Costs Against Non-Parties – By Christian Munt

K.Boy Pty Ltd v Muse Entertainment Pty Ltd
Magistrates Court of South Australia: Judgment and Ruling of Ms Eldridge SM
17 March 2016 and 26 April 2016

In this case costs orders were made against non-parties to the action, being directors of the plaintiff company (K.Boy), in a departure from the usual practice.

The case involved a claim brought by K.Boy, as underlessee of commercial premises, against the underlessor (Muse) of the premises.  Muse had terminated the Underlease on various grounds, including for K.Boy’s failure to provide a security deposit under the provisions of a collateral document to the Underlease and for K.Boy’s breaches of sections of the Liquor Licensing Act.  K.Boy’s case was that the termination should be held to be ineffective due to alleged misleading or deceptive conduct and unconscionable conduct on the part of Muse, estoppel and/or relief under the Retail and Commercial Leases Act.

The case involved myriad factual and legal issues.  Its outcome turned largely upon the credit of the witnesses of the respective parties, including upon an assessment by the court of whether principal witnesses for K.Boy, who had emigrated from China to Australia, could adequately comprehend spoken and written English.

Ultimately the court dismissed K.Boy’s claim and held that Muse’s termination of the Underlease was effective.  The court held that K.Boy’s witnesses had given untruthful evidence in relation to important events and, further, that they could adequately comprehend spoken and written English.

By the time that judgment was delivered, K.Boy was impecunious.  Muse sought its costs of action against K.Boy’s directors, and on a solicitor and client basis on the Supreme Court scale, by reason of the untruthful evidence given by them.  The directors had been put on notice early in the trial that costs would be sought personally against them, on account of untruthful evidence given by them.

The court considered the authorities concerning the circumstances in which costs orders may be made against non-parties to an action and determined that this was an appropriate case for costs orders to be made against the directors, and on a solicitor and client basis on the Supreme Court scale, by reason of the untruthful evidence given by them.  In so holding, the court accepted a submission to the effect that the merits of the matter were inextricably linked with the oral evidence of the directors and that K.Boy, acting under the control of its directors, must have known that if the evidence of its directors was found to be untrue then its claim would inevitably fail.

Christian Munt
Counsel for the defendant (Muse)

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