Distilleria Pty Ltd v De Bourbel Pty Ltd - [2022] SASC 21

SUPREME COURT OF SOUTH AUSTRALIA
(Appeal to a Single Judge)
DISTILLERIA PTY LTD & ANOR v DE BOURBEL PTY LTD
[2022] SASC 21
Judgment of the Honourable Justice Nicholson
9 March 2022
PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - SECURITY FOR COSTS - APPEAL OR REVIEW
PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - SECURITY FOR COSTS - FACTORS RELEVANT TO EXERCISE OF DISCRETION
PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - SECURITY FOR COSTS - FACTORS RELEVANT TO EXERCISE OF DISCRETION - PROSPECTS OF SUCCESS
PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - SECURITY FOR COSTS - FACTORS RELEVANT TO EXERCISE OF DISCRETION - STIFLING OF LITIGATION
Appeal against dismissal of application for security for costs.
On 15 October 2020, the first applicant, Distilleria Pty Ltd, filed an interlocutory application for an order that the respondent, De Bourbel Pty Ltd, provide security for costs. The Master dismissed the application, finding that the order would stultify the litigation, that one of the claims, the distraint claim, appeared very strong and that another claim, the director’s duties breach claim, should be investigated and explored by litigation in the court.
On appeal, the applicants complained that the Master had: erred in both forming a view and as to the view he formed about the strength of De Bourbel’s case on the distraint issue and its case for breach of director’s duties (grounds 1, 3 and 5); failed to provide adequate reasons (grounds 2 and 4); and erred in the weight he gave various considerations (grounds 6 to 8). The respondent contended that it was open to the Master to find that the distraint claim was strong and that there was a triable issue with respect to the director’s duties claim, that the Master’s reasons are adequate when considered as a whole, and that the Master correctly addressed the remaining considerations.
Held:
1. Appeal dismissed.
Uniform Civil Rules 2020 (SA) r 213.1, r 213.2; Retail and Commercial Leases Act 1995 (SA), referred to.
House v The King (1936) 55 CLR 499; Lichaa v Boutros [2021] NSWCA 322, considered.

DISTILLERIA PTY LTD & ANOR v DE BOURBEL PTY LTD
[2022] SASC 21
Single Judge Appeal: Civil
Introduction

On 15 October 2020, the first appellant, Distilleria Pty Ltd (Distilleria), filed an interlocutory application for orders that the respondent, De Bourbel Pty Ltd (De Bourbel), provide security for costs and that the proceedings be stayed if De Bourbel fails to do so. On 24 September 2021, a Master of this Court dismissed the application.[1] Distilleria appeals against that dismissal.
[1] In the Matter of De Bourbel Pty Ltd (in liq) (Supreme Court of South Australia, Judge Dart, 24 September 2021) (Master’s reasons).
Background
De Bourbel operated a business in Victor Harbor, under the name Rochfort Distillery, that produced both whiskey and gin. Distilleria owns the land on which De Bourbel operated, which included a distillery, restaurant, function space and cellar door. Giuliano Ursini, the second…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2022] SASC 21
Decision Date: 9 March 2022

CaseChat Overview and Summary

Distilleria Pty Ltd appealed a decision of a Master of the Supreme Court of South Australia, who dismissed an interlocutory application for an order that the respondent, De Bourbel Pty Ltd, provide security for costs and that the proceedings be stayed if it failed to do so. The parties have a long-standing business relationship, which is the subject of ongoing litigation. The Master’s decision dismissed the application on the basis that De Bourbel’s case against Distilleria had some prospects of success, and that the application had the potential to stifle De Bourbel’s ability to pursue its claims against Distilleria. The appeal focused on the Master’s assessment of the strength of De Bourbel’s claims and whether the Master had adequately considered the relevant factors in making his decision.

The court considered the principles governing appeals against discretionary decisions and the factors relevant to an application for security for costs. The court noted that the Master’s decision was within his discretion and that there was no error in his assessment of the strength of De Bourbel’s claims. The court held that the Master was entitled to form a view on the strength of De Bourbel’s claims, even if it was not necessary to do so in this case. The court found that the Master had adequately considered the relevant factors and that there was no error in his decision.

The appeal was dismissed, and the decision of the Master was upheld. The court found that the Master had correctly exercised his discretion in dismissing the application for security for costs.

Orders

Orders of the court

Held:

1. Appeal dismissed.

Background

Background to the litigation

On 15 October 2020, the first appellant, Distilleria Pty Ltd (Distilleria), filed an interlocutory application for orders that the respondent, De Bourbel Pty Ltd (De Bourbel), provide security for costs and that the proceedings be stayed if De Bourbel fails to do so. On 24 September 2021, a Master of this Court dismissed the application.[1] Distilleria appeals against that dismissal.[1] In the Matter of De Bourbel Pty Ltd (in liq) (Supreme Court of South Australia, Judge Dart, 24 September 2021) (Master’s reasons).Background De Bourbel operated a business in Victor Harbor, under the name Rochfort Distillery, that produced both whiskey and gin. Distilleria owns the land on which De Bourbel operated, which included a distillery, restaurant, function space and cellar door. Giuliano Ursini, the second appellant, is the sole director of Distilleria and is one of the three directors of De Bourbel, the other two being members of the Rochfort family. The arrangement between De Bourbel and Distilleria to work together was oral or, perhaps, partly written and partly oral. There is no executed document identifying the agreement or the legal nature of the agreement pursuant to which De Bourbel operated on Distilleria’s land. De Bourbel argues that it had a licence to occupy while Distilleria contends that the arrangement comprised a lease. The specifics of De Bourbel’s obligation to pay rent or a licence fee are also disputed. De Bourbel contends there was no obligation to pay anything until it began to make a profit and was in a position to afford to pay for its occupation. Distilleria submits that it granted De Bourbel an indulgence with respect to the rent, the specifics of which it has described as “complex”[2] but the expectation was that rent would start being paid within a month or two of occupation. Other aspects of the relationship, including who owns the plant and equipment in the distillery, are also contested.[2] Distilleria written submissions dated 12 January 2022 (FDN 5) at [53]. De Bourbel commenced occupying Distilleria’s Victor Harbor premises in 2018.[3] No invoices were sent to De Bourbel until 27 February 2020, when Distilleria sent De Bourbel 16 invoices totalling $289,782.46 for the entire period of occupation. The invoices stated that they were due and payable within seven days.[3] Master’s reasons at [7] record April 2018; Distilleria written submissions at [21] records October 2018. On 25 March 2020, Distilleria purported to distrain De Bourbel’s goods on the Victor Harbor land and to terminate the lease. On 27 March 2020, by a unanimous vote of all three directors, De Bourbel entered into voluntary liquidation. Distilleria maintains that it is the principal creditor being owed approximately $2 million which is unsecured. On 19 June 2020, De Bourbel commenced proceedings in this Court against Distilleria seeking a number of orders. On 29 July 2021, De Bourbel filed an amended (revision 2) statement of claim (FDN 49). De Bourbel’s claims include:(i)relief from unlawful distraint of goods and damages;(ii)declaratory relief with respect to its purported ownership of plant and equipment;(iii)damages for breach of director’s duties owed by Mr Urisni; and(iv)declaratory relief with respect to certain barrels and contents alleged to be privately owned by third parties.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

Distilleria’s complaints can be distilled to the following:(i)The Master erred in both forming a view and as to the view he formed about the strength of De Bourbel’s case on the distraint issue and its case against Mr Ursini for breach of director’s duties (appeal grounds 1, 3 and 5).(ii)The Master failed to provide adequate reasons (appeal grounds 2 and 4).(iii)The Master erred in the weight he gave various considerations (appeal grounds 6 to 8).Legal principles: discretionary decisions The necessary approach to an appeal regarding a discretionary decision is as set out in House v The King.[12]The manner in which an appeal against an exercise of discretion should be determined is governed by established principles. It is not enough that the judges composing the appellate court consider that, if they had been in the position of the primary judge, they would have taken a different course. It must appear that some error has been made in the exercise of the discretion. If the judge acts upon a wrong principle, if he allows extraneous or irrelevant matters to guide or affect him, if he mistakes the facts, if he does not take into account some material consideration, then his determination should be reviewed, and the appellate court may exercise its own discretion in substitution for his if it has the materials for doing so.[12] (1936) 55 CLR 499 at 504-505.Legal principles: applications for security for costs where a company is the applicant The Master’s summary of the relevant principles has not been disputed by either party. It is sufficient for present purposes and I repeat his Honour’s summary.[13][13] Master’s reasons at [17]-[21].There have been provisions, in company legislation, providing for security for costs since the 19th century. The mere fact that there is a power to award security does not predispose the Court to act one way or the other. In John Arnold’s Surf Shop Pty Ltd (In Liq) v Heller Factors Pty Ltd & Anor[14] our Full Court was dealing with the relevant provision of the Companies Act 1962-1974. It was in very similar terms to the current provision. Mitchell J said:[14] (1979) 22 SASR 20.I am of the opinion that to approach s. 363 with a pre-disposition to make an order for security for costs would be to fetter the discretion which the legislation has left unfettered. It would be, as it seems to me, equally wrong to exercise the discretion in favour of making an order merely because the section enables such an order to be made as it would be to refuse an order merely because the company is impecunious.[15]The comments of Mitchell J have been widely approved and referred to including in Ariss & Anor v Express Interiors Pty Ltd (In Liq),[16] a decision of the Court of Appeal of the Supreme Court of Victoria relied upon by the respondents. The case is relied upon by the respondents as an example of an order for security for costs being made against a company in liquidation, notwithstanding a claim of stultification. The principal judgment was written by Phillips JA.In Ariss Phillips JA noted a proposition put by Megarry VC in Pearson v Naydler.[17] He said:It seems plain enough that the inability of the plaintiff company to pay the defendant’s costs is a matter which not only opens the jurisdiction but also provides a substantial factor in the decision whether to exercise it. It is inherent in the whole concept of the section that the court is to have power to order the company to do what it is likely to find difficult in doing, namely, to provide security for the costs which ex hypothesi it is likely to be unable to pay. At the same time, the court must not allow the section to be used as an instrument of oppression, as by shutting out a small company from making a genuine claim against a large company.I note two things about the Ariss case. The first is that it was stated in the judgment that if the litigation was successful, unsecured creditors were likely to recover their debts in full. That is an unusual factual situation. The second is that the Court only allowed security at about 25% of the amount sought.There are an almost unlimited number of cases dealing with security for costs in relation to companies in liquidation. Those cases span a wide range of factual scenarios. It appears almost inevitable, in an argument for security for costs, that an authority can be found to support the position advanced by a party. In the end, the Court is dealing with an unfettered discretion and has to make an order balancing the interests of both parties and in the interests of justice. [15] Supra at 34.[16] [1996] 2 VR 507.[17] [1977] 1 WLR 899 at 906.Leave to appeal

Ratio Decidendi

Legal Principle Established

The notice of appeal was filed pursuant to rules 213.1 and 213.2 of the Uniform Civil Rules 2020 (SA). Leave to appeal to a single Judge from such an interlocutory decision is required. The issue of leave can be considered and determined in conjunction with the appeal.Consideration of the points of contentionThe strength of the case and its relevance: distraint Distilleria argues that his Honour was correct to state that “It is not generally useful to try to determine the strength of the respective cases in the exercise of the discretion in relation to security for costs”[18] and therefore erred when subsequently finding that De Bourbel’s claim in relation to the distraint appeared very strong and was a significant factor in favour of dismissing the application.[19] [18] Master’s reasons at [24].[19] Distilleria written submissions at [42]-[43], transcript on appeal (T) T7-8, 13. Distilleria concedes that the distraint ground is a triable issue.[20] However, it submits that De Bourbel’s claim to set the distraint aside is not at all strong.[21] De Bourbel argues that it was open to the Master to find that the distraint claim is strong.[22] The parties made a number of submissions as to the strength or otherwise of the distraint claim, in particular in relation to whether the Retail and Commercial Leases Act 1995 (SA) (the Act) applied and, if so, what might follow on the facts of this case.[20] T7.[21] Distilleria written submissions at [46].[22] De Bourbel written submissions at [26]. Distilleria contends that the parties entered into a lease and that the Act applied because the cellar door component of the distillery qualified as a retail shop.[23] De Bourbel contends that there was no lease agreed to. It also submits that Distilleria did not raise the applicability of the Act before the Master and should not be permitted to raise it on appeal.[24] In the alternative, according to De Bourbel, the Act did not apply and if it did apply, Distilleria did not comply with its requirements; hence it is not entitled to its protections.[25][23] T12-13 and Distilleria written submissions at [48]-[52].[24] De Bourbel written submissions at [13], [15].[25] De Bourbel written submissions at [21]. It is not the case that it can never be appropriate for a judicial officer hearing a security for costs application to form a view as to the strength of a plaintiff’s claim. However, in the circumstances of the present matter, in particular the nature of the pleadings and the affidavit evidence presently available, forming such a view has its challenges. The finding that this aspect of De Bourbel’s claim is strong was unnecessary. In the context of a security for costs application, such a “finding” adds little, if anything, to a finding that the plaintiff has raised in its pleadings a triable issue which has been conceded by Distilleria. Nevertheless, I am satisfied that it was open to the Master to make the finding. De Bourbel in its written submissions puts four bases for such a finding. The first and primary one is that there was no lease, only a licence to occupy, and that, as a matter of law, the self-help remedy of distraint is not available against a licence to occupy. There is some evidence that draft or proposed lease documents were prepared. However, no written lease was executed. Distilleria submits, as one of its alternative contentions, that an equitable lease is the proper analysis. However, it is not necessary, nor would it be profitable given the limited state of the affidavit evidence, to explore Distilleria’s or De Bourbel’s other three contentions. They are properly matters for trial. The lack of a written lease alone, although not necessarily conclusive, does add strength to De Bourbel’s contention that an entitlement to distrain will not be made out. The strength of the case and its relevance: Mr Ursini’s conduct