Settlements unapportioned between costs and damages

Morris v Riverwild Management Pty Ltd [2009] VSC 439 is a decision of Justice Pagone in an unusual dispute.  A developer built some apartments at Falls Creek.  Something obviously went wrong, because he and one of the purchasers of an apartment sued the architect, the builder, the structural engineer and his company, the supervising engineer and his company, and the building supervisor.  The claimants entered into the following settlements with the defendants at around the same time:

  • Architect: $1.4 million plus the claimants’ costs to be taxed on the Supreme Court scale (28%)
  • Certifying engineer: $1.5 million inclusive of costs (30%)
  • Builder: $175,000 all-in (3.5%)
  • Building surveyor: $1.85 million inclusive of interest and costs (37%)
  • Structural engineer: $79,000 inclusive of interest and costs (1.6%).

The claimants got a smidge over $5 million.  The percentage borne by each respondent is shown above in brackets.  The architect no doubt got a shock when the plaintiffs served a bill of costs for $2 million, including the costs of pursuing the other defendants.  ‘I don’t think so!’ he objected, and Justice Pagone agreed (though a litigation estoppel based on facts I have not included meant that this was a Pyrrhic victory).  The architect said if the claimants got all of their costs from him, they would get a part of their costs twice: first from him, and second from the other respondents who had paid settlements which included the costs of the claim against them.  The part of the costs they would get twice was the costs which were not referable exclusively to the claim against the architect.

Justice Pagone said, having identified various statements in the other respondents’ terms of settlement as to the consideration flowing between the parties, expressed as including releases in relation to costs claims:

‘The “consideration establishes the matter in respect of which the moneys are received”.[6] It would be wrong “to read the contract [constituted by the terms of settlement] as if the words ‘including claims for costs’ were not there”.[7] Nor is there anything in the terms of settlement which would displace the general principle that the credit to be given to one wrongdoer in respect of recovery from another wrongdoer should be adjusted to take into account any additional or separate claim which the claimants in VCAT had against the various wrongdoers.[8]

8 In my view the claimants … settled against all of the respondents … on a basis by which some proportion of the proceeds of settlement were referrable to, and received in part as, the costs which had been incurred in pursuing the … proceeding, including costs incurred against them in common with the claims pursued against [the architect]. … [T]he defendants … should not be permitted to recover all of the costs sought against [the architect] to the extent that those costs were referrable to, and were part of, the costs [claims] comprised in the settlements with the other respondents …’

[6] Federal Coke Co Pty Ltd v Federal Commissioner of Taxation [1977] FCA 3; (1977) 34 FLR 375, 402 (Brennan J), considered in Federal Commissioner of Taxation v CSR Ltd [2000] FCA 1513; (2000) 104 FCR 44.

[7] Banque Keyser Ullman SA v Skandia (UK) Insurance Co Ltd (No 2) [1988] 2 All ER 880, 882, g., (Steyn J).

[8] Ibid.

So, the architect should not have to pay so much of the claimants’ costs as the other respondents should be taken to have agreed to pay pursuant to their settlements.  But how to work out how much each of them should be taken to have agreed to pay, given that the parties lumped them all together, and the claimants had presumably never allocated their party party costs as against the pursuit of each of the separate respondents?  And some of the costs were presumably common to all of the claims (e.g. that part of the party-party costs allowed for the statement of claim which set out background information about the claimants).  Justice Pagone decided that a broad-brush approach was desirable in order to avoid complex satellite litigation.  Two alternatives were suggested: the four respondents other than the architect should be taken to have contributed one-quarter of the relevant part of the claimants’ costs each, or each should be taken to have contributed to the claimants’ costs in the same proportion as they contributed to the damages received by the claimants.  Justice Pagone seems to have plumped for a mid-point.  His Honour said the three major contributors should each be taken to have contributed 30% and the two more minor contributors 5% each.

The respondents other than the architect were to be taken as having paid 70% of the claimants’ common costs, with the result that the architect’s settlement agreement to pay ‘the claimants’ costs’ should be allowed only to the extent allowed by the rule against double-recovery, namely 30%.

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