23 Oct 2008

Never mind the Bullocks, here's the Sandersons: Costs orders in a product liability context

by Chris Moore

Costs can be affected by adding the wrong defendants, or by a defendant's own behaviour.

In the product liability arena multiple defendants, drawn from the manufacture, distribution and supply chain, are not uncommon. That multiplicity is often caused by the plaintiff's inability, at least at the outset, to predict ultimately where the fault may lie (either in a factual or legal sense). If a plaintiff is successful against some, but not all, defendants, who bears the costs of the litigation?

Over the years the courts have developed methods of dealing with this situation, via a Bullock order or a Sanderson order. A recent decision has thrown some more light on this complicated issue.

In Skerbic v McCormack, a garage roller door fell on Ms Skerbic's head. There were three defendants:

  • the landlord of the premises
  • the manufacturer and supplier of the door; and
  • the installer.

The manufacturer was found liable, but the landlord and installer escaped liability. Additionally, the installer had offered to settle the matter, an offer which remained open until the start of the hearing (known as a Calderbank letter).

What effect did all this have on costs? This question was answered by the ACT Supreme Court in Skerbic v McCormack [2008] ACTSC 4.

Calderbanks, Bullocks and Sandersons

A Calderbank letter is a type of settlement offer made before trial. It becomes relevant to costs if the offer is rejected and the author of the letter obtains a result the same or better than as offered in the letter.

A Bullock order is an order that the plaintiff pay the costs of the successful defendant(s) but add those costs as a disbursement to the plaintiff's own costs against the unsuccessful defendant.

A Sanderson order is an order made directly against an unsuccessful defendant to pay the costs of a successful defendant, as well as the costs of the plaintiff.

To make either order, the court must find:

  • it was reasonable and proper for the plaintiff to have sued the successful defendant - for example, it might have been sufficiently unclear where the liability lay to justify joining the party; and
  • there is something in the conduct of the unsuccessful defendant which would justify making the order.

Who paid what to whom? The successful landlord's costs

The Court found that Ms Skerbic acted reasonably and properly in suing the landlord. She no longer lived at the apartment and had no right to enter upon it or instruct experts to do so. By suing the landlord, she was able to arrange expert inspection and assessment of the garage door, which ultimately led to the joinder of the manufacturer.

Nothing the manufacturer did, however, led or encouraged Ms Skerbic to bring or continue proceedings against the landlord. It conducted the litigation entirely without reference to Ms Skerbic's claim against the landlord.

Accordingly, there was no justification for an order against the manufacturer for the landlord's costs (with the exception of the cost of an expert's report the landlord had commissioned, because Ms Skerbic would have commissioned it as part of her case against the manufacturer in any event).

Who paid what to whom? The successful installer's costs

The manufacturer had initially joined the installer as a third party and maintained its claim in the proceedings. Accordingly, the manufacturer was ordered to pay the installer's costs as between party and party, including its costs of the action and of the third party claim. Though not expressly stated in the judgment, the order to pay the installer's costs of the action (ie. its costs occasioned by Ms Skerbic) had effect as a Sanderson order. The manufacturer would on ordinary principles have been liable to pay the costs of its unsuccessful third party action.

Ms Skerbic rejected the installer's Calderbank offer which remained open until the start of the hearing. She argued that she should not be subjected to a penal order as to costs, because "it would have been unreasonable to expect her at that stage to predict the outcome of the litigation and to let the [installer] out, when it remained a possibility that … she might fail against the [manufacturer] but succeed against the [installer]".

The Court concluded that the installer, in making the offer, reasonably took such limited steps as were available to end the litigation against it before the hearing and that some encouragement should be given to such efforts. Accordingly, Ms Skerbic was ordered to pay the installer the difference between its costs from the date the offer lapsed, as between solicitor and client, and its costs subsequent to that date as between party and party (which were ordered to be paid by the manufacturer). That is, Ms Skerbic was ordered to pay the gap between the party/party and the solicitor/client costs from the date of the offer.

Lessons for plaintiffs and defendants

The case raises issues for both plaintiffs and defendants in product liability cases, requiring careful tactical consideration:

  • Plaintiffs must be selective in joining appropriate defendants. This means they must balance the need to sue all potential defendants (particularly important where proportionate liability issues may be present) and the need to avoid paying costs to successful defendants.
  • A defendant must ensure the case is not conducted in a manner which may give rise to any argument that it would be fair to award costs of any successful defendants against it. This may include the extent to which a defendant may seek to exculpate itself by seeking to lay blame upon other defendants in the action.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.