Supreme Court New South Wales Medium Neutral Citation: Snowy Mountains Grammar School Ltd v Adventurer AWD Pty Ltd [2022] NSWSC 53 Hearing dates: On the papers: last submission 31 January 2022. Date of orders: 4 February 2022 Decision date: 04 February 2022 Jurisdiction: Equity Before: Rees J Decision: Indemnity costs following non-acceptance of Offer of Compromise. Catchwords: COSTS — relevance of reasonableness in rejection of offers of compromise – presumption in favour of indemnity costs not displaced – indemnity costs ordered. Legislation Cited: Uniform Civil Procedure Rules 2005 (NSW) Cases Cited: Amaca Pty Ltd v Werfel (No 2) [2021] SASCFC 26 Bostik Australia Pty Ltd v Liddiard (No 2) [2009] NSWCA 304 Cross v Queensland Newspapers Pty Ltd (No 2) [2008] NSWCA 120 Futuretronics.com.au Pty Ltd v Graphix Labels Pty Ltd [2009] FCAFC 40 IFTC Broking Services Ltd v Commissioner of Taxation (2010) 268 ALR 1 IFTC Broking Services Ltd v Commissioner of Taxation (2010) 268 ALR 1; [2010] FCAFC 31 Jainti Pty Limited v Fraser Panorama Pty Limited (2) [2021] NSWSC 965 James v Surf Road Nominees Pty Ltd (No 2) [2005] NSWCA 296 Latoudis v Casey (1990) 170 CLR 534 Leach v The Nominal Defendant (QBE Insurance (Australia) Ltd) (No 2) [2014] NSWCA 391 Morgan v Johnson (1998) 44 NSWLR 478 New South Wales Insurance Ministerial Corp v Reeve (1993) 42 NSWLR 100 Port Kembla Coal Terminal Ltd v Braverus Maritime Inc (No 2) (2004) 212 ALR 281; [2004] FCA 1437 Queensland North Australia Pty Ltd v Takeovers Panel (No 2) (2015) 236 FCR 370; [2015] FCAFC 128 Ritter v Godfrey [1920] 2 KB 47 Roads and Traffic Authority (NSW) v McGregor (No 2) [2005] NSWCA 453 Snowy Mountains Grammar School Ltd v Adventurer AWD Pty Ltd [2021] NSWSC 1602 South Eastern Sydney Area Health Service v King [2006] NSWCA 2 Sydney Ferries v Morton (No 2) [2010] NSWCA 238 Tarabay v Leite [2008] NSWCA 259 Vale v Eggins (No 2) [2007] NSWCA 12 Category: Costs Parties: Snowy Mountains Grammar School Ltd (Plaintiff) Adventurer AWD Pty Ltd (First Defendant) Neil Bamford (Second Defendant) Representation: Counsel: Mr S O'Donnell (Solicitor) (Plaintiff) Mr M Zammit (Defendants) Solicitors: HWL Ebsworth Lawyers (Plaintiff) VS George Lawyers (Defendants) File Number(s): 2018/385055 Judgment 1. HER HONOUR: I gave judgment in this matter on 17 December 2021: Snowy Mountains Grammar School Ltd v Adventurer AWD Pty Ltd [2021] NSWSC 1602. In short, I found that the defendants had engaged in misleading and deceptive conduct by silence when selling a bus to a school. However, the school board did not rely on the misrepresentation but appreciated that the bus was old stock offered for sale at a large discount. The bus was also attractive to the school for other reasons. In the event that I was wrong, I endeavoured to assess damages: the evidence as to damage was incomplete but, doing the best I could, I considered that the school's damages were $73,250. As to costs, I observed at [159]: Whilst the school has not established its claim, the defendants did contravene the Australian Consumer Law. It may be in those circumstances that an appropriate costs order is that each party bear their own costs of the proceedings. As I noted at the commencement of the hearing, the small quantum of the school's claim may also make it appropriate for the Court to cap the parties' costs. However, it is appropriate that I give the parties an opportunity to either agree upon an order as to costs, or failing agreement, make brief submissions addressing these considerations. I made directions for the parties to serve submissions and affidavits in respect of costs and, in the event that no submissions were filed, ordered that there be no order as to the costs of the proceedings. 1. The defendants now seek an order for costs, including on an indemnity basis, by reason of the school's non-acceptance of an Offer of Compromise and Calderbank letter. The defendants relied on an affidavit by their solicitor, Vinesh George, who annexed the Offer of Compromise and Calderbank letter served on 2 November 2020 and the school's reply on 16 November 2020. By the Offer of Compromise, the defendants offered to pay the school $135,000, for the school to return the bus to the defendants and that there be no order as to costs. The Calderbank letter made the same offer, accompanied by the defendants' explanation as to why the offer should be accepted, including because the $135,000 represented a full refund of the price of the bus. The defendants' solicitor added, "The Plaintiff has chosen to litigate to make up for its inadequate due diligence when purchasing the bus and/or its failure to accept that a bus made in China and which is half the cost of an Australian manufactured 4WD bus does not have the same build quality as an Australian manufactured bus." 2. In reply, the school also served an Offer of Compromise offering to accept $136,500, to deliver the bus to the defendants, and for the defendants "to pay 85% of the plaintiff's costs of the proceedings as agreed or assessed." As payment of the plaintiff's costs at such a level is ordinarily commensurate with indemnity costs, the element of compromise is not obvious. Submissions 1. The defendants observed that an order that the plaintiff pay their costs of the proceedings is the usual rule that costs should follow the event: rule 42.1, Uniform Civil Procedure Rules 2005 (NSW) (UCPR); Latoudis v Casey (1990) 170 CLR 534 at 566-567 (McHugh J). Where an offer of compromise has been made in compliance with the Rules, the offer is not accepted and the defendant later obtains a judgment no less favourable to that which was offered, the defendant is entitled to such costs unless the Court orders otherwise: UCPR, rule 42.15A; Leach v The Nominal Defendant (QBE Insurance (Australia) Ltd) (No 2) [2014] NSWCA 391 at [40]. The offer must constitute a genuine offer of compromise based on an objective assessment of the circumstances of the particular case at the time the offer was made rather than with the benefit of hindsight: Leach at [41] and [42]. The defendants submitted that they have obtained a judgment significantly more favourable than the Offer of Compromise (and that is clearly the case). Where an entitlement arises under UCPR, rule 42.15A, the onus is on the plaintiff to demonstrate why the Court should exercise its discretion to depart from that entitlement: Leach at [29] and [45]. 2. Alternatively, the defendants sought indemnity costs by reason of the Calderbank letter. It was submitted that the plaintiff's non-acceptance of the offer was in all the circumstances unreasonable, pointing to the summary of the relevant factors by Ward CJ in Eq in Jainti Pty Limited v Fraser Panorama Pty Limited (2) [2021] NSWSC 965 Ward CJ in Eq at [64] including the stage of the proceedings when the offer was made, the time allowed to consider the offer, the extent of the compromise offered, prospects of the offeree's success assessed at the time of the offer, the clarity of the offer and whether the offer foreshadowed an application for indemnity costs in the event the offeree rejected the offer. The defendants submitted that the offer was made seven months before the trial; the plaintiff had substantial time to consider the Calderbank offer; the offer was substantive; at the time of the Calderbank offer, it was said that the affidavit evidence indicated that the school had purchased the bus due to its discounted price and immediate availability for delivery rather than any misrepresentation and, as such, there was a real risk that the plaintiff would fail. 3. The plaintiff submitted that the appropriate costs order was that each party bear its own costs given my finding that the defendants contravened the Australian Consumer Law. Further, it was said that it was reasonable for the plaintiff to reject the defendants' offer of compromise and Calderbank offer as all of the defendants' evidence had not been served at the time of the offers: Vale v Eggins (No 2) [2007] NSWCA 12 at [22]. It was said that the defendants' case changed after the making of the offers: South Eastern Sydney Area Health Service v King [2006] NSWCA 2 at [85]. Further, it said that the defendants, although successful, had perpetrated misconduct, even though falling short of a cause of action: Queensland North Australia Pty Ltd v Takeovers Panel (No 2) (2015) 236 FCR 370; [2015] FCAFC 128 at [20]-[21], citing Ritter v Godfrey (1919) [1920] 2 KB 47 per Atkin LJ; see also Amaca Pty Ltd v Werfel (No 2) [2021] SASCFC 26 at [62]. 4. The plaintiff also submitted that the defendants were wholly unsuccessful on their primary defence of the proceedings regarding the date of manufacture of the bus (this is not correct) and their denial of having engaged in misleading and deceptive conduct (this is correct). The Court may depart from the general rule if the unsuccessful party succeeds on significant issues: James v Surf Road Nominees Pty Ltd (No 2) [2005] NSWCA 296 at [31]–[36]; Bostik Australia Pty Ltd v Liddiard (No 2) [2009] NSWCA 304 at [38]; Sydney Ferries v Morton (No 2) [2010] NSWCA 238 at [10]–[12]; Roads and Traffic Authority (NSW) v McGregor (No 2) [2005] NSWCA 453 at [20]; Cross v Queensland Newspapers Pty Ltd (No 2) [2008] NSWCA 120 at [13]; Tarabay v Leite [2008] NSWCA 259 at [76]. The primary basis for the defendants' success was said to be causation, which was said not to be referred to in the Calderbank letter (although I note that the suggestion by the defendants' solicitor that the school had been drawn to purchase the bus as it was "half the cost of an Australian manufactured 4WD bus" did touch upon the subject). Conclusion 1. Whilst it is relevant to consider whether rejection of a Calderbank offer was unreasonable when deciding whether to make an order for indemnity costs, the same is not the case where an Offer of Compromise has been served in accordance with the rules: IFTC Broking Services Ltd v Commissioner of Taxation (2010) 268 ALR 1 at [12]; [2010] FCAFC 31, citing Futuretronics.com.au Pty Ltd v Graphix Labels Pty Ltd [2009] FCAFC 40. In that event, an order for indemnity costs follows, unless the Court otherwise orders: New South Wales Insurance Ministerial Corp v Reeve (1993) 42 NSWLR 100 at 102; Morgan v Johnson (1998) 44 NSWLR 478 at 581-82. This rule will only be departed from in "exceptional cases": Port Kembla Coal Terminal Ltd v Braverus Maritime Inc (No 2) (2004) 212 ALR 281 at [17]-[18]; [2004] FCA 1437. 2. The defendants obviously appreciated that their exposure to an award of damages in this case was significant, as reflected in the terms of the offers made on 2 November 2020; the offer was a genuine (and generous) offer of compromise. It is also certainly the case that the defendants have done better than their offer to pay $135,000 in return for the bus. (The offer was made more than two years after the bus had been sold and thus, presumably, the bus was then worth considerably less than it had been sold for.) As to the offer that there be no orders as to costs, the rules now provide that an Offer of Compromise may include such an offer: UCPR, rule 20.26(3)(a)(i). (The accompanying letter noted that the defendants had then spent in excess of $100,000 in defending the proceedings.) 3. At the time that these offers were exchanged, the matter had been recently set down for hearing by Registrar Walton. The parties' evidence was on, albeit an amended expert report was later served by the defendants in May 2021 for Trevor Booth. The substance of Mr Booth's evidence had already been set out in his original report but was certainly clarified in his amended report. As noted in my primary judgment, Mr Booth was an impressive witness whose evidence I accepted. For its part, the school also served an affidavit by Elizabeth Heath shortly before the commencement of the hearing on 7 June 2021. Ms Heath was centrally involved in the school's acquisition of the bus. Although there were some late additions to the evidentiary landscape, the position does not appear to me to have changed greatly after exchange of the offers of compromise such that the school's non-acceptance of the offer may be excused by information which later came to hand. 4. As to misconduct, I take the plaintiff to be relying on the third rule established in Ritter, where Atkin LJ held that a defendant may be deprived of their costs where they have "done some wrongful act in the course of the transaction of which the plaintiff complained", such that the wrongful act complained of constitutes "criminal or quasi-criminal misconduct such as fraud or crime or preparation for a fraud or crime, or possibly some serious act of oppression": at 60-61. Applying Ritter, the Full Court of the Federal Court in Queensland North Australia held that the defendant's alleged misconduct in that case, being a breach of the Corporations Act 2001 (Cth), did not meet the standard envisaged in Ritter but that, "in some circumstances, the Court might well take into account that a successful party's conduct has led to proceedings which might otherwise have been unnecessary": at [20]-[21]. 5. Given that I found that the plaintiff did not rely on the misrepresentation (at [153]), it is hard to see how the defendants' conduct led to proceedings which might otherwise have been unnecessary. Whilst it is true that Mr Bamford omitted the bus' Build Year from the contractual documents, I do not consider that this amounted to "misconduct" in the sense used in the authorities such that the ordinary rule – that costs follow the event – should be displaced. 6. It is certainly true that the school established that the defendants had engaged in misleading and deceptive conduct by silence. That is one element of the cause of action. In order to succeed, the school also needed to establish that it relied on the representation and suffered loss as a consequence. The school proved neither. Ordinarily, the school would be obliged to pay the defendants' costs of defending the claim. Having regard to the submissions made by both sides, I consider that I should not depart from the usual rule in this case, notwithstanding my initial thoughts on the subject noted in my primary judgment. Nor has the plaintiff discharge its onus to demonstrate why the Court should exercise its discretion to depart from the defendants' entitlement to indemnity costs following non-acceptance of an Offer of Compromise. It is not necessary to consider the Calderbank offer. The defendants are entitled to the costs orders they seek. Orders 1. For these reasons, I make the following orders: 1. Order the plaintiff to pay the defendants' costs of the proceedings on an ordinary basis until 2 November 2020 and on an indemnity basis thereafter. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 04 February 2022