Good outcome: Shame about the costs order - A Sanderson costs order at first instance

An important consideration in any litigation is the question of legal costs and where liability for them may fall.  In multi-party litigation, the possible outcomes on costs become more numerous and accordingly the considerations relevant to the possible costs orders become more complicated.

In a recent Bartier Bulletin, General Rules Can Cause Major Problems, we considered the general rule on costs and the unusual situation where a successful party to legal proceedings ultimately became liable for the unsuccessful defendant’s costs.

In this Bartier Bulletin we look to the recent New South Wales Court of Appeal matter of Willett v Thomas [2012] NSWCA 97, and consider the circumstances in which the court may order that a successful defendant should not receive a costs order against the unsuccessful plaintiff, but rather an order against one or more unsuccessful defendants.

The First Instance Decision On Costs

In the Willett matter, the plaintiffs alleged that they had lost funds they invested in a business, which sold the street wear brand “SMP” in Australia.  They alleged that one of the defendants, Mr Willett, engaged in misleading and deceptive conduct and otherwise breached fiduciary obligations owed to the plaintiffs in inducing the plaintiffs to invest funds in the business. 

Mrs Willett was joined as a defendant a number of years after the proceedings were initially commenced, on the basis that she had also allegedly engaged in misleading and deceptive conduct concerning statements made to the plaintiffs as to the success and viability of the business.

After a six week trial, Mr Willett was found liable but Mrs Willett successfully defended the claim.  Mrs Willett argued that costs should follow the event and that the plaintiffs should pay her costs of the proceedings, given she was wholly successful against the plaintiffs.

As noted in Mark Tierney’s Bartier Bulletin, the Uniform Civil Procedure Rules 2005 provides that if the court makes any order as to costs, those costs should follow the event unless it appears to the court that some other order should be made as to the whole or any part of the costs.

Here however the trial judge found that the general rule on costs ought not apply and “some other order” as to costs ought to be made because, amongst other things, the evidence indicated the possibility that Mr Willett may not have owned any substantial assets, and it was Mr Willett’s practice to ensure that Mrs Willett was the owner of real estate in which he had an interest.

Based on that reasoning, the trial judge ordered that Mrs Willett’s costs be paid by Mr Willett, rather than the unsuccessful plaintiffs. This order is what is referred to as a “Sanderson” order.

To make a Sanderson order, the court must find:

1. that the conduct of the unsuccessful defendant justifies the making of the order; and

2. it was reasonable and proper for the plaintiff to have joined the successful defendant.

The Court of Appeal decision

The appropriateness of making the Sanderson costs order was appealed by Mrs Willett.

The Court of Appeal found that the primary Judge erred in finding that “some other order” in respect of Mrs Willett’s costs order ought to have been made. The Court of Appeal set aside the Sanderson order and replaced it with the usual order that the unsuccessful plaintiffs pay Mrs Willett’s costs.

In doing so, the Court of Appeal found that:

• The unsuccessful defendant (Mr Willett) did not say or do anything (he did not suggest Mrs Willett had engaged or participated in any unlawful conduct) which caused the plaintiff to join her as a defendant.

• To allow the Sanderson order to remain in place in this case would mean that such an order should almost always be made against an unsuccessful defendant where some defendants are successful and others are unsuccessful.

This decision serves as a further cautionary reminder to litigants that first instance decisions on costs can sometimes be out of line with the accepted principles. Accordingly when contemplating commencing or continuing court proceedings, assumptions as to costs outcomes should be recognised for what they are –assumptions and not certainties.