McCracken & McCracken v Pippett & Groenwald [2000] VSCA 20

5. In order to understand the argument it is necessary to set out the material parts of the orders made by the Court of Appeal on 29th September 1999 and the judgment given below on 11th May 1998.

8. The appeal was allowed with costs.[2] Paragraphs 2, 3 and 7 of the judgment below were set aside. Paragraphs 3 and 4 of the orders made by this Court read:

(a) that there be judgment for the firstnamed third party against the defendants in the third party proceeding; and

(b) that the defendants pay the firstnamed third party's costs of that proceeding to be taxed on the appropriate County Court scale with certificates for counsel and three refreshers.

4. The respondents have liberty to apply with respect to consequential orders by written submissions accompanied by draft orders filed no later than 4 p.m. on 6th October 1999."

In paragraph 3 the firstnamed third party is the appellant and the defendants are the respondents.

16. The judgment given below consisted of 12 paragraphs. Paragraph 1 simply vacated an order that had been made earlier. Paragraphs 2 and 3 were, as we have seen, set aside by the Court of Appeal. Paragraph 4 read:

"4. Judgment for the firstnamed defendant against the secondnamed third party for:

(a) the sum of $39,810.90 together with interest as prescribed by statute until 21 April 1998 calculated at the rate of 13.2% from 10 December 1996 to 22 February 1998 and at the rate of 12.3% from 23 February 1998 to 21 April 1998, such interest being fixed at $7,097.55;

(i) the firstnamed defendant's costs of defending the plaintiff's claims against him;

(ii) the firstnamed defendant's costs of prosecuting his third party claim against the firstnamed third party; and

(iii) the firstnamed defendant's costs of prosecuting his third party claim against the secondnamed third party

The firstnamed defendant and the secondnamed third party, referred to in that paragraph, are the first respondent and Mr. Thompson respectively. Paragraph 5 was in similar terms mutatis mutandis. It was in favour of the secondnamed defendant, who is, of course, the second respondent.

27. Although paragraph 7 of the judgment has been set aside, it is necessary to set it out because it is mentioned in paragraph 6(b). It is not necessary to set out paragraph 10, 11 or 12. Paragraphs 6, 7, 8 and 9 read:

"6. Judgment for the firstnamed third party against the secondnamed third party/fourth party for:

(a) the two sums ordered to be paid pursuant to paragraphs 2 and 3 being $39,810.90 and $25,189.09 together with interest as prescribed by Statute until 21 April 1998 calculated at the rate of 13.2% from 10 December 1996 to 22 February 1998 and at the rate of 12.3% from 23 February 1998 to 21 April 1998, such interest being fixed at $7,097.55 and $4,491.39 respectively;

(b) the firstnamed third party's costs of defending the defendants' claims against it as set out in paragraph 7;

(c) all the costs paid by the firstnamed third party to the defendants pursuant to paragraphs 2 and 3 hereof; and

(d) the firstnamed third party's costs of the contribution proceedings against the secondnamed third party and the costs of the fourth party proceeding as set out in paragraph 9.

7. The firstnamed third party pay the taxed costs of the defendants on a party and party basis.

8. The secondnamed third party pay the costs of each of the defendants, such costs to be taxed on a solicitor and client basis commencing from 21 January 1998 up to 6 February 1998, but otherwise on a party and party basis.

9. The second[named] third party pay the costs of the first[named] third party, such costs to be taxed on a solicitor and client basis commencing from 9 December 1996 up to 6 February 1998, but otherwise on a party and party basis."

In order to understand those paragraphs, it is necessary to know that Mr. Thompson was not only the secondnamed third party but also the fourth party. He had originally been joined as such by the appellant, but the respondents later filed an amended third party notice which included him as a second third party.

39. All parties to the summons are agreed that paragraphs 6(a) and (c) of the judgment should be set aside, because they have no operation now that paragraphs 2 and 3 have been set aside. There was controversy as to paragraph (b) and as to the meaning and effect and inter-relationship of paragraphs 6 to 9, but it is clear that the learned trial judge ordered Mr. Thompson to pay the appellant's costs of defending the third party proceeding. Those costs have therefore been the subject of two orders: one in the County Court in favour of the appellant against Mr. Thompson and the other in this Court in favour of the appellant against the respondents. It was not submitted that we should vacate our own order, even if we had power to do so now that that order has been authenticated. In any event I consider that our order was correct. The question is what, if anything, should be done about those parts of the judgment below that obliged Mr. Thompson, vis-à-vis the appellant but not vis-à-vis the respondents, to pay the appellant's costs of the third party proceeding.

42. Mr. Connock submitted that nothing could or should be done that was not purely consequential. His client was not a party to the appeal and had not been joined as a party. No relief had previously been sought against him by the appellant or the respondents and the relief that is now sought relates only to costs. Before this Court could make a substantive alteration to, for example, paragraph 6(b), leave to appeal would be required. Section 17A(1)(b) of the Supreme Court Act 1986 does not apply to a judgment of the County Court. If leave is required, that would appear to be on the footing that paragraph 6(b) was an interlocutory order made after final judgment.[3] Be that is it may, an extension of time would certainly be required to institute a separate appeal.[4]

45. Paragraph 7 has already been set aside. Paragraphs 6(a) and (c) should be set aside too. The words "as set out in paragraph 7" present some difficulty. This Court should not enter upon the task of construing them. If the word "formerly" is inserted before the words "set out in paragraph 7", the rights and obligations of all parties affected will be preserved. In my view there is no power in this Court to make more than those consequential changes to paragraphs 6 to 9 without Mr. Thompson's being first joined as a party to the appeal or a separate appeal being instituted. No such application has been made. All that has happened is that he has been made the respondent to a summons seeking an indemnity from a non-party.

48. The choice between a Bullock order and a Sanderson order ordinarily arises where a plaintiff succeeds against one defendant but not against another. Both have the effect that the unsuccessful defendant is ordered to pay the costs of the successful defendant. In a Sanderson order that is achieved directly; in a Bullock order the plaintiff is ordered to pay the successful defendant's costs but permitted to recover them from the unsuccessful defendant.[5] The indemnity sought by the respondents is, or is akin to, a Bullock order. Paragraphs 6 to 9 of the judgment below now include an order that is, or is akin to, a Sanderson order.

51. In Gould v. Vaggelas[6] Gibbs, C.J. said:

"It is sometimes said that the court may make an order of that kind - a Bullock order - where it was reasonable in all the circumstances for the plaintiff to bring the action against two or more defendants: see The Supreme Court Practice (U.K.) 1982, par. 62/2/39 and Halsbury's Laws of England, 4th ed., vol. 37, par. 219. There are some statements in the authorities which appear to support that view, including the judgment of Latham C.J. in Johnsons Tyne Foundry Pty. Ltd. v. Maffra Corporation. In my respectful opinion, however, the mere fact that the joinder of two defendants was reasonable does not mean that the unsuccessful defendant should be ordered to pay, directly or indirectly, the costs of the successful defendant. Obviously a judge should make a Bullock order only if he considers it just that the costs of the successful defendant should be borne by the unsuccessful defendant, and_, if nothing that the unsuccessful defendant has said or done has led the plaintiff to sue the other defendant, who ultimately was held not to be liable, it is difficult to see any reason why the unsuccessful defendant should be required to pay for the plaintiff's error or overcaution._

The ground on which a Bullock order may be made is, in my opinion, more accurately stated in a passage in Sanderson v. Blyth Theatre Co., which was cited with approval in Bullock v. London General Omnibus Co. and Hong v. A. & R. Brown viz., that the costs which the plaintiff has been ordered to pay to the defendant who succeeded, and which the plaintiff recovers from the defendant who has failed 'are ordered to be paid by the unsuccessful defendant, on the ground that ... those costs have been reasonably and properly incurred by the plaintiff as between him and the [unsuccessful] defendant'. In Johnsons Tyne Foundry Pty. Ltd. v. Maffra Corporation, Williams J. stated the principle in a similar way and Starke and Dixon JJ., in giving their reasons for making a Bullock order, both relied on the circumstance that the attitude adopted by the successful defendant had induced the plaintiff to join the other defendant. In my respectful opinion the true position was clearly stated by Blackburn C.J. in Steppke v. National Capital Development Commission, when he said that 'there is a condition for the making of a Bullock order, in addition to the question whether the suing of the successful defendant was reasonable, namely that the conduct of the unsuccessful defendant has been such as to make it fair to impose some liability on it for the costs of the successful defendant'." (Emphasis added but footnotes omitted.)

56. It was common ground that those statements were dispositive of the matter before us. They were treated as raising two questions: first, whether the respondents had acted reasonably in suing the appellant and, secondly, whether there had been conduct on the part of Mr. Thompson that made it fair to require him to indemnify the respondents. That two-step analysis is convenient in the present case, but it would not always be convenient and it could lead to error. It is easy to think of circumstances in which the reasonableness of bringing suit might be directly related to conduct on the part of the unsuccessful defendant. In truth there is a single question, namely whether it is fair, as between the plaintiff and the unsuccessful defendant, that the latter should pay the successful defendant's costs. Prima facie, the unsuccessful defendant should not have to do so. There must, as Gibbs, C.J. and Blackburn, C.J. recognized, be something about his or her conduct that makes it appropriate to shift the incidence of the successful defendant's costs. The plaintiff, after all, has been unsuccessful too.

59. Counsel's submissions were directed primarily to two issues. The first was whether this Court could or should make an order akin to a Bullock order when there was already in force an order akin to a Sanderson order. No case was cited where that had been done, but the point would not arise except in very unusual circumstances such as the present where there are concurrent orders against different persons in respect of the same costs. The conclusion I have reached on the second issue makes it unnecessary for me to consider the first. The second issue was whether, if the continued operation of paragraphs 6 to 9 of the judgment below presented no obstacle to doing so, this Court should order that Mr. Thompson indemnify the respondents against the appellant's costs of the third party proceeding. However such an indemnity might be framed, the same question of fairness as between the respondents and Mr. Thompson arises as would arise if the propriety of a Bullock order were being considered.

62. Subject to the reservations expressed in [11] and [19], I shall assume in favour of the respondents, without deciding, that they acted reasonably in suing the appellant for negligence in connexion with the settlement. Mr. Flower submitted that, that being so, Mr. Thompson's conduct had been such as to make it fair that he, and not the respondents, should pay the appellant's costs of the third party proceeding. Three distinct contentions were advanced in support of that submission.

65. First, it was said that the "whole dispute" arose out of Mr. Thompson's conduct. It was not submitted below, and her Honour did not find, that Mr. Thompson had been guilty of fraud in permitting a cheque drawn on the company's account to be handed over at settlement. It is true that he consented to judgment in the claim brought against him by the respondents and that the pleading contained allegations of fraud as well as negligence, but it cannot fairly be inferred from that that he admitted fraud. All he did was consent to judgment.[7] Moreover, to say that Mr. Thompson's conduct was fraudulent, as counsel did at first, is a two-edged sword: it makes it even more obvious that the appropriate party to sue was Mr. Thompson and not the appellant and even less likely that an inquiry directed to Mr. McKenzie at settlement would have elicited a useful response. The correct analysis is that Mr. Thompson not only committed a breach of contract but, more importantly, caused the respondents to believe, wrongly, that they had received a cheque drawn on Mr. Thompson's own account.

68. Secondly, the learned judge made a number of orders for costs against Mr. Thompson. Counsel referred to paragraphs 4(b)(ii) and 5(b)(ii), which relate to the respondents' own costs of the third party proceeding. Reference was also made, in the course of argument, to the fact that her Honour decided, in paragraphs 6 to 9, that it was just, as between the appellant and Mr. Thompson, that the latter should bear the former's costs of defending the third party proceeding. There are, however, difficulties with this second contention. One difficulty is that her Honour's orders were made on the footing that the respondents had succeeded in their claim against the appellant. Another is that a decision as to the proper incidence of costs between A and B may say nothing, and certainly is not determinative, of the proper incidence of those costs between A and C. I accept Mr. Connock's submission that this Court is required to form its own view of the matter, so long as that view is consistent with so much of the judgment below as still stands and takes proper account of findings that her Honour made.

71. Thirdly, Mr. Flower relied on two findings that the learned judge made in the course of giving reasons for her own orders as to costs. At 38 of those reasons her Honour said that, although the trial was not prolonged by Mr. Thompson, who consented to judgment on the first day, she found on the evidence during the trial that his conduct "gave rise to the issues" between the respondents and the appellant and that some of the denials made by him in the defences must have been known by him to be false at the time. The same two points were made, in reverse order, on the next page:

"Mr. Ingram [counsel for Mr. Thompson] submitted that the costs incurred by the first third party by reason of the trial should not be payable by his client on the basis that to proceed was a decision of that party and not influenced by any conduct of the fourth party. However I found during the trial of the proceedings, that there was a wilful disregard by Mr. Thompson in making allegations which he must have known were false and that he failed to comply with the terms of the 1996 Agreement in producing personal funds for the payments to the third parties. This matter was directly related to the ongoing trial between the first named third party and the defendants."[8]

Whatever effect they may have had on the appellant, false denials in the pleadings were not the reason the respondents brought or continued the third party proceeding against the appellant. They did so because they believed that Mr. Thompson might not have sufficient funds to satisfy a judgment.

76. The relevant conduct of Mr. Thompson was causing the respondents to believe, wrongly, that the cheque had been paid from Mr. Thompson's own account. The natural course of events was therefore, as Mr. McEwen submitted, that, when the liquidator sued the respondents they in turn would sue Mr. Thompson. They did not do so. As we have seen, they sued the appellant, only joining Mr. Thompson as a second third party at a later stage. His conduct did not contribute to their decisions to sue the appellant or to continue the third party proceeding against it. It was his perceived insolvency that led to those decisions. The respondents mistakenly believed that their solicitors were liable. The solicitors were not. Mr. Thompson did not, by act or omission, contribute to that mistake.

79. To leave the matter there would, however, be to take too narrow a view. It would be more accurate to ask whether Mr. Thompson's breach of contract and the error in which it resulted contributed to the respondents' prosecution of the third party claim against the appellant. In a traffic accident, for example, there may be uncertainty as to who is to blame. The party ultimately found liable may be said to contribute, in the relevant sense, to the decision to proceed against a successful defendant as well. If Mr. Thompson had breached the contract by simply refusing to hand over any cheque at all, it would not have occurred to the respondents to sue the appellant. They did so because of the provenance of the cheque that was handed over. They thought that that was the kind of contingency against which their solicitors should have protected them at settlement. That is why they sued the appellant, but their claim against the solicitors was misconceived and failed. How, then, can it be said that it is fair to shift the incidence of costs?

82. The analysis in the last preceding paragraph shows that there is some difficulty, even in this case, about separating the question of reasonableness from the question of fairness. I continue to assume in favour of the respondents that they acted reasonably in suing the appellant. All I mean by that is that it was a reasonable mistake, but it was the respondents' own mistake or that of their legal advisers. It is a question on which reasonable minds may differ, but I am not persuaded in all the circumstances either that Mr. Thompson induced the respondents to sue the appellant or, more generally, that there was conduct on his part such as to make it fair to order that he indemnify them against the appellant's costs of the third party proceeding that they will now have to pay.[9] To adapt a phrase from another field of law, the respondents were on a frolic of their own. By that I intend no criticism. I desire only to emphasize the completely independent character of their claim.[10]

85. I would set aside paragraphs 6(a) and (c) of the judgment given below and amend paragraph 6(b) by inserting the word "formerly" immediately before the words "set out in paragraph 7". I would refuse the indemnity sought by the respondents and, subject to hearing counsel, order that the respondents pay the appellant's and Mr. Thompson's costs of the summons filed on their behalf on 18th October 1999.

90. In the resolution of this by no means easy application by summons, I agree with the reasons of and orders proposed by Callaway, J.A., whose judgment I have had the benefit of reading in draft. I would add that, to my mind, notwithstanding Mr. Thompson's connection with or relevance to the appeal, the fact that he is a non-party to it requires the respondents to show a somewhat stronger case for the exercise of the Court's discretion in their favour than would otherwise be the case.

95. I have also had the benefit of reading the draft judgment of Callaway, J.A. I agree that, for the reasons given by his Honour, this application be disposed of as he proposes.

[1] [1999] VSCA 156 at [5].

[2] It is not suggested that Mr. Thompson should indemnify the respondents against the costs of the appeal. It may be added that they were granted an indemnity certificate under s.13(1) of the Appeal Costs Act 1964.

[3] See s.74(2D) of the County Court Act 1958 and compare National Australia Bank Ltd. v. Maher [1999] VSCA 189 at [18].

[4] See s.74(2)(a).

[5] See, for example, Thorne v. Doug Wade Consultants Pty. Ltd. [1985] VicRp 48; [1985] V.R. 433 at 500.

[6] [1984] HCA 68; (1985) 157 C.L.R. 215 at 229-230.

[7] I do not overlook the arguable relevance of his bankruptcy: see paragraph 31 of Mr. Thompson's defence to the amended third party notice and s.153(2)(b) of the Bankruptcy Act 1966.

[8] See also 40, dealing with the issue of solicitor-client costs.

[9] Compare Framar Money Management Pty. Ltd. v. Territory Insurance Office [1986] NTSC 52; (1986) 87 F.L.R. 251, where an insurer's wrongful denial of liability caused the plaintiff to sue its broker. A Bullock order was made in favour of the plaintiff.

[10] See Norwest Refrigeration Services Pty. Ltd. v. Bain Dawes (W.A.) Pty. Ltd. [1984] HCA 59; (1984) 157 C.L.R. 149 at 163. In that case it was not enough that it was all the fault of the Co-operative.