Snowy Mountains Grammar School Ltd v Adventurer AWD Pty Ltd (NSWSC 2022)

Costs orders can be fiddly things: they largely turn on the particular circumstances of individual cases and it is those circumstances that often make for interesting reading.

In Snowy Mountains Grammar School Ltd v Adventurer AWD Pty Ltd (NSWSC 2022) Rees J found the defendant made a misrepresentation in connection with the sale of a bus to the plaintiff, but it was the plaintiff that wore the costs (including indemnity costs) of the proceedings.

Brief Facts

• The plaintiff purchased a ;'new’ bus from the defendant for $135,000 in May 2018.
• By its silence (failing to disclose the bus was built in China in 2016) the defendant had made a misrepresentation to the plaintiff in selling it a ‘new’ bus.
• Notwithstanding the defendant’s misrepresentation, the school purchased the bus because of its immediate availability, it was all-wheel drive and its attractive price. That is, the misrepresentation was made but it was not relied upon by the plaintiff.

Offers of settlement

• Seven months before trial the defendant offered to settle by way of Offer of Compromise and Calderbank letter. The defendant offered to pay the plaintiff $135,000 (being the full purchase price), the bus would be returned and each party was to pay its own costs. The offer was not accepted.
• The plaintiff served an Offer of Compromise which proposed the defendant pay the plaintiff $136,500, the bus be returned and the defendant was to pay 85% of the plaintiff’s costs.

Submissions on costs

The defendant said that by operation of rule 42.12A of the Uniform Civil Procedure Rules 2005 (NSW) it was entitled to costs unless the court orders otherwise¹. The defendant had plainly offered the plaintiff a better outcome than it obtained in the judgment.

• Further and in the alternative, the defendant said the non-acceptance of its Calderbank letter entitled it to an order for costs on an indemnity basis having regard to the summary of relevant factors gathered by Ward CJ in Eq² including:
• the stage of the proceedings when the offer was made;
• the time permitted to consider the offer;
• the extent of the compromise offered;
• the 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 if the offer was not accepted.

The defendant contended it satisfied those conditions because the offer: was made seven months before trial so the plaintiff had substantial time to consider the offer; the offer was substantive and significant; and at the time the offer was made the evidence showed the plaintiff had purchased the bus because of its discounted price and immediate availability rather than because of the misrepresentation.

The plaintiff sought an order that each party should bear its own costs on the basis the Court found the misrepresentation was made and the defendant had contravened the Australian Consumer Law.

The plaintiff submitted it was reasonable for it to reject the defendant’s offer of Compromise and Calderbank letter because all of the defendant’s evidence had not been served at that time³; the defendant’s case had changed after making the offers⁴ and that the defendant had engaged in misconduct even if that misconduct fell short of forming a cause of action⁵.

Finally, the plaintiff submitted that defendants were entirely unsuccessful on their primary defence regarding the date of manufacture of the bus and its denial of any misleading and deceptive conduct. In those circumstances the plaintiff said the court was permitted to make an order in its favour as it had been successful on issues of significance⁶.

Orders

In rejecting the plaintiff’s submissions, her Honour confirmed that whilst it is relevant to consider whether rejecting a Calderbank offer was unreasonable, the same does not hold true in relation to the non-acceptance of an Offer of Compromise. In the latter case, an order for indemnity costs follows unless the court otherwise orders⁷ and that rule should be departed from only in exceptional cases⁸.

The defendant’s offer was made at a time when the value of the bus must necessarily have been less than the purchase price paid two years earlier. The offer was characterised by the judge as genuine, generous and reflected the defendant’s appreciation that it was exposed to an award of damages.

When the offer was made after the parties’ evidence was effectively on. There were some ‘late additions to the evidentiary landscape [however not in such a way that] … the school’s non-acceptance of the offer may be excused by information which later came to hand.’

The judge rejected the plaintiff’s submission that the ‘misconduct’ of the defendant amounted to conduct disallowing an award of costs in its favour. The plaintiff was unable to prove it relied on the misrepresentation or that it suffered loss. The conduct of the defendant fell well short of the standard of misconduct (a breach of the Corporations Act 2001 (Cth)) where a ‘court might well take into account that a successful party’s conduct has led to proceedings which might otherwise have been unnecessary.’ ⁹

The plaintiff school had not discharged its onus to show why the Court should exercise its discretion to depart from the defendant’s entitlement to indemnity costs following non-acceptance of an Offer of Compromise. In those circumstances, the judge found it unnecessary to consider the Calderbank offer.

Implications

Offers of Compromise served in accordance with the rules are a powerful tool: more powerful than a Calderbank offer in many circumstances because they operate without consideration of the reasonableness of their non-acceptance or rejection.

In this case it is easy to see how the plaintiff considered its position to be strong (evidenced by the content of its own Offer of Compromise). That feeling of strength no doubt arose because it was established early that the defendant had made a misrepresentation by its silence. Where the plaintiff’s case unraveled was its inability to show reliance on the misrepresentation leading to damage – causation.

Perhaps encouraged by her Honour’s obiter remarks about costs in delivering the primary judgment, the plaintiff hoped to dodge an indemnity costs order bullet. Nonetheless, the combined effect of the plaintiff not being able to establish that it relied on the defendant’s misrepresentation to its detriment and the effect of the plaintiff’s rejection of the defendant’s generous Offer of Compromise left the judge with little room to move and the indemnity costs order was made against the plaintiff. Sadly for the school, that old bus will cost it more than it ever imagined.