Mendrecki v Doan & Pham (No 4) - [2009] SADC 145

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
MENDRECKI v DOAN & PHAM & ORS (No 4)
[2009] SADC 145
Judgment of His Honour Judge Rice
17 December 2009
PROCEDURE - COSTS
Successful appeal and cross-appeal - Costs of trial remitted - Orders made.
AFA Airconditioning Pty Ltd v Mendrecki & Ors; Doan & Anor v Mendrecki & Ors (No 2) [2008] SASC 236; Bullock v London General Omnibus Company and Others [1907] 1 KB 264; Roads and Traffic Authority of New South Wales v Dederer and Another (2007) 238 ALR 761; Cornwall & Ors v Rowan (No 2) [2005] 239 LSJS 153; Fennell v Supervision and Engineering Services Holdings Pty Ltd and Santos Ltd (1988) 47 SASR 6; Bankamerica Finance Ltd v Nock [1988] 1 AC 1002; Pirrotta v Citibank Ltd and Others (1998) 72 SASR 259; Walker and Anor v Corporation of the City of Adelaide and Ors (No 2) (2004) 234 LSJS 18; Gould and Another v Vaggelas and Others (1984) 58 ALJR 560; Thorne v Doug Wade Consultants Pty Ltd [1985] VR 433, considered.

MENDRECKI v DOAN & PHAM & ORS (No 4)
[2009] SADC 145
Introduction

These are various applications for orders (including special orders) as to some of the costs of trial following a successful appeal by the first, second and fourth defendants (so as to have the finding of liability against them set aside) and a successful cross-appeal by the plaintiff (as to the quantum of damages).
History of the proceedings
Something needs to be said about the history of the proceedings to put the present applications in their proper context.
On 16 July 1998, the plaintiff was injured when working at a domestic building site installing air-conditioning units. On 22 December 2006 I published reasons whereby each of the five defendants was held liable for a certain percentage of the plaintiff’s assessed damages. The first and second defendants were the house owners, the third defendant was the builder, the fourth defendant was the air-conditioning sub-contractor and the fifth defendant was the carpenter.
On 2 February 2007 I made orders in accord with the published judgment.
On 15 February 2007 I made a series of orders in relation to the costs of the action together with discrete orders for costs arising from the actual conduct of the original trial. Those orders were the subject of a schedule of the same date. As will be seen below, the Full Court allowed the appeal (as to quantum) and cross-appeals (releasing the first, second and fourth defendants from any liability), but leaving intact orders 3-10 of 15 February 2007.
On 1 March 2007, I made yet further orders concerning costs and contribution between the defendants for the total sum payable to the plaintiff.
On 17 July 2008 the Full Court allowed the appeals and cross-appeals to which reference has been made.
On 27 August 2008 the Full Court made adjustments to its orders of 17 July 2008 as to the quantum of damages due to the plaintiff and made certain costs orders concerning the appeals and cross-appeals. That judgment[1] included these paragraphs (paras 18 and 19):
The plaintiff sought orders in the nature of a Sanderson [see Sanderson v Blyth Theatre Co [1903] 2 KB 533] order or alternatively a Bullock [see Bullock v London General Omnibus Co [1907] 1 KB 264] order against the third and fifth defendants in relation to the costs of the trial. Those defendants were not represented on the appeal. They have not been heard on the costs consequences for the trial of the orders that must now be made on the appeals and cross-appeals. Furthermore, the question whether a Sanderson or Bullock order should be made in respect of the trial costs is best reserved to the trial Judge for determination on notice to the third and fifth defendants in the light of the orders now to be made on the appeal.
We are therefore of the view that the costs of the action, including the costs of the contribution proceedings, should be remitted to the trial Judge for determination subject to the orders of the District Court identified in the formal orders of this Court.
[1] AFA Airconditioning Pty Ltd v Mendrecki & Ors; Doan & Anor v Mendrecki & Ors (No 2) [2008] SASC 236
The Full Court, having regard to paras 18 and 19, made the following orders:
3.That the following paragraphs of the orders of the District Court of South Australia made on the respective dates hereunder be set aside:
....
15 February 2007: Paragraph 2
.....
6.That, subject to the orders of the District Court of South Australia not set aside [as above], the question of the costs of the action including the costs of the contribution proceedings be remitted to the trial Judge for determination upon notice to the third and fifth defendants.
On 10 October 2008, having regard to paras 18 and 19 and the Full Court orders quoted above, I ordered that all parties serve on the third and fifth defendants, their submissions concerning the costs of trial in the light of the orders of the Full Court. Further, one of the orders I made in these terms:
6.The third and fifth defendants to apply to a Judge of the District Court to apportion liability as between themselves within 50 days of today’s date (as per paragraph 5 of the orders of the Full Court on page 5 of Judgment No. [2008] SASC 236).
I am satisfied that the third and fifth defendants were served with these submissions. Neither chose to attend on a further mention date nor the occasion of the oral submissions as to the trial costs because, as I understand the position, each was and remains indigent.
Orders, as amended, sought by the plaintiff
1.In addition to the orders for costs made on 15 February, 2007 in paragraphs 3-10, the plaintiff’s costs of and incidental to the action are to be paid by the third defendant on a party and party basis.
2.In addition to the orders for costs made on 15 February, 2007 in paragraphs 3-10, the plaintiff’s costs of and incidental to the action are to be paid by the fifth defendant on a party and party basis.
3.The third defendant pay the costs of the first and second defendants and the fourth defendant on a party and party basis.
4.The fifth defendant pay the costs of the first and second defendants and the fourth defendant on a party and party basis.
In view of the original findings concerning the liability of the third defendant and the fifth defendant which remain in place, it is appropriate to make the first and second orders.
Turning to the stay application before Judge Chivell on 22 March 2007, I consider that I have the power to make an award of costs relating to the application. In the application, the first, second and fourth defendants successfully argued that there should be a stay of execution of the original orders as against them in favour of the plaintiff. The plaintiff unsuccessfully argued against the making of such an order. In that situation, the first, second and fourth defendants should have their costs of and incidental to the application paid by the plaintiff on a party and party basis.
Sanderson orders sought by the plaintiff
In the light of the findings and orders of the Full Court, the plaintiff seeks a special order that the unsuccessful defendants (third and fifth defendants) pay the costs of the successful defendants (first, second and fourth defendants). In other words, bearing in mind that the first, second and fourth defendants want their costs, the plaintiff submits that those costs should be paid directly by the third and fifth defendants.
Part of the argument related to whether a Sanderson order or a Bullock order ought to be made. As to a Bullock order, in certain circumstances a Court will order an unsuccessful defendant to pay not only the plaintiff’s costs but also the plaintiff’s liability for costs to a successful defendant (Bullock v London General Omnibus Company and Others[2]). The difference was explained by McGarvie J in Thorne v Doug Wade Consultants Pty Ltd[3]:
The essential difference between the two forms of order is that although in both an unsuccessful defendant is ordered to pay the costs of the successful defendant, in a Sanderson order the unsuccessful defendant is ordered to pay those costs direct to the successful defendant, whereas by a Bullock order the plaintiff will recover from the unsuccessful defendant the costs of the successful defendant which he has been ordered to pay.
[2] [1907] 1 KB 264
[3] [1985] VR 433 at 500
The plaintiff relies upon this statement of principle (concerning both types of orders, but seeks a Sanderson order) from Roads and Traffic Authority of New South Wales v Dederer and Another[4]:
[180]Principle governing special orders: In the Court of Appeal, Mr Dederer sought what Ipp JA described as ‘a Sanderson order (that is, an order by which an unsuccessful defendant is ordered to pay the costs of the successful defendant directly to that defendant)’. As his Honour pointed out, the Sanderson order is a type of Bullock order, although the latter involves the unsuccessful defendant being ordered to pay to the plaintiff the costs of the successful defendant for which the plaintiff is directly liable. Unsurprisingly, the principles governing such orders are substantially the same. Writing of a Bullock order, Gibbs CJ in Gould v Vaggelas approved of a dictum of Blackburn CJ to the effect that:
…[T]here 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. (Footnotes omitted)
[4] (2007) 238 ALR 761 (at para 180)
The first and second defendants do not oppose a Bullock order but they do oppose a Sanderson order. The fourth defendant submits there should be a Bullock order against the fifth defendant, but not the third defendant. The argument comes down to which type of special order should be made.
The circumstances in which the making of a Bullock order may be made were considered in Cornwall & Ors v Rowan (No 2)[5]. There the Court accepted the test as proposed by von Doussa J in Fennell v Supervision and Engineering Services Holdings Pty Ltd and Santos Ltd[6] where he said:
In my opinion the principle to be discerned from Gould v Vaggelas (supra) is that a Bullock order may be made where the costs in question have been reasonably and properly incurred by the plaintiff as between him and the unsuccessful defendant; as between them those costs will be so incurred where the conduct of the unsuccessful defendant in relation to the plaintiff’s claim shows that the joinder of the successful defendant was reasonable and proper to ensure recovery.
The plaintiff submits that suing the successful defendants was reasonable because quite reasonable factual and legal arguments were accepted at trial (even though not on appeal).
[5] [2005] 239 LSJS 153 at para 51
[6] (1988) 47 SASR 6 (at p 19)
As to the second condition, the plaintiff submits the conduct of the unsuccessful defendants has made it fair to impose some liability on them for the costs of the successful defendants. In this regard, it is important to note each denied liability, each sought to blame the other by serving contribution notices and advanced proportionate liability relying upon s 72 of the Development Act. Then, as between some defendants there were discrete factual differences.
The plaintiff submits that, in choosing between a Bullock order or a Sanderson order, it becomes a matter for the Court’s discretion, one of the factors being the balance of hardship. Reliance was placed on Bankamerica Finance Ltd v Nock[7].
[7] [1988] 1 AC 1002 (at 1010)
As to hardship, the plaintiff has a judgment in his favour of over one million dollars but will be unable to recover against either the third defendant or the fifth defendant because neither has any funds. Any order for costs against each of those defendants is equally worthless. The real hardship to him would to now be liable to the first defendant, the second defendant and the fourth defendant for their costs. Such would be the consequences of a Bullock order. In reality, the plaintiff submits that a Sanderson order is the just order, even if that means the successful defendants have to bear their own costs of the trial.
Submissions by the first and second defendants
I deal first with the orders sought by the first and second defendants about which there is no dispute or no submissions.
I have already indicated that it is appropriate to make an order that the first, second and fourth defendants have their costs from the plaintiff on a party and party basis relative to the stay application heard by Judge Chivell on 22 March 2007.
In relation to the contribution proceedings, having regard to the original findings, it is appropriate that the fifth defendant pay the costs of the first and second defendants on the contribution proceedings exchanged between them on a party and party basis. The first and second defendants seek such an order up to 6 January 2005 and thereafter on a solicitor and client basis. That latter aspect of the matter is considered below, but certainly the costs on a party and party basis is appropriate.
Similarly, the first and second defendants seek such an order against the third defendant (apart from the costs in relation to the contractual issues for which the first and second defendants were separately represented) on the contribution proceedings. Such an order is also appropriate, leaving to one side whether any such order is on a solicitor and client basis for any period.
Further, there cannot be any doubt that the first and second defendants are entitled to an order for their trial costs from the unsuccessful parties, including the plaintiff (subject to specific orders that have not been challenged). The contest is as to the nature of the order and the basis of those costs.
Should any of the costs of the first and second defendants be on a solicitor and client basis?
It was submitted by the first and second defendants that they made genuine efforts to resolve the action at least as against them, in late 2004, by certain offers. The first and second defendants having been completely successful on appeal, bettered the offer made to the plaintiff (and the third and fifth defendants). Having regard to the result of the appeal, it was submitted that it was unreasonable for the plaintiff to refuse to accept the offer. It was submitted that, in this situation, it was proper to give effect to a Calderbank offer as a relevant factor when considering indemnity costs: Pirrotta v Citibank Ltd and Others[8].
[8] (1998) 72 SASR 259 (at pp 266-267)
The first and second defendants make the point that the letter of offer made in late 2004, was made part the way through the plaintiff’s evidence and that the rule in place at that time was strictly not applicable. In that situation, the defendants sought an extension of time within which to lodge an offer. The plaintiff did not consent to such an extension and it was refused. It was submitted that the plaintiff is now not legitimately in a position to complain that the letter of offer should not be regarded as a relevant factor when considering indemnity costs.
In my view, the letter of offer is but one factor to be considered on this aspect of the costs. It is up to the first and second defendants to show that the plaintiff was unreasonable in rejecting the offer.
This was complex litigation whereby the positions of each of the defendants (counting the first and second defendants as one defendant) were legally and factually quite different. Each defendant denied liability and sought a contribution from the others if found liable. The first and second defendants pleaded and relied upon proportionate liability by virtue of s 72 of the Development Act.
In my view, the plaintiff had a reasonably arguable case against the first and second defendants. As things stood at the time of the letter of offer, quite how the evidence would resolve was very much uncertain and none of the defendants had then given evidence.
As for the suggested failure or refusal to mediate as grounding a basis for solicitor client costs, my view is the same but for different reasons. As the plaintiff points out, there was “…little basis for mediation if all the defendants continue to deny responsibility.” It was not unreasonable for the plaintiff to refuse to mediate at that stage. A combination of the letter of offer and the failure or refusal to mediate does not justify an order for solicitor client costs from about the time of the letter of offer.
Bullock or Sanderson order
As mentioned, the first and second defendants oppose a Sanderson order, that is, an order whereby the unsuccessful defendants are ordered to pay the successful defendants’ costs, direct.
The first and second defendants have no submissions as to a Bullock order, that is, an order whereby the plaintiff will recover from the unsuccessful defendants the costs of the successful defendants which he had been ordered to pay.
As has been mentioned, the unsuccessful third and fifth defendants are without funds. It was submitted that to make a Sanderson order would cast upon the successful defendants the burden of the unsuccessful defendants’ insolvency: Walker and Anor v Corporation of the City of Adelaide and Ors (No 2)[9].
[9] (2004) 234 LSJS 18 (para 48).
It was also submitted that the plaintiff organised his affairs such that he would have no money in the event of an adverse costs order against him. It was put that the plaintiff took a calculated risk because he had no assets to meet costs if he lost the case and, in effect, gambled that one or more of the insured defendants would be found liable so as to meet a judgment and costs. Against that background it is said he was not prepared to engage in any meaningful settlement negotiations or mediation or accept a reasonable offer. As against that, his damages on appeal can be said to be a vindication of that stance.
Submissions on behalf of the fourth defendant
Mr Bell, who appeared on behalf of the fourth defendant, did not oppose an order in respect of the stay application, leaving it to the Court to decide whether the order should be made by myself of Judge Chivell.
The application for costs by the fourth defendant against the plaintiff is different in the sense that it is simply an application for party and party costs.
The fourth defendant goes on to submit that it may be that the Court would have more difficulty making a Bullock order against the third defendant than as against the fifth defendant. That submission was made on the basis that there needs to be something in the conduct of the unsuccessful defendant which makes it reasonable that it should have to meet the plaintiff’s costs of the successful (relying upon Gould and Another v Vaggelas and Others[10]). In effect what was being submitted was that the third defendant distanced himself from the installation of the air-conditioning, whereas the fifth defendant said he told Mr Kurda (of the fourth defendant) that the air-conditioning should not be installed, thus necessitating the joining of the fourth defendant.
[10] (1984) 58 ALJR 560
The fourth defendant is very much opposed to the making of a Sanderson order and supports the making of a Bullock order, in effect, that there should simply be one recovery. In this regard the fourth defendant relies upon the same sort of argument put forward by the first and second defendants. Apart from some indemnity costs, the fourth defendant submits that the first, second and fourth defendants should be treated the same for these purposes.

On the question of hardship when considering a Sanderson order, there is no evidence that the plaintiff is insolvent, even though he may have divested himself of assets or arranged his affairs to protect against an adverse costs order. It seems, however, that the plaintiff has little by way of assets and is not earning.
Discussion
This is a case where it is appropriate to make a special order. The principles have been discussed above.
It was reasonable for the plaintiff to sue both the first and second defendants and the fourth defendant. The plaintiff, on the face of the pleadings, had a reasonable argument against each of those defendants. Reliance by all defendants upon the possibility of proportionate liability pursuant to s 72 of the Development Act is, to my mind, a major consideration. The precise reach of s 72 had not, up to that point, been the subject of authoritative decision, certainly not in the Full Court. If it applied to the plaintiff’s situation, there was a risk that by proceeding against some parties only, that only partial recovery may be made. Additional proceedings may then have been necessary against other parties. Multiple litigation arising from the same cause of action involves unnecessary duplication of costs and is, in any event, contrary to the public interest. I accept the plaintiff’s submission that, on that basis alone, it was virtually inevitable that the plaintiff had to continue with proceedings against all possible defendants. The fact that the plaintiff had arranged his affairs to guard against an adverse costs order is not enough to warrant not making a Sanderson order. It could be seen as prudent conduct having regard to the exigencies of litigation.
I accept the plaintiff’s written submission (para 31):
The fact of the third and fifth defendant’s inability to pay both the judgment sum of $1,011,723.96 from 2 February, 2007 together with interest accruing thereon under the rules and to pay any orders as to costs is a relevant factor in the exercise of the discretion to order a Sanderson order. That matter is relied upon by the plaintiff as to the balance of hardship above.
In the exercise of my discretion, it is appropriate to make a Sanderson order.
A Schedule of Costs Orders is annexed hereto.
ANNEXURE
SCHEDULE OF COSTS ORDERS MADE ON 17 DECEMBER 2009
1.In addition to the orders for costs made on 15 February 2007 in paragraphs 3-10, the plaintiff’s costs of and incidental to the action are to be paid by the third defendant on a party and party basis.
2.In addition to the orders for costs made on 15 February 2007 in paragraphs 3-10, the plaintiff’s costs of and incidental to the action are to be paid by the fifth defendant on a party and party basis.
3.The third defendant pay the costs of the first and second defendants and the fourth defendant on a party and party basis.
4.The fifth defendant pay the costs of the first and second defendants and the fourth defendant on a party and party basis.
5.The plaintiff pay the costs of the first, second and fourth defendants, on a party and party basis, with respect to the stay application heard by Judge Chivell on 22 March 2007.
6.The fifth defendant pay the costs of the first and second defendants on the contribution proceedings exchanged between them on a party and party basis.
7.The third defendant pay the costs of the first and second defendants (apart from the costs in relation to the contractual issues for which the first and second defendants were separately represented) on the contribution proceedings exchanged between them on a party and party basis.
8.The third defendant to pay the costs of the fourth defendant on the contribution proceedings exchanged between them.
9.The fifth defendant to pay the costs of the fourth defendant on the contribution proceedings exchanged between them.