GROOM v EARTHMOVING CONTRS ASSOC OF SA INC

On 20 April 2001 following a trial[1] the plaintiffs' claim for specific performance was dismissed.

It is necessary to briefly outline the circumstances of the claim and the reasons for judgment before turning to the issue of costs.

The plaintiffs, Stephen Barry Groom and Pamela Dawn Groom are husband and wife. It was agreed that Mr Groom acted on behalf of his wife during the course of his dealings with the defendant. The defendant was the Earthmoving Contractors Association of SA Inc ("the Association").

The trial was heard on 1 and 2 February 2001. The Association was the registered owner of land at Dry Creek. It had decided to dispose of the land by tender. Mr Groom submitted a written tender to purchase the land at a specified price, to pay a deposit on acceptance of his tender and to settle within 30 days.

In the earlier judgment, the plaintiffs' claim was described at [11-12] in the following terms:

"The plaintiffs claimed to have a binding and enforceable agreement to purchase the land. Agreement was reached on 26 June 2000 when Mr Osborne told Mr Groom in a telephone conversation that his bid was the highest and that it had been accepted.

The plaintiffs asserted that the agreement was varied on 28 June 2000 when Mr Osborne spoke with Mr Harris. During that conversation it was agreed that the contract would be made subject to the attainment of bank finance approval by 5.00pm on 6 July 2000. Settlement was to be six weeks from 28 June 2000."

The plaintiffs contended that by refusing to settle, the Association acted in breach of contract. Specific performance is sought. The plaintiffs claim to be ready, willing and able to settle."

The defence case was summarized at [18-19] as follows:

"The Association denied that any valid, binding or enforceable agreement existed.

The Association's case was that the plaintiffs' tender had not been accepted. The tender was only to be accepted if the plaintiffs made financial arrangements satisfactory to the Association."

At trial the documentary material was not disputed. The credibility and reliability of witnesses were the key issues for determination.

The plaintiffs called Mr Groom and Mr Harris, their financial advisor, to give evidence. The Association called its executive officer, Mr Osborne. Mr Osborne's evidence was preferred to that of the plaintiffs' witnesses. The documentary material supported Mr Osborne's account. The following conclusions were reached at [62-64]:

"I was impressed by Mr Osborne. His account was clear and consistent. He presented as careful and meticulous. As earlier observed, contemporaneous documents and other evidence directly support his account. I consider Mr Osborne to be credible and reliable.

I was unimpressed with the evidence of Mr Groom and Mr Harris. There were significant differences between the plaintiffs' case as pleaded and the evidence. For example, the pleaded case of a variation on 28 June 2000 was not supported by the evidence of Mr Harris or Mr Groom. Mr Harris had no instructions to negotiate a variation. Mr Groom agreed that he gave Mr Harris no such instructions. Both witnesses were vague and inconsistent. Neither had support from the documentary evidence tendered. In a number of respects, their evidence was contradicted by contemporaneous documents.

Where the evidence differs, I prefer the evidence of Mr Osborne to that of Mr Groom and Mr Harris."

"The plaintiffs tendered for the purchase of the land. This was followed by negotiations. From the outset, the Association made it clear that it would not enter into an agreement without being satisfied of the plaintiffs' financial ability to settle. This was made clear to Mr Groom and Mr Harris by telephone. It was explicitly confirmed by facsimile. I am satisfied that Mr Groom and Mr Harris were well aware of this requirement. I am also satisfied that the Association stipulated that any agreement had to be unconditional. The plaintiffs did not make an unconditional offer in terms that were acceptable to or accepted by the Association. There was no contract for the sale and purchase of the land."

It is important to note that during final submissions counsel for the defendant did not assert that Mr Groom and Mr Harris were dishonest. There was no suggestion that they were deliberately giving false evidence.

The following chronology provides the background necessary to determine the application for indemnity costs. The events follow the defendant's rejection of the plaintiffs' tender.

On 27 July 2000, Mr Groom lodged a caveat to prevent any dealings with the land. Proceedings were issued in this court on 22 August 2000 and by 19 September 2000 the pleadings had closed. On 20 November 2000 the Association filed an offer to consent to judgment and made an offer by letter. On 12 January 2001 the matter was listed for hearing. The trial was conducted on 1 and 2 February 2001.

Mr and Mrs Groom were represented throughout the trial but were unrepresented on the hearing of the application for indemnity costs.

Section 40 of the Supreme Court Act 1935 (SA) provides:

"Subject to the express provisions of this Act, and to the rules of court, and to the express provisions of any other Act whenever passed, the costs of and incidental to all proceedings in the court, including the administration of estates and trusts, shall be in the discretion of the court or judge, and the court or judge shall have full power to determine by whom and to what extent such costs are to be paid."

(1) Notwithstanding the following provisions of this Rule and of the provisions of Rule 101A.01, the costs of any party, the amount thereof, the person by whom, or the fund or estate, or portion of an estate, out of which they are to be paid are in the discretion of the Court

(3) Matters to be taken into account on exercise of discretion. The Court in exercising its discretion as to costs may take into account (inter alia) any:

offer to consent to judgement, including a notice under Rule 41;

"(1) A defendant may, at any time up to 21 days prior to trial, lodge with the Registrar and serve upon all other parties a notice offering to consent to judgement in satisfaction or part satisfaction of the plaintiff's claim:

for a proportion of the plaintiff's claim expressed as a percentage;

for an order giving the plaintiff such relief as the defendant contends is sufficient to dispose of the whole action or of one or more causes of action.

"Where a plaintiff has not accepted a payment into Court or an offer to consent to judgement and:

the sum recovered, or as the case may be, the proportion of the debt, the damages or the relief recovered by the plaintiff, is no greater than that offered or paid into Court; or

the Court is of the opinion that the amount, percentage or relief offered was adequate the Court, unless it thinks proper to order otherwise shall order:

that the plaintiff recover against the defendant his costs incurred until 14 days after the service of the offer or the notice of the payment into Court.

that the defendant making such offer, recover against the plaintiff his costs incurred 14 days after the service of the offer, or the notice of the payment into Court."

It is usual for a court to make an order for costs on a party and party basis unless the circumstances warrant departure from that course.[2] The particular facts and circumstances of each case will dictate whether an order for costs on any other basis is warranted.[3] It has long been accepted that indemnity costs can be properly awarded where there is some special or unusual feature in the case to justify the court exercising its discretion. [4] However costs always remain in the discretion of the trial judge.

Bray CJ in Cretazzo v Lombardi[5] considered that the discretion must be exercised judicially. He said at (11):

"... the general discretion is absolute and unfettered, except that it must be exercised judicially, not arbitrarily or capriciously, and that it cannot be exercised on grounds unconnected with the litigation."

Categories for which indemnity costs may be awarded have been considered in previous cases. In Colgate Palmolive Co v Cussons Pty Ltd[6] Sheppard J considered the known categories at (257):

"... it is useful to note some of the circumstances which have been thought to warrant the exercise of the discretion. I instance the making of allegations of fraud knowing them to be false and the making of irrelevant allegations of fraud (both referred to by Woodward J in Fountain and also by Gummow J in Thors v Weekes [1989] FCA 540; (1989) 92 ALR 131 at 152); evidence of particular misconduct that causes loss of time to the court and to other parties (French J in Tetijo); the fact that the proceedings were commenced or continued for some ulterior motive (Davies J in Regata) or in wilful disregard of known facts or clearly established law (Woodward J in Fountain and French J in J-Corp); the making of allegations which ought never to have been made or the undue prolongation of a case by groundless contentions (Davies J in Ragata); an imprudent refusal of an offer to compromise (eg Messiter v Hutchinson (1987) 10 NSWLR 525; Maitland Hospital v Fisher (No 2) (1992) 27 NSWLR 721 at 724 (Court of Appeal); Crisp v Kent (SC(NSW) (CA), 27 Sept 1993, unreported) and an award of costs on an indemnity basis against a contemnor (eg Megarry V-C in EMI Records). Other categories of cases are to found in the reports. Yet others to arise in the future will have different features about them which may justify an order for costs on the indemnity basis. The question must always be whether the particular facts and circumstances of the case in question warrant the making of an order for payment of costs other than on a party and party basis."

In Ragata Developments Pty Ltd v Westpac Banking Corporation[7] Davies J said at (6):

"It is clear that the categories for the award of indemnity costs are not rigid. Each case must be considered on its own particular facts, having regard to the general principle that the usual award of party/party costs to the successful party should be made unless there are special circumstances to justify the making of a different order."

In Tetijo Holdings Pty Ltd v Keeprite Australia Pty Ltd [8] French J said at (8) that:

"the categories in which the discretion may be exercised are not closed".

In Marks v GIO Australia Holdings Ltd[9] Einfeld J at (581) held that in considering the question of costs, the court should not start with the usual rule that the unsuccessful party pay the costs of the successful party on a party and party basis. Instead the question of costs should be determined on the merits. However Cooper and Merkel JJ declined to follow this reasoning in Re Wilcox; Ex parte Venture Industries Pty Ltd[10]. Their Honours at (734) considered that the principles enunciated in Colgate Palmolive "ought to continue to be applied in the court". There is merit in this observation.

On 20 November 2000 the defendant filed an "Offer by Defendant to Consent to Judgement". The offer was as follows:

"The defendant hereby offers pursuant to Rule 40.01 to consent to judgement in the sum of fifteen thousand dollars ($15,000.00) in complete satisfaction of the plaintiffs' entire claim for relief plus costs to be taxed on the scale of costs applicable to a claim of $5,000.00 set out in Scale 3 entitled "Minor Civil Actions" in Schedule 3 to the Magistrates Court (Civil) Rules 1992"

In Cutts v Head[11] the court considered the admissibility of an offer of settlement contained in a 'without prejudice' letter. The offer was made before trial but the defendant reserved the right to bring the letter to the notice of the judge on the issue of costs. Oliver LJ said at (606):

"... it is, I think, clear that there can now no longer be said to be any reason in public policy why, where offers have been made and refused of everything which could be obtained by the proceedings, that fact should not be brought to the court's attention in the argument as to costs"

In MGICA (1992) Ltd v Kenny & Good Pty Ltd (No 4) [12] Lindgren J said at (710-711):

"It is important, however, to appreciate that the mere making of an offer by way of a 'Calderbank letter' and its non-acceptance followed by a result more favourable to the offeror (less favourable to the offeree) than that represented by the offer will not automatically lead to the making of an order for payment of costs on an indemnity basis ... it should not be assumed that the mere writing of a 'Calderbank letter' generates the same presumptive entitlement to indemnity costs ..."

The defendant's letter of 20 November 2000 fulfils the requirements as set out in Cutts v Head. It was a formal, without prejudice offer of settlement. It also provided:

"Aside from the formal position pursuant to Rule 40, please take notice that our client will contend that at any later hearing on costs that our clients are entitled to an order that all (or part) of their costs be paid and that your client is not entitled to an order that its costs be paid even if it is entirely (or partly) successful in this proceeding because of the dilatory manner in which your client has conducted its case."

This letter is admissible for the purpose of determining the question of costs and the orders to be made by this court.

Counsel for the defendant submitted that an order for indemnity costs was well justified. Reliance was placed on the alleged futility of the claim, the filed offer and the letter of offer. A suggestion that the plaintiffs had been dilatory was only faintly pursued. It was not suggested that any other special or unusual feature of the case warranted the order of indemnity costs

I consider that the plaintiffs proceeded with the appropriate urgency. An inter parties summons was filed on 22 August 2000. On 12 January 2001 the matter was listed for trial. The trial proceeded on 1 and 2 February 2001. Mr Groom filed an affidavit on 22 August 2000 which provided an explanation for the short delay in the issuing of proceedings. The plaintiff delayed filing proceedings to ascertain the defendant's reason for the rejection of the tender before incurring costs of litigation. I do not consider that the plaintiff proceeded in a dilatory manner.

The defendant submitted that whilst the plaintiffs sought specific performance rather than damages, the filed offer and letter constituted a reasonable commercial offer of compromise, which any prudent plaintiff would have accepted.[13]

I do not consider that the refusal of the offer was imprudent in the circumstances. Whilst the defendant filed an offer, the plaintiffs' claim was not for damages. The relief sought by the plaintiffs was for specific performance of the sale of the land.

The defendant further submitted that had the plaintiffs given proper and adequate instructions to their solicitor and had they been properly advised, they should have known that they had no chance of success. It was said that the evidence clearly demonstrated that the plaintiffs were opportunistic.[14]

In Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd[15] Woodward J said at (401):

"I believe that it is appropriate to consider awarding 'solicitor and client' or 'indemnity' costs, when ever it appears that an action has been commenced or continued in circumstances where the applicant, properly advised, should have known that he had no chance of success. In such cases the action must be presumed to have been commenced or continued for some ulterior motive, or because of some wilful disregard of the known facts or the clearly established law."

The present case was decided primarily on the credit of witnesses and the acceptance and rejection of their evidence. The plaintiffs did not wilfully disregard known facts or clearly established law. It was not a case in which the plaintiffs, even if properly advised should have known that they had no prospect of success[16].

No special or unusual feature warranting a grant of indemnity costs has been established. The refusal of the defendant's offer was not imprudent. This is not a case where the plaintiffs should have known that they had no prospect of success. An order for indemnity costs is not justified.

LIST OF CITATIONS AS THEY APPEAR IN THE ABOVE JUDGMENT

1 Groom v Earthmoving Contractors Assoc of SA Inc [2001] SASC 49

2 Colgate Palmolive Co v Cussons Pty Ltd [1993] FCA 536; (1994) 118 ALR 248 at 256; Duke Group Ltd (In Liquidation) v Pilmer [1998] SASC 6699

3 Colgate Palmolive Co v Cussons Pty Ltd [1993] FCA 536; (1994) 118 ALR 248 at 257; Duke Group Ltd (In Liquidation) v Pilmer [1998] SASC 6699

4 Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd [1988] FCA 202; (1988) 81 ALR 397

5 (1975) 13 SASR 4; Duke Group Ltd (In Liquidation) v Pilmer [1998] SASC 6699

6 [1993] FCA 536; (1994) 118 ALR 248

9 (1996) 137 ALR 579

10 (1996) 141 ALR 727

11 [1983] EWCA Civ 8; [1984] 1 All ER 597

12 [1996] FCA 862; (1996) 140 ALR 707

13 Bates trading as Riot Wetsuits v Omareef Pty Ltd trading as Quicksilver Wetsuits FC of A, 28 Oct 1997

14 Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd [1988] FCA 202; (1998) 81 ALR 397; Sheahan v Northern Australia Land Co [1995] SASC S5363

15 [1988] FCA 202; (1988) 81 ALR 397

16 Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd and Ors [1988] FCA 202; (1988) 81 ALR 397; Re Wilcox ex parte Venture Industries Pty Ltd (1996) 141 ALR 727

[1] Groom v Earthmoving Contractors Assoc of SA Inc [2001] SASC 49

[2] Colgate Palmolive Co v Cussons Pty Ltd [1993] FCA 536; (1994) 118 ALR 248 at 256_; Duke Group Ltd_ (In Liquidation) v Pilmer [1998] SASC 6699

[3] Colgate Palmolive Co v Cussons Pty Ltd [1993] FCA 536; (1994) 118 ALR 248 at 257_; Duke Group Ltd_ (In Liquidation) v Pilmer [1998] SASC 6699

[4] Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd [1988] FCA 202; (1988) 81 ALR 397

[5] (1975) 13 SASR 4; Duke Group Ltd (In Liquidation) v Pilmer [1998] SASC 6699

[6] [1993] FCA 536; (1994) 118 ALR 248

[9] (1996) 137 ALR 579

[10] (1996) 141 ALR 727

[11] [1983] EWCA Civ 8; [1984] 1 All ER 597

[12] [1996] FCA 862; (1996) 140 ALR 707

[13] Bates trading as Riot Wetsuits v Omareef Pty Ltd trading as Quicksilver Wetsuits FC of A, 28

[14] Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd [1988] FCA 202; (1998) 81 ALR 397; Sheahan v Northern Australia Land Co [1995] SASC S5363

[15] [1988] FCA 202; (1988) 81 ALR 397

[16] Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd and Ors [1988] FCA 202; (1988) 81 ALR 397; Re Wilcox; ex parte Venture Industries Pty Ltd (1996) 141 ALR 727