Enartis Pacific Pty Ltd v Tscharke Pty Ltd - [2015] SASC 42

SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
ENARTIS PACIFIC PTY LTD v TSCHARKE PTY LTD
[2015] SASC 42
Judgment of The Honourable Justice Nicholson
19 March 2015
PROCEDURE - COSTS - INTERLOCUTORY PROCEEDINGS
PROCEDURE - COSTS - DEPARTING FROM THE GENERAL RULE - OTHER CASES
PROCEDURE - COSTS - DEPARTING FROM THE GENERAL RULE - OTHER CASES - DISCONTINUANCE OR ABANDONMENT
Enartis and Tscharke were parties to a contractual dispute. Enartis commenced substantive proceedings after first obtaining interlocutory injunctive relief. The proceedings were discontinued prior to trial and shortly before the period of the injunction was to expire. Each party applied for a costs order.
Held:
1. Enartis is to pay 70 per cent of Tscharke's costs of the proceedings from commencement until 10 November 2014 inclusive on a party and party basis.
2. Enartis is to pay Tscharke's costs of the proceedings from and after 11 November 2014, including of and incidental to this costs argument, on a solicitor and client basis.
Supreme Court Act 1935 s40; Supreme Court Civil Rules 2006 r54, r263, r264, referred to.
Copping v ANZ McCaughan [1995] SASC 4917, (1995) 63 SASR 523; Gwinnett v Day (No 2) [2012] SASC 61; House v The King [1936] HCA 40, (1936) 55 CLR 499; Calderbank v Calderbank [1976] Fam 93; BHP v Parker [2012] SASCFC 73, (2012) 113 SASR 206, considered.

ENARTIS PACIFIC PTY LTD v TSCHARKE PTY LTD
[2015] SASC 42
NICHOLSON J.
Introduction and background

These reasons deal with questions of costs arising out of proceedings for interlocutory injunctive relief commenced by the plaintiff (Enartis) that did not proceed to a consideration of substantive issues. It will be helpful if I briefly summarise the background leading up to the application.
On 3 November 2014, Sulan J granted to Enartis an interim injunction on the following terms and until further order.
1Order made in terms of paragraphs 2(a), (b), (c) and (d) of plaintiff’s interlocutory application, dated 3 November 2014, to be in operation under further order, as follows:
2Tscharke Pty Ltd, its servants and agents:
(a)     Be restrained from removing for sale or ceasing to supply to its customers any Enartis Pacific products from its business premises at 30-38 Tanunda Road, Nuriootpa, South Australia 5355 (Business Premises);
(b)     Be restrained from offering for sale or supplying to its customers any Laffort product from the Business Premises or at all;
(c)     Be restrained from removing any Enartis Pacific branding or livery from its Business Premises, promotional material or any other publicly available document upon which it is placed or appears as at the date of this order, other than in the usual course of business;
(d)     Continue to provide access to the Business Premises during business hours for the purpose of conducting business and using the laboratory facilities.
The injunction was sought urgently, before the defendant (Tscharke) had an opportunity to file affidavits and present full argument in response and with a view to the matter being listed before a Master for argument. On this basis, an interim injunction was not opposed by Tscharke.
On 24 November 2014, Judge Dart after hearing in full from the parties granted an interlocutory injunction on the same terms but limited in duration to until 31 December 2014. His Honour also ordered that Enartis file a statement of claim in the substantive proceeding.
On 28 November 2014, Enartis filed a notice of appeal from Judge Dart’s decision to limit the period of the injunction to 31 December 2014. On 5 December 2014, the appeal from Judge Dart’s decision was listed before me. On that day I gave various directions in order to facilitate a hearing of the appeal expeditiously.
On 10 December 2014, a statement of claim was filed and on 11 December 2014, Tscharke filed its defence.
The appeal came before me for hearing on Monday 15 December 2014. To this point, Enartis had been pursuing interlocutory relief in the form of the injunction orders made by both Sulan J and Judge Dart but amended so as to be in place until the final hearing of its substantive claim.
The argument before Judge Dart had been based on causes of action said to be available to Enartis, as asserted in a draft pleading. It was only after Judge Dart had ruled on the injunction that Enartis filed its statement of claim. This document raised causes of action different from those identified in the draft pleading. However, following further consideration of its position, Enartis, at the beginning of the hearing of the appeal before me, sought to “amend” the statement of claim as filed. In fact, the amendment proposed by Enartis was, in effect, a withdrawal of the statement of claim filed on 10 December 2014, in its entirety, to be replaced by a differently pleaded claim.
Enartis, at first, wished to base its argument at the appeal on this new proposed statement of claim. However, this would mean that the legal basis upon which it had argued before Sulan J and Judge Dart that there was a serious question to be tried had to be abandoned. Strictly, the appeal against Judge Dart’s decision became moot in the sense of being based on an hypothetical foundation. Nevertheless, even though Enartis wished to restructure the basis of its claim so as to rely on causes of action different from those earlier propounded, it was still proposing to rely on the same factual foundation, as already disclosed by the affidavit evidence before the Court.
Pursuant to rule 54(5) of the Supreme Court Civil Rules 2006, a plaintiff is entitled to file a first amended statement of claim prior to completion of the disclosure process without having to obtain permission. Tscharke had been provided with a copy of Enartis’ proposed amended statement of claim together with its outline of argument for the appeal. I was satisfied that Tscharke had been given adequate notice of the different case now propounded by Enartis. Furthermore, Tscharke had addressed, by way of its written outline, the different case now relied on by Enartis.
The injunction orders, as a consequence of the variation ordered by Judge Dart, were in place only until 31 December 2014. It was important for both parties that the question of whether the injunction orders should be extended beyond that date be decided as soon as possible. In the circumstances, I was prepared to treat the appeal as, in effect, a fresh application by Enartis for an interlocutory injunction, albeit in reliance on the same factual basis as previously disclosed in the affidavit evidence before the Court.
However, the matter was adjourned briefly to enable Enartis to consider its position. On the resumption, Enartis indicated that it no longer wished to proceed with the “appeal” or with its proposed “amended” statement of claim. Counsel indicated that Enartis was likely to discontinue the present proceedings and bring a fresh application for urgent interlocutory relief based on yet a different proposed cause of action and on a different alleged factual basis. I made orders, by consent, in the following terms:
1.Appeal dismissed.
2.Permission for the Plaintiff to file a notice of discontinuance of the substantive proceedings on the basis that costs thrown away are to be reserved.
3.Costs of the injunction proceedings before Sulan J, Judge Dart and the appeal from Judge Dart to me are reserved.
4.All costs issues are adjourned to a date to be fixed before me and not before 27 January 2015.
5.Pursuant to Rule 194(d), the Plaintiff will pay the sum of $50,000 into the Supreme Court Suitors Fund, prior to close of registry hours on Wednesday 17 December 2014 as security for:
5.1 The undertaking as to damages in respect of the injunction granted on 3 November 2014, as varied from time to time; and
5.2 The Defendant’s costs of the action, including the costs of the appeal by the plaintiff commenced on 20 November 2014.
On 16 December 2014, Enartis paid $50,000 into the Supreme Court Suitors Fund in purported compliance with order 5 above. On 18 December 2014, Enartis filed a notice of discontinuance in the following terms:
TAKE NOTICE that the plaintiff hereby discontinues the substantive proceedings in the within action on the basis that costs thrown away are to be reserved and costs of the injunction proceedings and appeal are reserved.
As it happens, Enartis has not brought any further applications. On 6 February 2015, the matter came before me for argument with respect to the reserved costs issues. Tscharke seeks an order that its costs of the proceedings from beginning to end be paid by Enartis on a solicitor and client basis. Enartis seeks an order that its costs of the proceedings from beginning to end be paid by Tscharke on a party and party basis.
Rule 263 of the Supreme Court Civil Rules 2006 provides (subject to various identified exceptions) that, as a general rule, costs follow the event. Rule 264 provides that the Court may, in the exercise of its discretion as to costs, award costs on any basis the Court considers appropriate. However, the general approach is that costs are to be awarded as between party and party and in accordance with the relevant scale provided under the Rules. When the Rules are read in conjunction with section 40 of the Supreme Court Act 1935[1] there has been conferred on courts and judges an unfettered discretion as to costs.[2] Of course, the discretion must be exercised judicially and by having regard to relevant considerations and not relying on irrelevant considerations.[3]
[1] Section 40(1) provides – subject to the express provisions of this Act and of the Rules of court and to the express provisions in any other Act whenever passed, the costs of and incidental to all proceedings in the court, ... 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.
[2] See generally Copping v ANZ McCaughan [1995] SASC 4917, (1995) 63 SASR 523 at 527; Gwinnett v Day(No 2) [2012] SASC 61.
[3] House v The King [1936] HCA 40, (1936) 55 CLR 499.
It is helpful to understand, by way of background, the basics of the commercial relationship between the parties which led to the dispute. A convenient summary is in the reasons of Judge Dart.[4]
[4] Enartis Pacific Pty Ltd v Tscharke Pty Ltd reasons of Judge Dart, dated 24 November 2014, SCCIV-14-1456, at [2]-[11].
The plaintiff [Enartis] is an importer and retail supplier of oenological ingredients in Australia and New Zealand. The ingredients are generally used by wine makers.
The defendant [Tscharke] conducts a winery business in the Barossa Valley and also owns and operates a laboratory servicing the wine industry in the Barossa. The latter business is known as The Wine Clinic.
Commencing in about 2008 the plaintiff sub-leased a part of the premises occupied by The Wine Clinic at Nuriootpa. The gist of the arrangement was that the plaintiff would occupy a third of the space and pay one third of the total rent and outgoings. The arrangement also included the retailing of the plaintiff’s products from that premises on the basis that the profits would be shared between the plaintiff and defendant. The exact basis of the relationship between the parties is in dispute. It is not necessary at the moment to resolve that issue.
The plaintiff served all of its larger customers directly via its representative, Mr Obradovic. In respect of the premises, it is agreed that the plaintiff’s occupation is pursuant to what is headed “Memorandum of Lease” although it is in fact a sub-lease. The Memorandum of Lease on its terms is for a period of 12 months commencing 1 January 2014 and expiring 31 December 2014.
Until recently, the plaintiff employed two staff who were based in the Nuriootpa office. Those staff were in addition to Mr Obradovic, who calls into the office from time to time, but is mainly on the road selling products to the large wineries.
Part of this dispute relates to the sale of the plaintiff’s products. The plaintiff says that, pursuant to the agreement between the parties, the defendant is entitled to sell the plaintiff’s products, but no competitors’ products. On the defendant’s side they say they were told that they would have exclusive rights to sell the plaintiff’s products to the small and medium wineries in the Barossa region. Whatever the exact position, the defendant says that the plaintiff breached the agreement by selling its products from a retail outlet called Farmer Johns in Nuriootpa. It also sold product to a small winery in the Barossa region.
During the course of 2014 the plaintiff’s two staff based at the subject property left their employment and were not replaced. That led to negotiations between plaintiff and defendant in respect of the plaintiff occupying a smaller portion of the premises and paying a smaller rent. Nothing was agreed in respect of that.
What led to these proceedings was that by email dated 13 October 2014 the defendant purported to terminate the sub-lease and required the plaintiff to vacate the premises by 1 November 2014. By the time of this hearing the defendant had resiled from that position and indicated that it was content to allow the plaintiff to remain in occupation of the premises until the expiration of the sub-lease on 31 December 2014.
The plaintiff accepts that it does not need to and does not wish to continue to rent the same amount of space from the plaintiff. It also accepted, on the argument, that it will need to vacate the premises and find other suitable premises.
The argument primarily centred on the date at which the plaintiff would vacate the premises, the plaintiff’s position being that it could not possibly move out until the end of vintage at, say, the end of March 2015. It also wishes to enforce the obligation that the defendant not sell any competitor’s product prior to that time.
The parties’ contentions concerning costs and resolution
At all times, before Sulan J, Judge Dart and myself, and demonstrated by way of its submissions (oral and written), its affidavit evidence, its initial draft statement of claim, its filed statement of claim and its proposed “amended” statement of claim, Enartis has had two primary concerns. The first was to resist the demand by Tscharke that Enartis was to vacate the premises by 1 November 2014. The second was to enforce Enartis’ own claim that Tscharke was obliged to continue to allow its product to be sold from the premises and was not entitled to sell any competitor’s product (in particular Laffort product) from the premises or by any other means (hence the injunctive orders at paragraphs 2(a)-(c)). In addition, Enartis also raised a number of arguments in support of the proposition that it was entitled to continue to occupy under the sub-lease even after its apparent notional expiry date of 31 December 2014.
The basis for and the terms of the parties’ commercial arrangement concerning the placement of Enartis’ products and any restriction on selling its competitors’ products was never made clear or established before Enartis discontinued all proceedings. Enartis only ever sought injunctive relief “until further order”, in effect, until such time as it could mount and pursue its case to a hearing and final determination. However, Enartis asserted at all times that it was entitled to maintain its “relationship” with Tscharke and its occupancy until at least the end of the impending harvest, that is at or about the end of March 2015.
That this was the position of Enartis can also be inferred from the way in which the matter developed. Tscharke made it plain by the time of the hearing before Judge Dart that it resiled from its notice to Enartis to quit the premises by 1 November 2014 and that it was willing for Enartis to remain in occupation pursuant to the sub-lease until its purported expiration on 31 December 2014. However, at no time did Tscharke concede that the commercial (product placement) relationship remained in place, at least insofar as it might prohibit it from selling a competitor’s product. Nevertheless, by its solicitor’s letter dated 10 November 2014, Tscharke offered to resolve the dispute upon terms, inter alia, that Enartis could continue to occupy until 31 December 2014; that Tscharke would continue to sell Enartis’ products until 31 December 2014 (with a proposed division of profits); and that Tscharke would not display or sell the products of a particular competitor primarily of concern to Enartis (Laffort) before 7 January 2015.
Plainly, this was not satisfactory to Enartis. It sought to appeal Judge Dart’s decision so as to have the injunction orders, including those protecting the alleged commercial (product placement) arrangement, apply “until further order”. For reasons never fully explained, but with respect to which an educated guess can be made, the primary concern of Enartis was not occupancy under the sub-lease[5] but the prevention of Tscharke from selling competitor products at least until the end of the current vintage, say 31 March 2015.
[5] It had all but vacated the premises in terms of maintaining its own presence there – see the fifth and seventh paragraphs of the quote from Judge Dart’s reasons, as extracted above.
During submissions before me counsel for Enartis argued that once Tscharke withdrew its notice to quit, Enartis had succeeded with its claim and its entire conduct had been vindicated. I do not accept this submission. Counsel said all that could be said on behalf of his client in this respect, but did not manage to persuasively explain why Enartis was not to be criticised for continuing with the litigation after it was put on notice that Tscharke no longer required it to “vacate” before 31 December 2014. As I have said, it was clear that Enartis wanted more than this; it continued to try and identify causes of action that might support the injunction in the terms granted but “until further order” rather than co-terminus with the sub-lease. Such a result would have had the added advantage of being commercially satisfactory to Enartis in the event that the time taken to finalise the dispute would likely have ensured that the product placement restrictions would remain in place at least until 31 March 2015.[6]
[6] As indicated to counsel during submissions, on the evidence available, I make no finding of bad faith or improper purpose on the part of Enartis or those advising it.
However, at no time did Enartis justify its claim to final relief with respect to the product placement restrictions, even for the period until 31 December 2014, prior to it simply giving up and filing its notice of discontinuance on 18 December 2014.
In these circumstances, Enartis should pay Tscharke’s costs of the action at least from the time it was put on notice that Tscharke no longer required early vacation of the premises. The outstanding questions are on what basis should these costs be paid and what is the appropriate order for the period prior to Tscharke communicating its concession to Enartis.
I move to the second question first. Enartis was entitled to “occupy” under the sub-lease until 31 December 2014 or, at least, Tscharke ultimately conceded this position. Ordinarily, in these circumstances and when faced with what it perceived to be a wrongful notice to quit, a sub-leasee would be seen to act reasonably in seeking injunctive relief. However, Enartis did not confine its claim in this respect. In truth, it was not much interested in actually occupying the premises. It wanted Tscharke to continue to act, in effect, as its agent, to sell Enartis’ product but not its competitors’ product from the premises.

By expanding its claim in this way, it put Tscharke to additional expense and rendered it highly unlikely that the dispute would resolve simply on the basis of Tscharke’s concession as to the term of the sub-lease. Furthermore, as indicated, Enartis never established its main claim or justified its position in this respect before discontinuing its action. In these circumstances, and taking a broad axe approach, Enartis should pay 70 per cent of Tscharke’s costs for the period from commencement of the action until and including 10 November 2014,[7] on a party and party basis.
[7] The letter from Tscharke’s solicitor of 10 November 2014 made an offer that Enartis never improved upon. Further, Tscharke unconditionally conceded the notice to quit issue at the beginning of the hearing before Judge Dart the next day (11 November 2014).
I turn to the issue of the appropriate form of costs order for the period after 10 November 2014. Tscharke relies, inter alia, on its solicitor’s letter of 10 November 2014 by way of a Calderbank[8] type offer. It was in the following terms.
[8] Calderbank v Calderbank [1976] Fam 93.
Dear Mr William Sheehan,
Without prejudice save as to costs
We refer to your letter dated 6 November 2014.
We are instructed to reject the offer and propose the following:
1.Enartis may continue to occupy the premises as per the terms of the current sub lease until 31 December 2014 save that TWC[9] staff will be on leave in the period 23 December 2014 until 5 January 2015 and the laboratory and shopfront will be closed during this time.
[9] “The Wine Clinic” being the trading name of Tscharke.
2.The Wine Clinic (TWC) will continue to sell Enartis products until 31 December 2014 on the basis of the enclosed breakdown of sales with 50% of the profit margin payable to Enartis and 50% to be retained by TWC.
3.There will be a final reconciliation of accounts and all Enartis property is to be removed in the week commencing 5 January 2015, following the Christmas – New Year break.
4.The relationship between Enartis and TWC shall terminate with effect from 7 January 2015.
5.TWC will not commence display or sale of Laffort products until 7 January 2015.
6.TWC will not pursue Enartis for damages for breach of contract arising out of the sale of Enartis products via Farmer Johns and direct to small-medium wineries as long as sales between Enartis and TWC’s clientele are conducted through TWC between the commencement of this agreement and 5 January 2015.
7.Enartis must continue to provide stock as required by TWC, effecting orders with efficiency to allow for the sale of Enartis product when required.
8.The interim injunction will be discharged and Supreme Court action 1456 of 2014 shall be discontinued by consent with no order as to costs.
An optional additional term of this settlement agreement is that TWC will purchase Enartis’ share of the display fridge and its office furniture for the total sum of $500.00.
This offer is made specifically without any admission that the terms of the unexecuted draft Piper Alderman agreement have application to the relationship between our clients, however we refer you to clause 14.3 thereof.
Our client reserves the right to rely upon this correspondence for the purposes of costs (both of your client’s application for injunctive relief and any substantive proceedings which follow), including for the purposes of seeking an order for indemnity costs. This correspondence shall also serve as our client’s position regarding settlement for the purposes of Rule 33 of the Supreme (Civil) Court Rules 2006.
Should your client require further time to consider this offer prior to the hearing of its application, our client will consent to adjourn that hearing (with the existing interim injunction and undertaking as to damages to continue) until a mutually convenient date to the parties and the Court in the week commencing 17 November 2014.
This offer shall expire at 9.00am on the day of the hearing (being either Tuesday 11 November 2014 or such later date as may be agreed).
Please contact the writer should you wish to discuss the without prejudice offer further.
At no time did Enartis demonstrate an entitlement to an improvement upon this position as offered by Tscharke with respect to either the sub-lease or the commercial (product placement) arrangement or the two in combination. As indicated in the letter, the time within which the offer might be accepted was very short. However, a mechanism (adjournment of the imminent hearing before Judge Dart) was offered that would have served to expand that time.
In BHP v Parker[10] Doyle CJ and White J said this:
[T]he question is not simply whether, having regard to a Calderbank letter, a court should order the defendant to pay costs on the basis other than as between party and party. The court will be exercising a broad discretion, and the making of an informal offer of settlement is merely one of a number of matters relevant to the exercise of that discretion... . And a Calderbank letter is but one instance of how a party might make an offer which has been “imprudently refused”... . Imprudent refusal of an offer of settlement is often raised as the basis for an application for an order for costs on a basis other than as between party and party, but once again it has to be borne in mind that while “imprudent refusal” conveniently encapsulates an approach to the exercise of the discretion, in the end the issue is whether the discretion should be exercised to depart from the usual basis of an order for costs.
[10] [2012] SASCFC 73, (2012) 113 SASR 206 at [265] (citations omitted).
I am satisfied that, in all of the circumstances of this matter as outlined, and given Tscharke’s Calderbank offer, I should exercise the discretion to order costs against Enartis on a solicitor and client basis. Tscharke gained a commercial advantage with respect to its product placement claims over and above its entitlement to occupy the premises until 31 December 2014. It never attempted to justify that advantage. In addition, it could have secured the same advantage by accepting the offer in the 10 November 2014 letter bringing the proceedings to a halt without the unjustifiable further expense to Tscharke.
I make the following orders.
(i)Enartis is to pay 70 per cent of Tscharke’s costs of the proceedings from commencement until 10 November 2014 inclusive on a party and party basis.
(ii)Enartis is to pay Tscharke’s costs of the proceedings from and after 11 November 2014, including of and incidental to this costs argument, on a solicitor and client basis.