Plaintiff v First Defendant

3 On 20 April 2021 I delivered reasons for judgment on costs in which I concluded that:

1. the first and third defendants should pay the plaintiff's costs of the proceeding on the standard basis, except any costs incurred or increased by reason only of the joinder of the claim against the second defendant;

2. the first and third defendants should bear (directly or indirectly) the second defendant's costs on the standard basis in relation to Mr Way's evidence and the second defendant's written closing address insofar as it addressed contingency and quantum issues;

3. the first defendant should bear (directly or indirectly) the second defendant's costs on the standard basis in relation to Mr Berrill's evidence; and

4. the plaintiff should otherwise bear the second defendant's costs of the proceeding on the standard basis.[2]

4 These reasons for judgment address four issues argued by the parties after delivery of my reasons for judgment on costs.

Pearl Hill's costs of the proceeding: broad axe assessment

5 All parties invited me to make a broad axe assessment of the proportion of Pearl Hill's costs that were incurred or increased by reason of the joinder of the claim against the second defendant out of the total of Pearl Hill's costs of the proceeding (on the standard basis). This would save the need for a determination on taxation of Pearl Hill's costs as to which costs were so incurred or increased. I acceded to that invitation.

6 Pearl Hill invited me to assess the proportion at 10 per cent on the basis that less than 10 per cent of the total time and costs incurred (on the standard basis) were costs incurred or increased by reason of the joinder of the claim against the second defendant. The first and third defendants invited me to assess that proportion at 15 per cent.

7 The substantial majority of the time at trial addressed issues other than negligence. In relation to negligence, much more time was devoted to issues in relation to each of the first and third defendants than to the second defendant. My assessment is that less than 10 per cent of the total time at trial was devoted to negligence of the second defendant. My assessment is that the portion of time and costs incurred in relation to the negligence of the second defendant before trial would not be greater than the portion at trial. My overall assessment is that less than 10 per cent of the total costs of the proceeding (on the standard basis) were incurred or increased by reason of the joinder of the claim against the second defendant.

8 Consequently, the first and third defendants should pay 90 per cent of the plaintiff's costs of the proceeding (against all defendants) on the standard basis.

Pearl Hill's costs of the proceeding: apportionment between first and third defendants

9 The first and third defendants contend that, instead of their liability to pay 90 per cent of the plaintiff's costs of the proceeding being joint and several, that liability should be apportioned equally such that each is liable to pay 45 per cent of such costs.

10 The defendants point to the fact that their liability to pay damages was apportioned in equal proportions pursuant to section 24AI of the Wrongs Act 1958 (Vic) and contend that an apportionment of costs would address the perceived injustice that the proportionate liability legislation was introduced to address. They do not contend that section 24AI requires an apportionment of costs and accept that that provision only requires an apportionment of damages.[3] Rather, they rely upon the general costs discretion.

11 In Kheirs Financial Services Pty Ltd v Aussie Home Loans Pty Ltd,[4] Mr Solak sued the Bank of Western Australia Ltd seeking a declaration that a registered mortgage in favour of the Bank was not binding on him because it was a forgery. The Bank joined Aussie Home Loans Pty Ltd and AHL Investments Pty Ltd (collectively AHL) as third parties for breach of warranties given in connection with the introduction of the loans. In turn, AHL joined Kheirs Financial Services Pty Ltd and Mr Kheir (collectively Kheirs) as fourth parties for breach of warranties given in connection with the introduction of the loans. The trial Judge dismissed the primary claim against the Bank and consequentially dismissed the third and fourth party claims. However, in case there should be a successful appeal against the dismissal of the primary claim against the Bank, the Judge notionally apportioned negligence as to 30 per cent to the Bank, nil to AHL and 70 per cent to the Kheirs.

12 The Judge later made an order that the Bank pay 30 per cent and Kheirs pay 70 per cent of AHL's costs of the proceeding. The Judge however did not determine whether the third or fourth party claims would have succeeded, nor whether the apportionment legislation applied (given that none of the causes of action were in negligence), nor did the Judge make findings about causation. The Court of Appeal allowed appeals by the Bank and Kheirs and made "the usual order" when third and fourth party claims are dismissed consequentially on dismissal of the primary claim, namely that the Bank pay AHL's costs of the third party claim and AHL pay Kheirs' costs of the fourth party claim. The Court of Appeal concluded that the fact that the Judge did not determine critical issues that would have been relevant to an apportionment vitiated the exercise of the discretion. The Court was not called on to address the merits of an apportionment of costs following an apportionment of liability. In addition, the issue of apportionment was not between co-defendants but between defendant, third party and fourth party. For these reasons, the decision is not of assistance in relation to this case.

13 In Tsu v Nemeth[5] Mr Nemeth sued the owners of adjoining land, Prynew Pty Limited and Mr Tsu, for damage to his residence caused by excavation. Mr Tsu was the directing mind and will of Prynew. Mr Nemeth also sued his neighbours' piling contractor, Piling Contractors (Qld) Pty Ltd. Mr Nemeth succeeded against all three defendants. Liability was apportioned pursuant to section 109Z of the Environmental Planning and Assessment Act 1979 (NSW) as between the owners and Piling Contractors in the ratio 75:25 and internally as between Prynew and Mr Tsu as owners in the ratio 75:25. The defendants submitted to the primary Judge that costs should be apportioned in the same ratios as liability was apportioned. This submission was rejected and the Judge made a joint and several order in relation to costs. Tsu appealed and Piling Contractors cross appealed against that order. It appears that Prynew was insolvent and unable to meet a costs order. The Court of Appeal dismissed the appeal.

14 Handley AJA (with whom Beazley and Whealy JJA agreed) said, in the context of the appellants' contention that the legislation mandated an apportionment of costs in accordance with the apportionment of liability:

Although this section deprived a plaintiff of the common law right to a joint and several judgment against all concurrent tortfeasors damages still had to be proved against all defendants, and plaintiffs had to establish the responsibility of each. This required proof of the causative potency and culpability of each in relation to the causative potency and culpability of the others. These plaintiffs had to prove that the excavation caused the damage to their house, the quantum of that damage, and the separate responsibilities of the defendants.

The whole of the plaintiffs' costs were therefore incurred in proving the case against each of the defendants. If Prynew had never been sued the plaintiffs would still have had to prove the case against it to establish the responsibility of the others.[6]

15 In the context of the wide discretion as to costs conferred by section 98 of the Civil Procedure Act 2005 (NSW) (the equivalent of section 24 of the Supreme Court Act 1986 (Vic)), Handley AJA said:

In my judgment the wider grounds urged in support of the cross appeal should fail. The general practice of the court is to make joint and several orders for costs against defendants where their liability depends on a common substratum of fact.

There was a common substratum of fact in this case and issues relating to the culpability and causative effect of the acts and omissions of each defendant were relevant to the claims against the others. There were in truth no separate issues. The claim against each defendant depended in part upon the claim against the others.[7]

16 Although costs are in the unfettered discretion of the court, it is well-established that there is a "general rule" that a costs order against co-defendants in favour of a plaintiff will ordinarily be made against co-defendants on a joint and several basis.[8]

17 Although the decision of the New South Wales Court of Appeal is not strictly binding on me because it involved the exercise of a discretion, I agree with its reasoning and there is no material distinction between the facts in that case and the facts in the present case.

18 There is no compelling logic in apportioning costs on the same basis as liability for damages is apportioned. It is extremely unlikely that the costs incurred in a proceeding against two defendants would be incurred in the proportion in which liability is ultimately apportioned. For example, speaking hypothetically, if an apportionment of costs exercise were able to be undertaken and were undertaken, it might well be that 70 per cent of costs were incurred in relation to the claim against defendant A but the apportionment of liability was only 25 per cent against defendant A.

19 This is not to say that there should never be an apportionment of costs when there are co-defendants (whether apportionment legislation applies or it does not). For example, if a significant portion of a plaintiff's costs were incurred in relation to an issue raised only by one defendant (and particularly if that defendant were unsuccessful on that issue), it may be appropriate to order that the defendant raising the issue notionally bear all of the plaintiff's costs in relation to that issue. If say 10 per cent of the plaintiff's costs were incurred in relation to that issue, it might be appropriate to order that that defendant pay 100 per cent of the plaintiff's costs of the proceeding and the other defendant pay only 90 per cent of the plaintiff's costs of the proceeding.

20 Another example may be where a plaintiff sues co-defendants for causes of action outside the scope of section 24AF of the Wrongs Act 1958 (Vic), 10 per cent of the costs are incurred in respect of common issues, 30 per cent of the costs are incurred in respect of issues between the plaintiff and the first defendant and 60 per cent of the costs are incurred in respect of issues between the plaintiff and the second defendant. It may be appropriate in those circumstances to make a joint and several order against the defendants in respect of 10 per cent of the costs of the proceeding and make separate orders against the first and second defendants in respect of 30 per cent and 60 per cent respectively of the costs of the proceeding.

21 In the present case, the substantial majority of the costs were incurred in relation to issues common to the first and third defendants. A relatively small proportion of costs were incurred solely in relation to the negligence of the first defendant and a relatively small proportion of costs were incurred solely in relation to the negligence of the third defendant. However, even in respect of the costs incurred solely in relation to the first defendant, those costs were also incurred as between the plaintiff and the third defendant because the third defendant pleaded that his liability was reduced, pursuant to the apportionment legislation, by the negligence of the first defendant (and vice versa). This is not a case in which it is possible to quarantine costs of the proceeding (other than in respect of the claim against the second defendant addressed above) in respect of issues against the first and third defendants. The observation by the New South Wales Court of Appeal in the last paragraph of the passage extracted at [15] is apposite in the present case.

22 Accordingly, the liability of the first and third defendants to pay 90 per cent of the plaintiff's costs of the proceeding should be joint and several.

23 This is not to say that a right of contribution would not arise as between the first and third defendants in the event that one of them pays more than half of their joint liability for costs. On the contrary, such a right of contribution would arise under general principles.

Bullock or Sanderson order in respect of second defendant's costs

24 I previously concluded that the first and third defendants should bear the second defendant's costs in relation to Mr Way's evidence and the written closing address on contingency and quantum issues and, in the case of the first defendant only, in relation to Mr Berrill's evidence.

25 Pearl Hill contends that the form of the order should be a Sanderson order. The defendants contend that it should be a Bullock order.

26 An order in the form of a Bullock order reflects the substantive position that the successful defendant should recover their costs of the proceeding from the plaintiff who sued them but the plaintiff in turn should be indemnified by the unsuccessful defendant in respect of those costs or a component of those costs. An order in the form of a Sanderson order reflects the same underlying rationale but avoids the circuity of two separate orders and two separate taxations.[9] In this respect it is analogous to a derivative action where a person, at whose instance the proper plaintiff could be compelled in equity to sue a defendant, is permitted to sue the defendant directly to avoid circuity.

27 A Sanderson order would have the potential advantage over a Bullock order that it would avoid the risk of a discrepancy arising on a taxation between the plaintiff and the second defendant of the second defendant's costs and a taxation between the plaintiff and the first and third defendants in respect of a component of the second defendant's costs in respect of which the plaintiff is indemnified. However, that risk could equally be avoided by a slightly modified form of a Bullock order under which the second defendant's costs in respect of which the plaintiff is entitled to be indemnified by the first and third defendants are to be taxed separately, and as between all parties, compared to the balance of the second defendant's costs which only the plaintiff must bear.

28 The second defendant was successful in the proceeding and is entitled to recover all of his costs on the standard basis. He seeks a Bullock order (under which his costs would be payable by the plaintiff) rather than a Sanderson order (under which part of his costs would not be payable by the plaintiff but instead would be payable by the first and third defendants). The risk of non-recovery of costs falls on the second defendant. It is necessary to give substantial weight to the form of order sought by the second defendant. In light of the second defendant's preference, I consider that the appropriate form of order is a Bullock order rather than a Sanderson order so that the risk of non-recovery falls on the plaintiff rather than on the second defendant.

29 As referred to in my primary reasons for judgment, the liability of the third defendant for damages is capped, pursuant to section 31 of the Professional Standards Act 2003 (Vic), at $2 million. By virtue of the definition of "damages" contained in subsection 4(1), the cap applies to the award of damages plus interest plus costs "in or in relation to the proceedings ordered to be paid in connection with such an award".

30 It is common ground that costs paid by the third defendant under the first proposed costs order that the first and third defendants pay 90 per cent of the plaintiff's costs of the proceeding will be counted in the calculation of the $2 million cap. It is not necessarily common ground that, if a Sanderson order were made, costs paid by the third defendant to the second defendant pursuant to the Sanderson order would be counted in the calculation of the $2 million cap. The third defendant contends that, as a matter of principle, there should be no differentiation between his cost liability to the plaintiff in respect of the plaintiff's own costs and in respect of the plaintiff's liability to pay the second defendant's costs. I accept that contention. This is an additional factor pointing in favour of a Bullock order, although I would have made a Bullock order in any event for the reasons given above.

31 The form of the order under which the first and third defendants are to bear a component of the second defendant's costs of the proceeding should be a Bullock order, rather than a Sanderson order.

Apportionment in respect of Bullock order for second defendant's costs

32 The first and third defendants contend that it is appropriate to apportion the liability to indemnify the plaintiff in respect of the second defendant's costs in relation to Mr Way's evidence and the written closing address on contingency and quantum issues. Pearl Hill contends that this liability should be joint and several.

33 In the alternative to their primary submission that their primary cost liability should be apportioned (which I have rejected), the first and third defendants submit that different considerations apply in relation to their liability to indemnify the plaintiff in respect of a component of the second defendant's costs. They put a hypothetical supposition under which each of the defendants had incurred one third of the cost of engaging Mr Way as an expert and the plaintiff obtained the benefit of an order that it be indemnified by the first and third defendants in respect of the second defendant's one third share of that cost. In that event, neither the first nor the third defendant would ultimately bear 100 per cent of the cost of engaging Mr Way. Pearl Hill contends that there should be no difference between primary costs recoverable by the plaintiff and costs payable by the plaintiff to the second defendant that are in turn recoverable from the first and third defendants.

34 I accept that the rationale for making the Bullock order raises different considerations to those applying to the plaintiff's own costs in this respect. The plaintiff's cost liability to the second defendant does not arise directly as a result of its incurring costs to institute and prosecute the proceeding. That liability arises indirectly as a result of its having prosecuted the proceeding against the second defendant. In the circumstances, it is appropriate that the first and third defendants each bear 50 per cent of the costs the subject of the Bullock order made against them and that any risk of non-recovery fall on the plaintiff rather than on one or other of the first or third defendants.

35 The orders as to costs that I propose to make are as follows:

1. The first and third defendants pay 90 per cent of the plaintiff's costs of the proceeding (against all defendants) on the standard basis.
2. Excluding the costs the subject of orders 3 and 4, the plaintiff pay the second defendant's costs of the proceeding on the standard basis.
3. The plaintiff pay those components of the second defendant's costs of the proceeding on the standard basis that relate to:

(a) Mr Way's evidence including his retainer; preparing, filing and serving his valuation reports; arranging for him to give evidence; proofing, interviewing or otherwise dealing with him; and his fees for preparing his valuation reports and attending to give evidence but excluding costs of counsel and the solicitor for the second defendant at trial of Mr Way (and Mr Kilby) giving evidence; and

(b) the preparation of the written closing address of the second defendant insofar as it addressed contingency and quantum issues as defined in my earlier reasons for judgment on costs.

1. The plaintiff pay those components of the second defendant's costs of the proceeding on the standard basis that relate to Mr Berrill's evidence including interviewing him; preparing, filing and serving his written witness statement; arranging for him to give evidence; proofing, interviewing or otherwise dealing with him; and his witness fees for attending to give evidence but excluding costs of counsel and the solicitor for the second defendant at trial of Mr Berrill giving evidence.
2. The first defendant indemnify the plaintiff in respect of 50 per cent of the costs the subject of order 3 and the third defendant indemnify the plaintiff in respect of 50 per cent of the costs the subject of order 3.
3. The first defendant indemnify the plaintiff in respect of 100 per cent of the costs the subject of order 4.
4. There be a single taxation of the costs the subject of order 3 as between the second defendant and the plaintiff under order 3 and as between the plaintiff and the first and third defendants under order 5.
5. There be a single taxation of the costs the subject of order 4 as between the second defendant and the plaintiff under order 4 and as between the plaintiff and the first defendant under order 6.
6. The liability of the third defendant to pay $902,558 the subject of the judgment entered on 7 April 2021 and to pay costs pursuant to these orders is capped at a total of $2,000,000.
7. The sums paid into court in the proceeding by the plaintiff for the security of the second defendant's costs, together with any accretions or interest, be held in court until further order.
8. Liberty to apply.

[1] ACN 115 918 959 Pty Ltd v Hoeys Lawyers Pty Ltd & Ors [2021] VSC 79.

[2] ACN 115 918 959 Pty Ltd v Hoeys Lawyers Pty Ltd & Ors (No 2) [2021] VSC 184.

[3] As was held by the New South Wales Court of Appeal in Tsu v Nemeth [2012] NSWCA 29 at [51]- [56] per Handley AJA (with whom Beazley and Whealy JJA agreed) in relation to apportionment of liability provisions in New South Wales.

[4] [2010] VSCA 355, (2010) 31 VR 46.

[5] [2012] NSWCA 29.

[7] At [69]-[70] (Citations omitted).

[8] See example Sangar v Gardiner [1838] EngR 850; (1838) C.P. Cooper 262, (1938) 47 ER 497 at 265 per Lord Langdale MR_; Thiess Watkins White Construction Ltd (in liq) v Witan Nominees (1985) Pty Ltd_ [1992] 2 Qd R 452 at 453 per Cooper J; Mond v Berger [2004] VSC 150, (2005) 21 BCL 125 at [122] per Dodds-Streeton J; Bitzer Australia Pty Ltd v Japp [2014] FCA 1040 at [45] per Katzmann J.

[9] Sanderson v Blyth Theatre Co [1903] 7 WLUK 131; [1903] UKLawRpKQB 161; [1903] 2 KB 533 at 539 per Romer LJ (with whom Vaughan Williams LJ agreed).