Summary

A master had been wrong on the evidence to make non-party costs orders against the family of a litigant whom they had assisted by loans to pay his legal costs. The adverse findings and inferences he made were not open to him on the evidence, and he should have allowed cross-examination before rejecting the written evidence as to the motives behind the payments.

Facts

The appellant third parties (X) appealed against non-party costs orders against them in favour of the respondent (M).

The underlying action had been brought by a member of X's family (L) against M, claiming that M had obtained an earlier judgment against L by giving fraudulent and dishonest evidence. L's fraud action was struck out as an abuse of process and he was made bankrupt by M in an unsuccessful attempt to enforce the earlier judgment. X were joined as parties for the purpose of costs because they had funded L's defence and the fraud action. The master considered the written statements and found that X's contributions to L's defence had been gifts that they pretended were loans, that a trust set up by L's mother to fund the fraud action was a fiction used for the object of protecting X from non-party costs orders, that they had attempted to obstruct the bankruptcy proceedings by proving their loans as debts, and that they knew the fraud action was oppressive, malicious and vexatious.

X argued that the master had failed to apply the appropriate test and had taken into account a series of erroneous findings of fact and failed to take into account factors in their favour.

Held

(1) L had sent letters acknowledging receipt of the payments made for his costs by X and the trust, which were evidence of a bona fide series of loans. The master should have given X the opportunity to be cross-examined on their written evidence before, in effect, concluding that they were lying, and should have given detailed reasons for deciding that he did not accept their unchallenged written evidence. (2) There was no basis for speculating that the sole purpose of the trust was to avoid otherwise likely non-party costs orders, as there was no evidence to contradict the written evidence of the bona fide reasons for setting up the trust. (3) X had been entitled to lodge proofs of debt in L's bankruptcy and there was no actual or attempted obstruction of the bankruptcy by doing so. (4) L had begun the fraud action because he honestly but mistakenly thought it was a necessary means of correcting the injustice that he believed he had suffered, and X shared that view. L had not been advised that the action could not be brought or could not be properly pleaded. It was procedurally unfair for the master to reject their evidence without giving them the chance to be cross-examined. The inferences he made did not reasonably arise on the evidence. (5) Accordingly, the master's decision was reached on the basis of a series of findings and inferences that he had not been entitled to make. As a result his decision fell well outside the generous ambit of appreciation allowed to him. X were genuine funders with no other interest in the fraud action other than their family love, affection and loyalty to L. This was not an exceptional case where non-party costs orders should have been made.

Appeal allowed