Classics for a Cause Pty Ltd v Grays Ecommerce Group Ltd

The offer

1. On 28 July 2022, after two 'rounds' of pleadings and particulars, and a mediation, Grays served an offer of compromise, offering to settle the proceedings as between the plaintiff and Grays on the basis of judgment for the plaintiff in the sum of $50,000, together with costs as agreed or assessed. The plaintiff accepts that the offer of compromise complied with the requirements of rule 20.26 of the Uniform Civil Procedure Rules 2005 (NSW).
2. The plaintiff did not respond to the offer. The plaintiff proceeded to serve its lay and expert evidence in September 2022. Grays served its lay and expert evidence in December 2022. The matter was listed for hearing for seven days, commencing on 1 June 2023. Ultimately, the plaintiff's claim failed where the contract - a User Agreement - contained a release in respect of such a claim, and for want of breach. The second defendant's cross-claim against the plaintiff failed for want of proof of damage.

Principles

1. Whilst it is relevant to consider whether the 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] (per Stone, Edmonds and Jagot JJ); [2010] FCAFC 31. In that event, an order for indemnity costs follows, unless the Court orders otherwise: New South Wales Insurance Ministerial Corp v Reeve (1993) 42 NSWLR 100 at 102 (per Gleeson CJ, Clarke and Cripps JJA agreeing); Morgan v Johnson (1998) 44 NSWLR 578 at 581-82 (per Mason P, Sheller and Powell JA agreeing).
2. There does not need to be "exceptional circumstances" before the Court will order otherwise. Nevertheless, "the prima facie position should only be departed from for proper reasons which, in general, only arise in an exceptional case": see Leach v The Nominal Defendant (QBE Insurance (Australia) Ltd) (No 2) [2014] NSWCA 391, McColl JA (per Gleeson JA and Sackville AJA agreeing) at [47]; Port Kembla Coal Terminal Ltd v Braverus Maritime Inc (No 2) [2004] FCA 1437; (2004) 212 ALR 281 at [17] (per Hely J).
3. The onus is on the offeree to demonstrate why the Court should depart from the consequence of its rejection of the offer: Leach v The Nominal Defendant (QBE Insurance (Australia) Ltd) (No 2) [2014] NSWCA 391 at [45] (per McColl JA). It is impossible to exhaustively state the circumstances in which the court's discretion to "order otherwise" might be exercised: Leach at [48]. The mere fact that it was reasonable for the litigant to take the view that he or she did in rejecting the offer is not enough to displace the rule, although this does not mean that reasonableness of the rejection is an irrelevant consideration: Leach at [48]. A "tight leash" should be maintained on the circumstances in which the Court should "order otherwise" so as to promote certainty in the operation of the rules relating to offers of compromise and discourage offerees who seek to 'game the system' and to discourage satellite litigation with respect to costs: Walker v Harwood [2017] NSWCA 228 at [22] (per Basten JA).

Multiple defendants

1. The plaintiff opposes an indemnity costs order following non-acceptance of the offer of compromise on two bases. First, the plaintiff submitted that acceptance of the offer of compromise would not have resolved the litigation; the plaintiff would have been required to run its case in any event. The plaintiff's claim against the second defendant would not have been resolved, where the second defendant had brought a cross-claim against both the plaintiff and Grays. As such, the litigation would have continued in respect of all three parties. In the circumstances, it was said that the only practical choice open to the plaintiff was to reject the offer.
2. The question of whether to make a special costs order in similar circumstances was considered in Zhang v Popvic (No 2) [2016] NSWSC 666. Adamson J (as her Honour then was) did not accept that it was reasonable for the plaintiff to reject an offer of compromise on the ground that it did not bring the proceedings to a conclusion; it was open to the plaintiff to accept the offer and continue to pursue his claim for damages against the other defendants: at [23].
3. Similarly, in CIMIC Group Ltd v AIG Australia Ltd (No 2) [2023] NSWSC 640, Peden J determined the plaintiff's claim against numerous defendant insurers as well as two cross claims. The plaintiff submitted that it was not unreasonable to reject a Calderbank offer from one defendant insurer given the multiplicity of defendants, relying on SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 and Nemeth v Prynew Pty Ltd [2009] NSWSC 511. Her Honour rejected this submission, where the claims against insurers were not "interdependent" and significant savings of time and cost would have resulted if the offer had been accepted: at [64]-[69].
4. Here, at the time of the offer, the plaintiff sought a declaration that it had good title to the car. The plaintiff sought damages from Grays for breach of contract or, alternatively, damages for conversion. In addition, the plaintiff sought compensation under the Australian Consumer Law. As against the second defendant, the plaintiff sought damages for conversion and an account of profits.
5. That the plaintiff's claim against the second defendant provoked a cross-claim is unsurprising. By the cross-claim, the second defendant sought a declaration that the PPSR claim was not valid and should not have been lodged by the plaintiff; damages were sought against the plaintiff. Damages were also sought against the plaintiff in respect of the inability to deal with the car, including a loss of opportunity. So far as the cross-claim against Grays was concerned, the second defendant sought reimbursement of the purchase price and damages, including loss of opportunity, if it was found that the car was not lawfully sold by Grays to the second defendant.
6. Acceptance of the offer of compromise would have had the consequence that the plaintiff's claim for damages against Grays, either for breach of contract, conversion or under the Australian Consumer Law, would have been resolved by entry of judgment in favour of the plaintiff for $50,000 plus costs as agreed or assessed. The plaintiff's claim against the second defendant and the cross claim would have remained on foot. Little is known of the second defendant's financial wherewithal, beyond its $1,000 issued share capital. Where Grays appears to have been the only defendant with 'deep pockets', it may well be that the plaintiff would have chosen not to pursue the litigation against the second defendant. But the plaintiff might have pressed on.
7. If the plaintiff chose to continue to press its claim against the second defendant, the plaintiff would still need to establish that it had good title to the car such that it was entitled to damages for conversion and an account of profits. But it is difficult to see how this was Grays' problem or, even if it was, how Grays could fix it. Grays could not resolve the proceedings between the plaintiff and the second defendant. Grays could only make an offer to resolve the plaintiff's claim against it. Grays sought to resolve the claim against it by making an offer of compromise in accordance with the rules. Where it was the plaintiff who chose to sue both Grays and the second defendant, I do not consider that Grays should be precluded by that choice from availing itself of the offer of compromise regime.
8. Of course, by making the offer, Grays ran the risk that the plaintiff may accept the offer but Grays may still be required to continue to participate in the proceedings as a cross-defendant. If Grays was prepared to pay the plaintiff $50,000 plus costs as agreed or assessed and also run the risk of remaining in the proceedings to defend the cross-claim, that was a matter for Grays. It is not, however, a matter which obliged the plaintiff to reject the offer of compromise, nor a matter which I consider of sufficient import to lead me to "order otherwise."

Success on unpleaded case?

1. The second basis on which the plaintiff resisted an indemnity costs order was that, at the time of the offer, it was said that Grays did not plead that it had acted reasonably in cancelling, or re-opening, the auction under the User Agreement. The evidence relied upon by Grays in relation to the circumstances in which it cancelled the auction and held another auction was not filed until after the offer had expired. It was this evidence that established the issue of whether Grays had acted reasonably. That is, this part of Grays' case was said to have been unpleaded and unparticularised, despite request, as at the date of the offer such that the plaintiff was not on notice of the case that it would have to meet and which was ultimately successful. These circumstances were said to justify a departure from the usual operation of rule 42.15A.
2. I do not agree that this issue was not identified as at the date that the offer of compromise was made. According to the Further Amended Commercial List Statement, the issues likely to arise included whether Grays was entitled to cancel the auction or whether Grays breached the User Agreement by cancelling the auction.
3. By its Further Amended Commercial List Response, Grays contended that it was entitled to re-open or, in the alternative, cancel the auction under the terms of the User Agreement. Issues likely to arise included whether clause 4.6 of the User Agreement allowed Grays to re-open or, alternatively, cancel the auction in the manner that it did. Grays specifically pleaded clause 4.6 of the User Agreement, including that Grays may, "acting reasonably," re-open or cancel an auction in the event of technological difficulties: at 2(ii). Grays contended that it exercised its rights under clause 4.6 of the User Agreement, either re-opening or cancelling the auction: at [13].
4. In reply, the plaintiff contended that any purported exercise of rights by Grays under clause 4.6 "was not reasonable and therefore of no force or effect."
5. I considered the terms of clause 4.6 of the User Agreement in my primary judgment at [128]. The clause gave Grays the option to take various steps in the event of a technological error "acting reasonably." By its pleading, Grays contended that it had legitimately exercised its rights under this clause, specifically, under clause 4.6(b) or, alternatively, clause 4.6(e). Both options fundamentally depended on Grays proving that it had acted reasonably. The plaintiff specifically disputed that Grays had done so. This matter was squarely in issue at the time of the offer. While Grays later put on evidence to prove that it had acted reasonably, Grays was obliged to do so where the plaintiff did not accept the offer of compromise. The costs consequences of the offer of compromise regime should follow.

Orders

1. For these reasons, I make the following orders: 1. Vary Order 1 made on 18 August 2023 such that the plaintiff is to pay the first defendant's costs: 1. on the ordinary basis until 28 July 2022; and 2. on an indemnity basis thereafter.

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