.

The Court also noted that one applicant was an individual, against whom a security for costs order would have been unlikely even if he were impecunious. The corporate applicant's claims entirely overlapped with his claims, which also made security less likely to be useful. The applicants' claim was genuine, even if adventurous, and it had in fact found favour with a majority of the Full Court before the High Court reversed that result.

By the time the funder's involvement became known on 25 March 2019, two days before mediation, the litigation had already substantially progressed and RP Data had joined REA by cross-claim. The Court considered that bringing a security for costs application after mediation would only have increased cost and delay.

It also said that if such an application had been made and the Court were inclined to order security, Court House would likely have given an undertaking to meet a costs order or taken some other step to keep the proceeding alive, probably by renegotiating its 15% fee. Court House had put on no evidence suggesting otherwise.

If your business is considering litigation funding, this case shows that the downside risk is not confined to the claimant. A funder that backs a case for profit may be exposed to the other side's costs even where it only funds part of the legal spend in practice and even where the agreement says there is no obligation to indemnify adverse costs.

Courts will look at the commercial reality, including the expected return, the degree of practical involvement and the rights the funder has over settlement and case progress.

For claimants, that means funding agreements should be reviewed as risk-allocation documents, not just pricing documents. The percentage return is only one part of the picture. Consultation rights, consent rights, whether the funder may later be asked to meet adverse costs, and whether the claimant can satisfy a costs order without the funder all matter. If the claimant later becomes unable to pay, the funding structure may become central to a costs dispute.

For defendants, this case is a reminder to investigate whether a commercial funder is behind the claim. If so, consider whether security for costs is appropriate at the time, but do not assume that failing to seek security ends the matter. Keep records of what is known about the funder's role, any settlement rights, attendance at mediation and the claimant's apparent ability to meet costs. Those facts may matter later if a third party costs application becomes commercially worthwhile.

The judgment also draws a practical line between commercial funding and support motivated by family or social ties. The Court referred to examples where family members provide financial support without a commercial interest in the outcome. That kind of support may not justify a non-party costs order in the same way. The commercial profit motive was central here.

The funding agreement was entered into on 20 June 2018. The principal proceeding was commenced on 13 July 2018. Mediation took place on 27 March 2019, with a representative of Court House attending. The primary costs orders in RP Data's favour were made on 17 December 2019. A stay was later granted pending appeal.

The Full Court allowed the applicants' appeal in September 2021, but the High Court reversed that result on 14 December 2022, restoring the primary outcome and making the original costs orders operative again. RP Data then filed the interlocutory application dated 3 February 2023 seeking costs against Court House, and Thawley J delivered this third party costs judgment on 16 May 2023.

The judgment was determined on the papers. It is a final Federal Court decision on the third party costs application and includes detailed orders for lump sum costs and a process for a Registrar to fix the amount if the parties could not agree.