Kyne v Gerard Brandrick & Associates Pty Ltd [2025] VSCA 17
The Victorian Court of Appeal granted leave to appeal and set aside a non-party costs order against a builder's director, holding that he was not a "real party" to the builder's contribution claim against a co-defendant architect.
What the court decided
A client sued its builder and the architect in the County Court over allegedly defective works on a hotel [1], [8]. In January 2022 the client settled with the architect, on terms that judgment would be entered against the architect as a concurrent wrongdoer under the Wrongs Act 1958 (Vic) [15]. When the trial opened in July 2022, the client pressed only non-apportionable claims against the builder, and the builder obtained leave to file a notice of contribution against the architect [20], [21]. One of the builder's two directors gave the instructions to file it, and his evidence was that this was done on legal advice [6], [21].
In June 2023 the trial judge gave judgment for the client against the builder, dismissed the notice of contribution and ordered the builder to pay the architect's costs [26], [27]. After a liquidator was appointed to the builder in July 2023, the architect applied for a non-party costs order [3], [31]. Her Honour ordered the director to pay the architect's costs from 14 July 2022 and its costs of the application [3]. She concluded that the principles in Knight v FP Special Assets Ltd had been met [32]. Her findings included that the director had set out to reduce the builder to a "man of straw", had directed the litigation and had a sufficient interest in it [34].
In joint reasons, Niall CJ, McLeish and Kennedy JJA granted leave to appeal, allowed the appeal, set the order aside and dismissed the application [5], [93].
The Court endorsed the approach in its earlier decision in Gdanski v Palms Court Management Pty Ltd that, in effect, the Knight discretion is enlivened only if the non-party is a "real party" to the litigation [40], [42]. Active role and interest together describe such a person, and the inquiry is functional, not a test of two free-standing elements [68].
Neither matter the judge relied on for an active role made the director a real party [70]. Directing the litigation was unremarkable and could be said of any director meeting their obligations; the notice had some merit, and it was not shown that seeking contribution was not genuinely in the builder's interest [71]. Even if he had lent money for the litigation, which was not clear, that was not unusual; the judge made no findings on the amount or on any collateral purpose [72].
The director's interest in the notice of contribution was "entirely derivative" from the builder's [76]. An indirect benefit as a shareholder did not in itself make him the real party; otherwise the threshold could be met whenever a director and shareholder stood to gain from a step taken to reduce a company's liability [77]. His reasons for ceasing to trade through the builder and starting business with a new company did not define his interest in the litigation, and the builder's insolvency was necessary but not sufficient to enliven the discretion [78]. The judge therefore "mistook the facts" on which she exercised her discretion [79]. Exercising the discretion afresh, the Court was not satisfied that the director's role and interest went beyond those of an ordinary director obliged to act in the company's interests [80].
The Court also made brief observations on the trial judge's "man of straw" finding [83]. It said that the builder's asset sales and the cessation of its trade did not appear to justify the extensive adverse findings about the director's propriety [88]. Serious findings of that kind should not rest on inexact proof or indirect inferences [87]. The Court found no error in the judge's treatment of the architect's failure to seek security for costs or in her reliance on her credit findings [89], [90].
Why it matters
On this reasoning, a director who instructs a company, on advice, to pursue a contribution claim that is genuinely in the company's interest does not, by that alone, become a real party for the purposes of Knight, even if the company later fails. The Court confirmed the real party threshold from Gdanski and held that this director's interest, derived from the company's, was not in itself enough.
Numbers in square brackets are paragraph numbers of the judgment. This note summarises a decided case for education and is not legal advice. See how the notes are written.