SSABR Pty Ltd v AMA Group Limited

SSABR Pty Ltd v AMA Group Limited - [2024] NSWCA 201 - NSWCA 2024 case summary — Zoe

Judgment

WARD P: I agree with Stern JA.
STERN JA: In this matter, orders were made on 23 July 2024 allowing an appeal by SSABR Pty Ltd ("SSABR") and HAAPRC Pty Ltd ("HAAPRC") (together, the "appellants"): SSABR Pty Ltd v AMA Group Limited [2024] NSWCA 175 (the "appeal judgment"). The appeal was from orders made on 15 December 2023: SSABR Pty Ltd v AMA Group Ltd [2023] NSWSC 1551 (the "primary judgment").
In lieu of the orders made by the primary judge, this Court dismissed the respondents' cross-claim, which had sought rectification both as a matter of construction and at equity, of a Business Sale Agreement (the "BSA") entered into on 3 October 2018, pursuant to which the first respondent, AMA Group Limited ("AMA"), purchased two of the appellants' businesses, Simply Smashing Auto Group Pty Ltd ("Simply Smashing") and H&A Prestige Repair Group Pty Ltd ("Harris & Adams") (together, the "Businesses"). The primary judge, having decided in favour of the respondents on the cross-claim, did not determine the claims made by the appellants that the respondents had not paid them the deferred consideration (or "Earn-Out") to which they were entitled under cl 5.1 of the BSA. In these circumstances, this Court ordered that prayers 1-4 of the summons filed by the appellants on 8 September 2021 (the "undetermined claims") be remitted to the primary judge for determination.
This Court also ordered that the respondents pay the appellants' costs of the appeal and set aside the primary judge's order that the appellants pay the respondents' costs of the proceedings at first instance (up to 12 October 2023 on a party and party basis and on an indemnity basis thereafter): SSABR Pty Ltd v AMA Group Ltd (No 2) [2024] NSWSC 24.
It should be observed, however, that significant expert and lay evidence was adduced before the primary judge on the undetermined claims. Thus, an issue necessarily arose as to what, if any, order should be made by this Court as to the costs of the proceedings (to date) before the primary judge. This Court thus directed that the parties exchange submissions on the question of costs of the proceedings at first instance. The submissions of both parties in chief and reply have now been filed.
In summary, the parties' positions as to the costs of the proceedings at first instance are as follows.
The appellants contend that the respondents should pay their costs of the proceedings at first instance. In support of this, the appellants contend that the respondents' cross-claim for rectification was the dominant issue in the proceedings and that the dismissal of the rectification claim means that the appellants will necessarily succeed in their claim for breach of contract, albeit to a lesser extent than they will if they are also successful on the undetermined claims. The appellants contend that it is certain that there will be judgment in their favour in at least the sum of $452,190.44 (being the minimum value of the Earn-Out having regard to the rejection of the respondents' rectification claim plus interest), and that this, of itself, justifies an award of costs in their favour in respect of the proceedings at first instance. The appellants also contend that this is not a case in which it would be appropriate to depart from the usual position against apportionment of costs on an issue-by-issue basis, relying upon Firebird Global Master Fund II Ltd v Republic of Nauru (No 2) [2015] HCA 53; (2015) 90 ALJR 270 at [6] and Hawkesbury District Health Service Ltd v Chaker (No 2) [2011] NSWCA 30 at [14]. In this regard, the appellants rely also upon the fact that the respondents had persisted in a counter-claim which was withdrawn shortly before the trial.
The appellants also seek a variation of order (6) of the orders of this Court of 23 July 2024, in which the respondents were ordered to pay the appellants' costs of the appeal. The appellants seek instead an order that the respondents pay the appellants' costs of the appeal proceedings on an ordinary basis up to 11 June 2024 and thereafter on an indemnity basis. In support of this submission, the appellants rely upon an affidavit of John Finney affirmed 31 July 2024: 1. Attaching a letter dated 11 June 2024 from CBD Law, the solicitors for the appellants, to K&L Gates, the solicitors for the respondents, offering under the principles in Calderbank v Calderbank [1975] 3 All ER 333 to resolve the proceedings as a whole (the "11 June 2024 Offer") on terms that: 1. The respondents pay the appellants $874,460 (inclusive of a fixed sum of costs of $500,000), stating that the appellants' solicitor/client costs incurred in the proceedings at first instance were $750,000; 2. The parties enter into a Deed of Settlement with mutual releases in respect of the subject matter of the appeal and proceedings below; 3. The appeal proceedings are dismissed; and 4. The offer remained open up to 4.00pm on 21 June 2024. 1. A letter from K&L Gates to CBD Law dated 18 June 2024 indicating that they were instructed to reject the offer.
The appellants also rely upon an affidavit of Alexandra Smith sworn 17 April 2024, read on the respondents' application for security of costs on the appeal, in which Ms Smith sets out that the respondents' recoverable costs of the proceedings at first instance were $674,701.20 and the respondents' costs of the appeal to 17 April 2024 were $29,413.
Whilst not recognised as such in the appellants' submissions, the appellants are seeking that the Court vary its orders under Uniform Civil Procedure Rules 2005 (NSW) ("UCPR"), r 36.16. No notice of motion has been filed seeking such variation: cf UCPR, r 36.16(1). Moreover, ordinarily, questions of costs should be raised and addressed at the appeal hearing, rather than by parties making separate and subsequent applications: Aktas v Westpac Banking Corporation Ltd (No 2) (2010) 241 CLR 570; [2010] HCA 47 at [5]-[7]. As this Court said in Fuller v Albert (No 2) [2021] NSWCA 183 at [31]: "… If [parties] wish to make submissions on costs, they should either do so at the hearing of the appeal, addressing the foreseeable possible outcomes, or in special circumstances seek leave to make costs submissions after the outcome is known."
At the hearing there was no suggestion that the appellants would wish to make costs submissions, nor was there any such suggestion in the appellants' written submissions on the appeal. However, as the submissions give timely written notice of the application, albeit that no motion was filed within the 14 day period prescribed, we will treat this as an application under UCPR, r 36.16(3) and dispense, under s 14 of the Civil Procedure Act 2005 (NSW), with the requirement under UCPR, r 18.2 that a notice of motion be filed and served: see eg State of New South Wales v Hollingsworth (No 2) [2023] NSWCA 283 at [25] (Mitchelmore, Stern JJA and Basten AJA).
The respondents contend that it is premature to determine the costs of the proceedings at first instance where the value of the Earn-Out is yet to be determined. They say that the ultimate determination as to this is the "event" of the litigation. Also, the respondents contend, the undetermined claims are valuable and occupied a substantial part of the hearing at first instance. The respondents further rely upon the fact that the appellants lost significant claims before the primary judge, and the rejection of those claims was not appealed. These included claims for breaches of contractual duties of good faith and to co-operate and for misleading and deceptive conduct. The respondents also point to the fact that the appellants withdrew other claims shortly before the hearing before the primary judge. The respondents say, in effect, that once the value of the Earn-Out is finally calculated, it is possible that the appellants will not be entitled to the whole of their costs of the proceedings at first instance: see eg James v Surf Road Nominees Pty Ltd [No 2] [2005] NSWCA 296 at [35]. Finally, the respondents submit that it is unlikely that either of the Calderbank offers prior to trial will lead to an order for indemnity costs.
As to the costs of the appeal, in their submissions in reply, the respondents contend that as at the date of the 11 June 2024 Offer, the amount of their ultimate liability was unknown in the event that they lost the appeal. Thus, it could not be said that the amount of the 11 June 2024 Offer was lower than the minimum amount which would be payable by the respondents in the event they were to lose the appeal. Given the remaining claims, and the potential impact of those claims on the question of costs, the respondents contend that the 11 June 2024 Offer did not present a genuine compromise and it was not unreasonable for the respondents to reject it. It should be observed, however, that the respondents do not, in their submissions, suggest any error in the appellants' calculation of the minimum sum to which the appellants will be entitled as being $452,190.44, including interest of $77,730.44 (from the date 90 days after 12 October 2020 to the date of judgment in the Court of Appeal, being 23 July 2024).

[4]

Determination

As to the costs of the proceedings below, I accept, for the reasons submitted by the respondents, that it is premature to make an order as to costs in circumstances where there remains a real possibility that the appellants may not be entitled to the whole of the costs of those proceedings. As the respondents contend, before the primary judge the appellants withdrew some claims shortly before the hearing and lost significant claims going to the value of the Earn-Out. Much of the evidence at trial, and the entirety of the expert evidence, went to the issues arising on the remaining claims. In these circumstances the Court cannot be confident that the appellants will be entitled to the whole of their costs of the proceedings below, notwithstanding their success on the rectification issue on appeal. It should be noted, in this regard, that the submission of junior counsel for the appellants on appeal was that: "… a large portion of the hearing and the costs were spent on the appellants' primary claim concerning accounting issues which the primary judge did not determine and it's unclear what the outcome of determination of those accounting issues would have been, and it may have been that the appellants would have had the ability to make a separate costs application relating to apportionment if the accounting issues and the appellants' primary claim had been determined."
As to the costs of the appeal, the application to vary order (6) of this Court's orders of 23 July 2024 should be dismissed. A Calderbank offer does not trigger an automatic order for indemnity costs: SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 at [37] (Giles JA); Valmont Interiors Pty Ltd v Giorgio Armani Australia Pty Ltd (No 3) [2021] NSWCA 160 at [21] (Bell P, Macfarlan and Leeming JJA). The question is whether there was a genuine offer of compromise and whether the offeree acted unreasonably in all the circumstances in refusing the offer, with the issue of reasonableness being assessed at the time the offer is made and not with the benefit of hindsight: Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 at [8]; Krolczyk v Winner (t/as J Winner Building Services) [2022] NSWCA 196 at [217] (Griffiths AJA, White and Kirk JJA agreeing)
Given the uncertainty as to what order will ultimately be made as to the costs at first instance, it cannot be said that the respondents acted unreasonably in rejecting the 11 June 2024 Offer. That uncertainty arises by reason of the inclusion in the 11 June 2024 Offer of the significant sum of $500,000 on account of costs. If the appellants are not ultimately awarded the whole of their costs of the hearing below, they may well receive significantly less than that sum. Even on the assumption that the appellants will be entitled to the sum of $374,460 plus interest of at least $77,730.44, there remains a real possibility that the appellants will receive (by way of judgment, interest and costs) less than the amount of $874,460, as set out in the 11 June 2024 Offer. Whilst it is also possible that the appellants will succeed on the undetermined claims and be awarded more than this amount, that possibility did not make it unreasonable for the respondents to refuse the 11 June 2024 Offer.
Further, given this uncertainty, it cannot be said that the appellants will necessarily obtain an order or judgment on the claim which is more favourable than the terms of the 11 June 2024 Offer.

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