Koonara Management Pty Ltd (Receivers and Managers Appointed) v Fabriano Pty Ltd - [2019] SASC 99

SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
KOONARA MANAGEMENT PTY LTD (RECEIVERS AND MANAGERS APPOINTED) v FABRIANO PTY LTD
[2019] SASC 99
Judgment of The Honourable Justice Blue
17 June 2019
PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - COSTS - GENERAL RULE: COSTS FOLLOW EVENT - GENERAL PRINCIPLES AND EXERCISE OF DISCRETION
PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - COSTS - DISCONTINUANCE OF OR WITHDRAWAL FROM PROCEEDING
Applications for costs.
Two separate claims were brought by the first and second plaintiffs against the defendant. The plaintiffs had common solicitors and counsel.
The second plaintiff obtained judgment against the defendant by consent for the delivery up of a large quantity of wine. It seeks an order that the defendant pay its costs of action. Conversely, the defendant seeks an order that the second plaintiff pay its costs of action.
The first plaintiff discontinued its action against the defendant. The defendant seeks an order that the first plaintiff pay its costs of action. The first plaintiff seeks an order that each party bear its own costs of action.
Held:
1. As between the second plaintiff and the defendant, costs should follow the event. The defendant should pay the second plaintiff’s costs of the second plaintiff’s action (at [75]).
2.As between the first plaintiff and the defendant, costs should follow the event. The first plaintiff should pay the defendant’s costs of defending the first plaintiff’s claim insofar as those costs were incurred over and above costs incurred in relation to the second plaintiff’s claim (at [83], [88]).
Landlord and Tenant Act 1936 (SA) ss 22, 23, 24, 28, 29; Personal Property Securities Act 2009 (Cth) ss 73, 73(1); Corporations Act 2001 (Cth) s 420A, referred to.
Oshlack v Richmond River Council (1998) 193 CLR 72, discussed.

KOONARA MANAGEMENT PTY LTD (RECEIVERS AND MANAGERS APPOINTED) v FABRIANO PTY LTD
[2019] SASC 99
BLUE J:

These are applications for costs.
The second plaintiff Reschke Pty Ltd (In Liquidation) (Receivers and Managers Appointed) (Reschke) seeks an order that the defendant Fabriano Pty Ltd (Fabriano) pay its costs following judgment by consent in favour of Reschke. Fabriano seeks an order that Reschke pay its costs or alternatively each party bear its own costs up to 22 October 2018 and thereafter that Reschke pay its costs.
Fabriano seeks an order that the first plaintiff Koonara Management Pty Ltd (Receivers and Managers Appointed) (Koonara) pay its costs following Koonara’s discontinuance of its action. Koonara seeks an order that each party bear its own costs.
Background
Reschke, Koonara and Reschke Vineyards Pty Ltd (Reschke Vineyards) formed a group of companies controlled by Burke Reschke. Reschke Vineyards carried on a vineyard business on land owned by it in the Coonawarra. Reschke carried on a winemaking business. Koonara provided management services to Reschke Vineyards and Reschke (for which purpose it owned and used agricultural machinery). Koonara allowed Reschke to store its wine (in barrels and bottles) in sheds on land owned by Fabriano. The Reschke group borrowed money from the National Australia Bank and gave security over their assets to the Bank including fixed and floating charges.
Fabriano is a company controlled by Vivian Reschke, who is Burke Reschke’s mother. It owns approximately 480 acres of land at 305 Rocky Castle Road Coonawarra. Fabriano claims that it leased approximately 20 acres of that land (the Land) to Koonara pursuant to an oral lease (the Lease).[1]
[1] The existence or validity of the Lease was and is disputed. For ease of reference, I refer to the lease asserted by Fabriano as “the Lease” in neutral terms without connoting that it does exist.
On 9 May 2018 Fabriano purportedly terminated the Lease on the ground of non-payment of rent totalling $121,669, re-entered the Land and exercised distraint over goods (the Goods) situated on the Land (the Distraint).[2] Those goods included agricultural machinery and plant owned by Koonara (the Koonara Equipment). It also included 1,557 barrels containing 450,975 litres of wine (the Barrelled Wine) and 430 cartons of bottled wine (the Bottled Wine) owned by Reschke.
[2] The legality of the Distraint was and is disputed. For ease of reference, I refer to the purported distraint as “the Distraint” in neutral terms without connoting that it was lawful.
On 10 May 2018 solicitors for the National Australia Bank sent an email to Fabriano’s solicitors saying that the Bank was the secured creditor of the Reschke group and requesting a copy of the warrant of distraint and inventory. On 11 May Fabriano’s solicitors sent an email to the Bank’s solicitor attaching a copy of the warrant and inventory.
On 11 May 2018 the Bank’s solicitors sent an email to Fabriano’s solicitors saying that the Bank held a security interest over all property of Koonara, which had priority over any rights asserted by the landlord.
As at the date of the Distraint, action number 976 of 2017 was on foot in this Court being an action by Burke Reschke and Reschke Vineyards against Vivian Reschke, Fabriano and others (action 976). On 17 May 2018, Burke Reschke applied for an interlocutory injunction in action 976 restoring possession of the Land and Goods to Koonara.
On 18 May 2018 I heard Burke Reschke’s application. In the course of the hearing, Mr Reschke asserted that the value of the Barrelled Wine was approximately $3.9 million and the value of the distrained machinery and plant was approximately $300,000. He asserted that most of the machinery was owned by Koonara but all of the wine was owned by Reschke. He asserted that the Barrelled Wine was at risk if it remained in the possession of Fabriano. The application was adjourned part heard to 23 May 2018. Fabriano gave an undertaking not to deal with the Goods before the next hearing. Vivian Reschke was present at the hearing.
On 23 May 2018 the Court was told that an agreement had been reached between the parties that Burke Reschke would attend on the following day at the Land for the purpose amongst others of removing barrels of wine which he identified as the property of Reschke. Vivian Reschke was present at the hearing.
Burke Reschke did not attend on 24 May 2018 to remove the Barrelled Wine. On 29 May he sent an email to Fabriano’s solicitors saying that he was now ready to collect the wine. They responded saying that he had failed to attend on 24 May and the National Australia Bank had asserted rights over all property on the Land and as such Fabriano would not be considering the request further. There were further email communications between Mr Reschke and Fabriano’s solicitors.
On 1 June 2018 in action 976 orders were made by consent, upon Fabriano undertaking not to deal with the Goods, restraining Burke Reschke from entering on the Land or dealing with the Goods. These orders were varied from time to time.
On 13 June 2018 Burke Reschke sent an email to Fabriano’s solicitors referring to the Bottled Wine. He said that it was the property of Reschke. He attached a copy of Reschke’s producers licence which was required to sell bulk or bottled wine. He attached a copy of a stock sheet listing bottled wine owned by Reschke. He attached a copy of the label on the bottles which said that the wine was “produced by Reschke Pty Ltd”. He said that the wine could be damaged by significant changes in temperature.
On 22 June 2018 an order was made winding up Reschke and appointing Simon Miller as liquidator.
On 28 June 2018 Reschke’s solicitors acting on the instructions of Mr Miller sent an email to Fabriano’s solicitors referring to Burke Reschke’s claims that bottled and barrelled wine belonged to Reschke and requesting an inventory as to distrained items. On 28 June Fabriano’s solicitors responded stating that Fabriano did not claim ownership over any of the wine on the Land.
On 28 June 2018 Mr Miller executed a declaration under section 22 of the Landlord and Tenant Act 1936 (SA) (the Act) declaring that Koonara had no right of property or beneficial interest in all wine stored on the Land whether in bottles or barrels and declaring that it was the property of Reschke. On 29 June Reschke’s solicitors sent an email to Fabriano’s solicitors attaching the declaration. Despite several emails sent by Reschke’s solicitors seeking confirmation that Fabriano did not claim that the wine was the subject of the Distraint, no substantive response was provided by Fabriano.
On 2 July 2018 Reschke’s solicitors sent an email to Fabriano’s solicitors requesting that they identify Fabriano’s position in respect of the wine, seeking agreement that Reschke could remove the wine and if not setting out the basis for its position.
On 11 July 2018 Fabriano’s solicitors responded saying that no documentation evidencing ownership of the wine by Reschke had been provided and, if Reschke was the owner of the wine, they were instructed not to release it on the basis that there was outstanding rent owed by Reschke to Fabriano because Reschke was in effect a sub-tenant of the premises and obliged to pay market rent to Fabriano for its sub-tenancy.
On 16 July 2018 Reschke’s solicitors responded referring to evidence provided by Burke Reschke of ownership of the wine, including the fact that Reschke was the only entity in the group which held a producers licence and was shown on the wine bottle labels as the producer of the wine. They also referred to a grape processing agreement between Reschke and DiGiorgio Family Wines dated 9 September 2015 for the processing of grapes and storage of wine. They said that there was a prima facie basis to assert that Reschke was the owner of the wine and Fabriano had identified nothing to undermine that prima facie basis. They referred to the fact that Koonara eschewed ownership of the wine. They denied that any rent was owing by Reschke to Fabriano. They demanded that the wine be made available by 20 July 2018.
On 20 July 2018 Fabriano’s solicitors responded, maintaining Fabriano’s position and declining to make the wine available for collection.
On 30 July 2018 the National Australia Bank appointed John Hart and Timothy Mableson of Ferrier Hodgson as receivers and managers of Reschke, Reschke Vineyards and Koonara.
On 9 August 2018 Reschke’s solicitors instructed by the receivers sent an email to Fabriano’s solicitors asserting that Fabriano was obliged to release all of the wine in its possession to the receivers of Reschke, which owned the wine. They requested access for Reschke’s winemaker to inspect the wine. On 9 August solicitors for Fabriano responded, agreeing to inspection of the wine (which occurred in due course on 20 August). They did not take issue with the assertion of ownership of the wine by Reschke.
On 30 August 2018 Reschke’s solicitors sent an email to Fabriano’s solicitors demanding that Fabriano make available the wine for collection within seven days. On 3 September 2018 solicitors for Fabriano responded saying that Fabriano was seeking counsel advice regarding the priority of its interest in the wine as against Reschke and in the meantime did not consent to removal of the wine. They did not take issue with the assertion of ownership of the wine by Reschke.
On 11 September 2018 Reschke’s solicitors sent an email to Fabriano’s solicitors demanding that Fabriano make available the wine for collection by 13 September. On 13 September Fabriano’s solicitors responded saying that Fabriano did not accept uncorroborated assertions that the wine was the property of Reschke. They requested that Reschke provide a primary source document predating the Distraint which evidenced Reschke’s ownership of the wine.
On 3 October 2018 Mr Hart executed a declaration under section 22 of the Act declaring that Koonara had no right of property or beneficial interest in the Bottled Wine and the Barrelled Wine (collectively the Wine) and declaring that it was the property of Reschke.
On 4 October 2018 Reschke’s solicitors sent an email to Fabriano’s solicitors attaching Mr Hart’s declaration. They referred to previous evidence of ownership of the Wine provided to Fabriano by Mr Reschke and Mr Miller’s solicitors. They also provided copies of agreements between Reschke and DiGiorgio Family Wines and Coonawarra Jack Winery for the processing and storage of wine; a wine export licence issued by the Australian Grape and Wine Authority to Reschke, searches of the Liquor and Gambling Public Register showing no other entity in the Reschke group held a producers licence; a redacted set of financial statements for Reschke for the year ended 30 June 2015 showing income from sales of bulk and bottle wine and costs of winemaking including wine equalisation tax (with the dollar figures redacted); and Business Activity Statements for the quarters ended 31 March and 30 June 2017 for Reschke showing wine equalisation tax payable and wine equalisation tax refundable (with the dollar figures redacted). They said that the books and records of Koonara and Reschke Vineyards indicated that neither entity produced or owned wine. They said that they were instructed to file an application in this Court for delivery up of the Wine at 2 pm on the following day in the absence of Fabriano’s agreement to the receivers taking possession of it. They invited Fabriano, if it required more time to consider the materials and provide a response, to inform them and explain the reasons and said that the receivers would consider the request.
On 4 October 2018 Fabriano’s solicitors sent an email to Reschke’s solicitors asserting that the time frame set out in their letter was clearly unreasonable. They did not otherwise respond.
On 12 October 2018 Reschke and Koonara (by the receivers) instituted this action. Reschke and Koonara at all times had common solicitors and counsel. The action effectively comprises an action by Reschke (the Reschke action) and an action by Koonara (the Koonara action). The Reschke action sought delivery up of the Barrelled Wine and Bottled Wine. Reschke relied on an affidavit sworn by Mr Hart on 11 October 2018 (the Hart affidavit). In that affidavit, Mr Hart exhibited communications between the parties concerning the Wine (summarised above). He also exhibited further documentary proof of ownership of the Wine by Reschke. By interlocutory application Reschke sought an urgent trial and an interlocutory injunction requiring delivery up of the Wine.
The Koonara action sought delivery up of certain plant and equipment owned by Koonara. Koonara relied on the Hart affidavit, in which he said that the receivers had commenced a sale process of the assets of the Reschke group, including the vineyards of Reschke Vineyards and the wine owned by Reschke. He exhibited marketing material which showed a tender close date of 9 November 2018 for the vineyards. He did not say when the marketing had begun but the documents showed it was not later than 10 October 2018. He said that it was preferable to offer some of the Koonara equipment for sale with the vineyards because they were complementary assets and this might result in a higher sale price for the equipment than if sold separately via auction. He said that the sale of the assets was urgent for reasons which he described. He said that the receivers were prepared to undertake to pay into Court the net proceeds of the sale of the Koonara equipment (after deduction of the normal sales commission and other costs of sale, and Goods and Services Tax). By interlocutory application Koonara sought an urgent trial and an interlocutory injunction requiring delivery up of the Koonara equipment.
On 15 October 2018 the applications for interlocutory injunctions were listed for argument on 24 October.
On 22 October 2018 Fabriano’s solicitors wrote to Reschke’s solicitors. They offered to deliver up the Wine on certain conditions, including that a person acceptable to Fabriano be engaged by and paid for by the receivers to be present during removal of the Wine for the purpose of ensuring there was a disinterested witness to the removal process.
On 23 October 2018 Reschke’s solicitors wrote to Fabriano’s solicitors making a counter offer in similar terms except declining to pay for an observer (noting that removal of the Wine was expected to take four days), together with some additional terms. On 23 October Fabriano’s solicitors responded, broadly agreeing to the terms of the counter offer but requiring either that the receivers pay the costs of an observer or that the Wine be removed within one day.
On 22 October 2018 Fabriano’s solicitors wrote to Koonara’s solicitors. They asserted that Fabriano’s interest in the Koonara equipment as a result of the Distraint had priority over the interest of National Australia Bank pursuant to section 73(1) of the Personal Property Securities Act 2009 (Cth). They said that Fabriano had incurred costs charged by Granite Solicitors Service of $36,615, Mason Gray Strange of $26,796 and Ottoson Partners Real Estate of $1,505 totalling $64,916. They proposed that the receivers agree to Fabriano selling all of the Koonara Equipment, deducting the distrained rent plus the disbursements totalling $64,916 plus its legal fees, and pay any balance into the Supreme Court Suitors Fund. It was not apparent from the Granite Solicitors Service or Mason Gray Strange invoices what work had been undertaken in relation to what property or what had been achieved as a result of that work. The receivers were not given information that would enable them to assess which if any such costs would have been recoverable. Although I am not in a position to make any assessment, on its face it is surprising that costs of over 50 per cent of the rent allegedly owing were incurred without a valuation having been undertaken or apparently an assessment having been made as to which property should be sold.
On 23 October 2018 Koonara’s solicitors wrote to Fabriano’s solicitors. They took issue with the contention that section 73(1) of the Personal Property Securities Act 2009 (Cth) gave priority to Fabriano. They rejected Fabriano’s proposal. They made a counter proposal that the receivers sell the Koonara Equipment and pay the net proceeds of sale into the Supreme Court Suitors Fund. On 23 October Fabriano’s solicitors responded, rejecting the counter proposal and saying that Fabriano intended to make an application in action 976 to allow the Koonara equipment to be sold by it.
On 23 October 2018 Fabriano’s solicitor Mark Gowans swore an affidavit in this action (the Gowans affidavit). He exhibited various communications and other documents.
On 24 October 2018 the plaintiffs’ applications for interlocutory injunctions came on for hearing before me. Counsel for the parties informed me that the application by Reschke had been agreed in principle, subject only to the question of providing or paying for an observer during removal of the Wine from the Land. A number of alternatives were discussed and counsel for Reschke offered to pay for an employee of Mason Gray Strange to be present during the removal at the receivers’ cost, which was agreed by Fabriano. Consent orders were made for the receivers to take possession of the Wine.
I heard argument on Koonara’s application for an interlocutory injunction for delivery up to the receivers of the Koonara equipment for the purpose of sale with the vineyards. Counsel for Koonara said that, if an order were made, the receivers proposed to offer the vineyards and equipment together for tender; if the tender accepted encompassed both the vineyards and the equipment it would be a matter in the first instance for the purchaser to nominate a split between the purchase price for the vineyards and the equipment; if the receivers considered the split was in accordance with their duties under section 420A of the Corporations Act 2001 (Cth)[3] they would accept the purchaser’s split but not otherwise; for that purpose the receivers proposed to obtain a valuation of the Koonara equipment on auction and going concern bases; and if the successful tender did not encompass the equipment, the receivers would proceed to sell it by auction, probably through Mason Gray Strange. Mason Gray Strange had in fact been retained by Fabriano to undertake work at the Land but they had not undertaken a valuation and it was not clear what work they had undertaken.
[3] Section 420A imposes a duty on a controller, when selling property, to take all reasonable care to sell it for not less than market value or otherwise for the best price reasonably obtainable.

There was discussion of a proposal under which the receivers would first obtain a valuation on dual bases and only sell the equipment with the vineyards if it would produce a higher return than the auction value. Counsel for Fabriano indicated interest in the proposal but expressed concern about the deduction of sale expenses from the proceeds proposed to be paid into court, especially when the sale costs were likely to duplicate costs already incurred by Fabriano (with Mason Gray Strange) as part of a sale process. Counsel for Koonara said that the sale costs (apart from valuation costs) would comprise commission payable to Colliers but there was no evidence before the Court about the quantum of that commission.
At the conclusion of submissions I said that I did not have sufficient information to make a decision. I suggested that the receivers engage Mason Gray Strange to prepare a valuation of the Koonara equipment on an auction basis together with their costs of undertaking an auction and if they had the expertise a valuation on a going concern basis and, if they did not, such a valuation be prepared by Colliers or someone else with the necessary expertise; and the receivers quantify the costs that would be incurred in selling the equipment on a going concern basis. I indicated that, if the expected net proceeds of a sale on a going concern basis exceeded the expected net proceeds of an auction sale, I would authorise the receivers to sell the equipment on the basis that they would pay the proceeds (after deduction of the valuation costs and agent’s sale commission) into Court. I adjourned the hearing to 1 November which was subsequently amended to 11 December.
On 11 December 2018 counsel for Koonara informed me that it was not practicable to sell the Koonara equipment as a going concern as part of a sale of the vineyards and Koonara intended to discontinue its action. This left issues of the costs of the Reschke action and the Koonara action to be determined.
Costs hearing
At the costs hearing on 19 December 2018, I received the Hart affidavit and exhibits and paragraphs 1, 13 and 19 to 33 of the Gowans affidavit and corresponding exhibits (although I had received the whole affidavit at the hearing on 24 October 2018). I also received an affidavit by Vivian Reschke in which she said that she instructed her solicitors at the hearing on 23 May 2018 to agree to permit Burke Reschke to remove the Barrelled Wine but there was no agreement about the Bottled Wine. She said that, when she was asked to provide her instructions about this, she did not turn her mind to the question whether the Wine was the subject of the Distraint. I also received email communications between the Bank’s solicitors and Fabriano’s solicitors of 10 and 11 May 2018.
Reschke action
Costs are in the absolute discretion of the Court. However, there are several principles which guide the exercise of the discretion. One of those principles is that ordinarily costs follow the event.
In the present case, Reschke was successful because it obtained the orders it sought for delivery up by Fabriano of the Wine (ultimately by consent). The starting point is that prima facie Reschke should recover its costs of action from Fabriano.
Fabriano contends that Reschke should pay its costs of action because Reschke did not properly attend to Fabriano’s requests for documentary evidence of ownership and provide Fabriano with adequate time to consider that material and, if it had done so, Fabriano would have conceded Reschke’s ownership of the Wine and the action would have been unnecessary. Fabriano contends in the alternative that each party should bear its own costs up to 22 October 2018 and thereafter Reschke should pay its costs due to the offer made by Fabriano on that date.
Costs of action as a whole
There are several well-established principles which can result in a successful party being deprived of its costs or being ordered to pay its opponent’s costs of action. Due to the unfettered nature of the costs discretion, these principles are not definitive nor do they limit the circumstances in which a successful party might not recover its costs of action. However, they provide a convenient starting point for analysis.
First, rule 33 of the Supreme Court Civil Rules 2006 (SA) (the Rules) requires a plaintiff instituting an action for a monetary claim, subject to defined exceptions, to have given to the defendant at least 21 days beforehand a written notice making an offer to settle and sufficient details of the claim and supporting material to enable the defendant to assess the reasonableness of the offer. Subrule 33(7)(a) provides that, in awarding costs of the action, the Court may take into account whether the parties have complied with their obligations under rule 33. If a plaintiff fails to comply with its obligations under rule 33, particularly if the defendant concedes the claim shortly after the action is instituted, the Court could exercise its costs discretion to deprive the plaintiff of an order for costs or even order the plaintiff to pay the defendant’s costs. Fabriano does not contend that rule 33 applies in the present case or rely upon it. In any event, rule 33 has no application because the claim by Reschke was not a monetary claim. Moreover, even if rule 33 had applied, Reschke would have substantively complied with it by the letter sent by its solicitors dated 16 July 2018. In this respect, rule 33 does not require an intending plaintiff to serve on the intended defendant all evidence that would be relied on at trial but only sufficient supporting material in all of the circumstances.
Secondly, if the costs in question have been caused (or increased) by misconduct by the plaintiff in, relating to or leading up to the action, the successful plaintiff might be deprived of costs or even ordered to pay the defendant’s costs.[4] In Oshlack v Richmond River Council,[5] McHugh J said:
The traditional exceptions to the usual order as to costs focus on the conduct of the successful party which disentitles it to the beneficial exercise of the discretion. In Anglo-Cyprian Trade Agencies Ltd v Paphos Wine Industries Ltd, Devlin J formulated the relevant principle as follows:
"No doubt, the ordinary rule is that, where a plaintiff has been successful, he ought not to be deprived of his costs, or, at any rate, made to pay the costs of the other side, unless he has been guilty of some sort of misconduct."
"Misconduct" in this context means misconduct relating to the litigation, or the circumstances leading up to the litigation. Thus, the court may properly depart from the usual order as to costs when the successful party by its lax conduct effectively invites the litigation; unnecessarily protracts the proceedings; succeeds on a point not argued before a lower court; prosecutes the matter solely for the purpose of increasing the costs recoverable; or obtains relief which the unsuccessful party had already offered in settlement of the dispute.[6]
[4] Bostock v Ramsey Urban District Council [1900] 2 QB 616 at 622 per A. L. Smith LJ; Anglo-Cyprian Trade Agencies Ltd v Paphos Wine Industries Ltd [1951] 1 All ER 873 at 874 per Devlin J; Verna Trading Pty Ltd v New India Assurance Co Ltd[1991] 1 VR 129 at 154-155 per Ormiston J.
[5] [1998] HCA 11, (1998) 193 CLR 72.
[6] At [69]. (Citations omitted).
Fabriano does not contend that Reschke was guilty of any relevant misconduct or rely upon this principle. In any event, Reschke’s conduct could not on any view be characterised as relevant misconduct within the meaning of this principle.
Thirdly, if the unsuccessful party had before action offered to resolve the dispute on terms no less favourable than the successful party ultimately achieves by action and the successful party unreasonably rejected the offer, the successful plaintiff might be deprived of costs or even ordered to pay the defendant’s costs.[7] Similarly if the unsuccessful party during the action offered to resolve the dispute on terms no less favourable than the successful party ultimately achieves and the successful party unreasonably rejected the offer, the successful plaintiff might be deprived of costs or even ordered to pay the defendant’s costs after a reasonable time after the offer.[8] Rules 187 to 188E of the Rules provide for formal settlement offers; rule 188F provides that, if a defendant files a complying formal offer meeting certain conditions and the plaintiff obtains judgment on terms less favourable than the terms of the offer, the defendant is prima facie entitled to an order that the plaintiff pay its costs of action from 14 days after the date of the offer; and rule 188G provides that in other cases, if judgment is granted on terms no less favourable to the offeror than the terms of the offer and the offer was unreasonably rejected, the Court may order that the offeree bear its own costs and/or pay the costs of the offeror after 14 days after service of the offer. Fabriano did not make a relevant offer before institution of the action and the above principles do not apply to the costs of action as a whole. Fabriano did make an offer on 22 October 2018 after institution of the action. I defer consideration of the effect of that offer for the time being.
[7] Oshlack v Richmond River Council (1998) 193 CLR 72 at [25] per McHugh J; Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2)[2005] VSCA 298, at [23]-[25] per Warren CJ, Maxwell P and Harper AJA.
[8] Oshlack v Richmond River Council (1998) 193 CLR 72 at [25] per McHugh J; Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2)[2005] VSCA 298, at [23]-[25] per Warren CJ, Maxwell P and Harper AJA.
All four factors to which reference has been made may be seen as part of ascertaining which party caused (or contributed to) the incurring of the costs of action. Ordinarily the party who unsuccessfully sought or unsuccessfully resisted the relief sought will be seen as having caused the incurring of the costs of action and will be ordered to pay the costs of the successful party. In some cases it may be seen that the failure of the successful party to give notice before action in breach of the Rules was the substantial or operating cause of the incurring of the costs. In some cases it may be seen that the misconduct of the successful party was the substantial or operating cause of the incurring of the costs. In some cases it may be seen that the failure of the successful party to settle the matter on terms offered before action by the defendant that were not bettered in the result was the substantial or operating cause of the incurring of the costs.
In some circumstances, if a prospective plaintiff acts unreasonably in response to a request for information before action by the prospective defendant, the plaintiff’s conduct, although not amounting to misconduct, might be regarded as the substantial or operating cause of the incurring of the costs of action. If the matter proceeds to trial, it will usually be apparent that the substantial or operating cause of the incurring of the costs of action was the defendant’s defence of the action rather than anything that occurred before action. The position might be otherwise if the defendant concedes the claim not long after institution of the action.
The parties’ conduct must be assessed in the context of the statutory regime governing the common law remedy of distraint. Sections 22, 23, 24, 28 and 29 of the Act relevantly provide:
22—Rights of owners of goods in other cases
If, in any case not coming within section 19 of this Act, any landlord levies, threatens to levy, or authorises to be levied, a distress on any goods being the property or in the lawful possession of any person other than the immediate tenant, such person or his agent may serve the landlord, or the person authorised by him to levy such distress, with a declaration in, or to the effect of, the form in Schedule 4, signed by the first mentioned person or his agent, setting forth that the immediate tenant has no right of property or beneficial interest in such goods, and that such goods are the property of such first mentioned person, or are, or immediately prior to being distrained were, in his lawful possession; and to such declaration shall be annexed an inventory, signed by the declarant, of the goods referred to in the declaration.
23—Duty of landlord after service of declaration
Subject to the provisions hereinafter contained and to the person who claims the goods proceeding, as provided in the next section before the sale thereof, and obtaining a decision in his favour, if any landlord or any person authorised by a landlord, after being served with the declaration and inventory provided for by the last preceding section, levies or proceeds with a distress on the goods mentioned in the inventory, being the property of the person by whom or on whose behalf the declaration and inventory was served, or having been immediately prior to such distress in his lawful possession, that landlord, and the person so authorised, if any, shall, if the immediate tenant had at the time of such service no right of property or beneficial interest in the goods, be deemed guilty of an irregular distress, and be liable to an action therefor, but shall not be deemed trespassers ab initio.
24—Jurisdiction of Magistrates Court to hear adverse claims
(1)When any claim is made by service of a declaration and inventory, by any person other than the immediate tenant, to or in respect of any agisted cattle or goods distrained, or threatened to be distrained, by any landlord for rent, any justice of the peace, upon complaint in writing by either the landlord or the claimant preferred before the sale of such goods under the distress (where the cattle or goods have been actually distrained) by the person making the claim, may—
(a) issue a summons in the form in Schedule 5, or in a form to the like effect, directed as well to the landlord as to the person making the claim; and
(b) in his discretion order such sale to be postponed until the summons has been disposed of.
(2)The Magistrates Court has jurisdiction to hear a claim under subsection (1) and may make such orders, including an order as to costs, as the Court thinks fit.
…
28—False declarations
If any person wilfully makes or signs any false declaration or inventory under this Part he shall be guilty of an offence, punishable by imprisonment for any term not exceeding twelve calendar months.
29—Person entitled to take declarations
A declaration under this Part may be made before a justice of the peace, notary public, commissioner for taking affidavits in the Supreme Court, or practitioner of the Supreme Court or clerk of a local court.
These provisions treat the making of a declaration by a claimant as to ownership of goods distrained as a solemn document, which is equated to a statutory declaration because it must be made before persons who are authorised to take statutory declarations and a false declaration is punishable by imprisonment for up to 12 months. These provisions do not require a claimant to produce additional evidence of ownership to the landlord over and above the declaration and proceed on the assumption that, if the landlord does not return the goods to the claimant following service of the declaration, the claimant can proceed to institute proceedings in the Magistrates Court. The jurisdiction of the Magistrates Court is not exclusive and there is no suggestion in the present case that the Supreme Court does not have jurisdiction to determine a contested claim to ownership.
The parties’ conduct needs to be assessed in the context of the following matters:
1There is not and has not ever been a scintilla of evidence that the Wine was owned by Koonara, either objectively or in the possession of Fabriano. The mere fact that the Wine was being stored by Koonara is not evidence that it was owned by Koonara.
2All of the objective evidence identified by Koonara progressively between April and October 2018 pointed to the Wine being owned by Reschke.
3All of the objective evidence identified by Koonara progressively between April and October 2018 pointed to the Wine not being owned by Koonara.
4During the communications between the parties between April and October 2018, Fabriano never positively asserted that the Wine was in fact owned by Koonara or pointed to any evidence that it was so owned (apart from Koonara’s possession of the Wine).
5In May 2018 Fabriano agreed to Reschke removing the Barrelled Wine. Although Reschke does not suggest that the agreement was a binding contract, Fabriano’s agreement amounted to an admission that Koonara did not own the Barrelled Wine and, in subsequent dealings with Reschke, Fabriano never explained why it was changing its position if and to the extent that it did so.
6All of the objective evidence pointed to a structure of the Reschke group whereby Reschke was the winemaker, Reschke Vineyards was the grape grower and Koonara merely provided services to Reschke Vineyards and Reschke.
7Mr Miller is a registered liquidator. In June 2018, under pain of imprisonment if he made a false declaration, he executed a declaration under section 22 of the Act declaring that Koonara had no property or interest in the Wine and that it was the property of Reschke. Mr Miller was entitled to possession of the books and records of Reschke and was manifestly independent of Burke Reschke. The fact that he executed the declaration should have carried considerable weight in any objective assessment by Fabriano as to the ownership of the Wine.
8The receivers were appointed by the Bank. In June 2018, under pain of imprisonment if he made a false declaration, Mr Hart executed a declaration under section 22 of the Act declaring that Koonara had no property or interest in the Wine and that it was the property of Reschke. Mr Hart was a receiver of both Koonara and Reschke, was entitled to possession of or access to the books and records of both companies and was manifestly independent of Burke Reschke. The fact that he executed the declaration should have carried great weight in any objective assessment by Fabriano as to the ownership of the Wine.
9Fabriano did not adduce any evidence at the costs hearing concerning its knowledge of the structure of the Reschke group nor as to its beliefs concerning ownership of the Wine over the period between April and October 2018. Vivian Reschke merely gave evidence that, when she agreed to Reschke taking the Wine in May 2018, she did not turn her mind to the question whether the Wine was the subject of the distraint. She did not give evidence as to her state of mind as to ownership of the Wine.
10Fabriano did not between April and October 2018 obtain an assessment of the value of the Koonara equipment in respect of which no contrary rights were asserted, nor an assessment of the value of the Wine, of which Reschke claimed ownership. Fabriano did not ascertain whether its interest would have been sufficiently protected by retaining the Koonara equipment or a portion thereof as having sufficient value to cover the alleged outstanding rent and costs. On any view, the value of over 450,000 litres of wine in oak barrels must have greatly exceeded the amount of the alleged rent.
11The Barrelled Wine had the potential to depreciate in value if not properly looked after and maintained. Fabriano was required to act expeditiously if it wished to retain possession of the Wine in the face of the adverse claim by Reschke. It could not reasonably sit back and allow the matter to drag on month by month.
The conduct of Reschke insofar as it responded to requests for information from Fabriano was not unreasonable. Reschke was entitled to rely on the admissions by Fabriano of its ownership made on 23 May 2018 within two weeks of the Distraint. Fabriano did not ever seek to repudiate or otherwise explain that admission. On 29 May 2018 Fabriano explained its refusal to allow Reschke to collect the Wine by reference to the rights of the Bank and thereby implicitly continued its admission. The admission was further confirmed on 28 June 2018 when Fabriano’s solicitors said that Fabriano did not claim ownership over the Wine. At no time before 11 July 2018 did Fabriano request any further evidence of ownership of the Wine. Reschke was entitled to assume over the period from 23 May to 11 July 2018 that Fabriano admitted Reschke’s ownership of the Wine.

On 11 July 2018 Fabriano’s solicitors wrote to Reschke’s solicitors. They asserted that no documentation evidencing ownership of the wine by Reschke had been provided. Reschke was entitled to regard this bald assertion as incorrect: whatever be the weight of the evidence of Reschke’s ownership that had been provided to that point, evidence had in fact been provided. Fabriano’s solicitors asserted that Reschke was obliged in any event to pay rent to Fabriano because Reschke was a sub-tenant of Koonara. Reschke was entitled to disregard this assertion because Fabriano identified no factual basis for an assertion that Reschke was a sub-tenant of Koonara or legal basis for Fabriano to inherit any rights of Koonara against Reschke.
On 16 July 2018 Reschke’s solicitors (instructed by the liquidator) responded referring to evidence earlier provided by Burke Reschke of ownership of the Wine and to a grape processing agreement between Reschke and DiGiorgio Family Wines for the processing of grapes and storage of wine. They said that there was a prima facie basis to assert that Reschke was the owner of the wine and Fabriano had identified nothing to undermine that prima facie basis. They referred to the fact that Koonara eschewed ownership of the wine. Although of course it can always be said that a party could produce more evidence, Reschke’s response was reasonable in all of the circumstances identified above. Critically, Fabriano did not respond to that letter requesting any further or specific evidence of ownership.
On 9 August 2018, after the appointment of the receivers, Reschke’s solicitors (instructed by the receivers) wrote to Fabriano demanding delivery up of the wine. The response from Fabriano’s solicitors did not deny Reschke’s ownership of the Wine or seek any further or specific evidence of ownership. This conduct, and the similar earlier conduct by Fabriano, entitled Reschke to believe that Fabriano did not contest its ownership of the Wine.
On 13 September 2018 (more than a month after the letter of 9 August) Fabriano’s solicitors wrote to Reschke’s solicitors saying that Fabriano did not accept uncorroborated assertions that the Wine was the property of Reschke. Again, it was incorrect to say that the assertions of ownership were uncorroborated. They requested that Reschke provide a primary source document predating the restraint which evidenced Reschke’s ownership of the Wine. They were not more specific as to the evidence of ownership they were seeking.
On 4 October 2018 Reschke’s solicitors responded providing more than one primary source document predating the restraint which evidenced Reschke’s ownership of the Wine. They also provided a section 22 declaration by Mr Hart. Although of course it can always be said that a party could produce more evidence, Reschke’s response was reasonable in all of the circumstances identified above.
I accept that, if Reschke’s solicitors had only allowed Fabriano until the following day to agree to delivery up of the Wine, that period would have been inadequate. However, the letter expressly said that, if Fabriano required more time to consider the materials and provide a response, it should inform them and explain the reasons and said that the receivers would consider the request. During the ensuing week, Fabriano did not request of Reschke any particular time to provide a substantive response, nor explain the reasons why it needed that time. All that Fabriano did was baldly assert that it could not provide a substantive response by the following day. After more than a week had elapsed without any further response, Reschke was entitled to act on the basis that Fabriano was not willing to engage in further communication.
I accept that Mr Hart’s affidavit contained some further evidence of ownership of the Wine by Reschke. Although Fabriano identifies several items of such evidence, the only evidence it specifically addresses is a more detailed listing of wine with quantities redacted. The mere fact that further evidence can always be produced does not render Reschke’s conduct before action unreasonable and in particular does not render its responses to the two belated requests by Fabriano for evidence unreasonable.
Given my conclusion that Reschke did not act unreasonably, it may not be necessary to consider the reasonableness of Fabriano’s conduct. However, I consider that Fabriano’s conduct was unreasonable and was the substantive or operative cause of the incurring of the costs of action.
Fabriano did not request any evidence of ownership until 11 July 2018, three months after its Distraint. When it did so, it did not explain its change of position from its earlier acceptance of ownership by Reschke. Fabriano was in possession of valuable and potentially deteriorating assets in the form of wine if not properly maintained. It was not entitled to sit back passively but was obliged expeditiously to take proactive steps to establish ownership of the Wine if it was truly in doubt. When Fabriano did request evidence on 11 July 2018, it did not identify in any way the type of evidence it was seeking. Moreover, it made the unsubstantiated assertion that it was entitled to be paid rent by Reschke.
Following Reschke’s response on 16 July 2018, Fabriano acted thereafter as if it accepted Reschke’s ownership of the Wine. It did not identify any further evidence of ownership that it was seeking. When Fabriano made its second request for evidence of ownership almost two months later on 11 September 2018, it again did not identify the type of evidence it was seeking (beyond “a primary source document”).
Fabriano knew by 28 June 2018 that an independent liquidator had been appointed to Reschke who may be expected to have inherited the books and records of Reschke. It took no steps to request to attend at the liquidator’s office to inspect those books and records or discuss the evidence supporting Reschke’s ownership of the Wine. Fabriano knew by 9 August 2018 that independent receivers and managers had been appointed to Reschke and Koonara who may be expected to have inherited the books and records of Reschke and Koonara. It took no steps to request to attend at the receivers’ office to inspect those books and records or discuss the evidence supporting Reschke’s ownership of the Wine.
Fabriano must have known that on any view it did not need all of the Wine to meet the rent the subject of and costs incurred in the Distraint. However, it took no steps to ascertain the value of assets of Koonara the subject of the Distraint or the value of the Wine with a view to releasing some or all of the Wine from the Distraint. Fabriano also must have known that the Wine would potentially deteriorate in value if not properly maintained and that it was required to address the position as a matter of urgency. It failed to address the matter with any urgency at all.
Fabriano contends that Burke Reschke had adopted contradictory positions as to ownership of the Wine, asserting on two occasions that he owned the Wine and on other occasions that Reschke owned the Wine. There is no merit in this contention. First Mr Reschke swore an affidavit on 17 May 2018 in action 976 in which he said that he had suffered prejudice as a result of the conduct of Fabriano, including that the Barrelled Wine was unguarded and unsecured. In context, it is clear that Mr Reschke was not asserting personal ownership of the Wine as opposed to ownership via his company. Likewise, on 11 May 2018 Hugo Prescott sent an email referring to Mr Reschke’s barrelled wine which again in context was not asserting personal ownership of the Wine by Mr Reschke. Secondly both of these communications predated Fabriano’s agreement on 23 May 2018 to the collection by Mr Reschke of wine belonging to Reschke. Thirdly and most importantly, Burke Reschke never asserted that Koonara owned the Wine and always asserted that it did not. If Koonara did not own the Wine, Fabriano was not entitled to distraint over it, regardless of whether it was owned by Reschke or Burke Reschke.
There is no reason, having regard to the conduct of the parties before action, to deprive Reschke of an order for its costs of action. Even if the starting point had not been that costs follow the event, having regard to the result of the action in the circumstances summarised above, Fabriano should pay Reschke’s costs of action.
Costs of action after 22 October 2018
Fabriano contends in the alternative that Reschke should pay its costs of action after 22 October 2018 because it offered on that date to resolve the matter on terms not exceeded by the terms of the consent orders made on 24 October 2018.
In its offers of 22 and 23 October 2018, Fabriano insisted that Reschke pay the costs of an independent observer during removal of its wine from Fabriano’s premises. Ultimately at the hearing on 24 October various alternatives were canvassed and ultimately it was agreed that Reschke would pay the costs of an employee of Mason Gray Strange who it was expected would utilise the time to undertake work to produce a valuation of the Koonara equipment. This was a compromise agreed by the parties for the sake of resolution. The compromise differed from the anterior positions of both parties. The mere fact that Reschke was prepared to agree to this compromise is not a reason to deprive it of its costs of action.
Moreover, in circumstances in which Fabriano had wrongly purported to distrain goods owned by Reschke and delayed for many months in agreeing to delivery up to Reschke of its Wine, if Fabriano wished to observe removal of the Wine by the rightful owner, it was not entitled to insist that the rightful owner pay its costs of observation.
In any event, the making of the belated offer two days before the scheduled hearing would not be sufficient reason to make a differential costs order.
Conclusion
Fabriano should pay Reschke’s costs of the Reschke action.
Koonara action
At the hearing on 11 December 2018 Koonara announced that it did not intend to pursue its interlocutory application and intended to discontinue the action. In due course permission was granted to its discontinuing the action and it has now done so.
Rule 107(4) of the Rules provides:
Unless the parties agree or the Court orders to the contrary, the party against whom the action, or a claim or defence in the action, is discontinued is entitled to costs arising from the action, or the claim or defence (as the case may require) up to the time of receiving notice of the discontinuance.
The starting point is that, unless there is good reason to order to the contrary, Koonara should pay Fabriano’s costs of action.
Koonara refers to authorities in which it has been held that, when parties agree to a compromise of an action without agreeing in relation to the costs, ordinarily the court will not proceed to determine the merits of the action and ordinarily will order that each party bear its own costs.[9] Koonara cites a passage from Dal Pont’s Law of Costs which includes the following:
Where a suit is compromised before hearing, and the parties have reached no agreement as to costs, the issue may arise as to whether, and if so how, a court can exercise its costs discretion in the absence of a full hearing on the merits. The lack of such a hearing deprives the court of the main factor that determines whether or how it will make a costs order: the ultimate outcome of the case. It is tempting as a starting point to simply say the appropriate course is that each party bear its own costs.… It follows that, at least in cases where the conduct of each party in the litigation has been reasonable, and there is no satisfactory basis upon which the court can make an assessment of the merits, each party will ordinarily be ordered to bear his or her own costs.[10]
[9] Koonara cites Australian Securities Commission v Aust-Home Investments (1993) 44 FCR 194 at 201 per Hill J; Minister for Immigration & Ethnic Affairs; ex parte Lai Qin (1997) 186 CLR 622 at 624 per McHugh J; Gribbles Pathology Pty Ltd v Health Insurance Commission (1997) 80 FCR 823 at 827 per Finkelstein J.
[10] GE Dal Pont, Law of Costs (LexisNexis, 3^rd ed, 2013) at [14.66].
The principle relied upon by Koonara only applies when the parties have entered into a compromise agreement: it has no application to a unilateral abandonment of the case by the plaintiff. In the latter case, the general rule is that the plaintiff pays the defendant’s costs of action.
There is no reason to depart from the general rule. Before they instituted the action on 12 October 2018, the receivers did not engage in any communications with Fabriano with a view to seeking its agreement to their selling the Koonara equipment as part of a larger sale of the vineyards. If the receivers had engaged in dialogue with Fabriano, an agreement may have been reached. In addition, Mr Hart in his affidavit did not articulate any mechanism for allocating an indivisible purchase price for the vineyards and equipment as between the vineyards and the equipment. This was critical to the protection of the rights of Fabriano pursuant to its distraint of the Koonara equipment. Nor did Mr Hart quantify the selling costs that would be deducted from the sale proceeds before payment into Court. In reality, these matters were only addressed on the run during the hearing on 25 October 2018. When a proposal emerged as a result of discussion during the hearing, Fabriano did not oppose the proposal outright but expressed concern about the costs that would be deducted before payment into court of the proceeds of sale.
At the hearing on 24 October 2018, counsel for Koonara was asked why the receivers brought the action without any prior notice to Fabriano and said that Koonara would not have brought the action independently but it was decided to join Koonara as a co-plaintiff given that Reschke was bringing the action in any event. I accept that this was the case, but it does not justify depriving Fabriano of an order that Koonara pay its costs of action given that Koonara ultimately abandoned the action.
Koonara should pay Fabriano’s costs of the Koonara action.
Orders
I will order that Fabriano pay Reschke’s costs of its action and Koonara pay Fabriano’s costs of its action.
Because the two actions were joined, Reschke and Koonara were represented by the same solicitors and counsel and Fabriano addressed both actions together, it is necessary to consider how the costs should be divided for the purpose of recovery by Reschke and Fabriano respectively.
The Reschke action was the predominant action. First, it related to a substantive issue whether Reschke was the owner of the Wine. By contrast, in the Koonara action, Koonara did not seek determination of the ultimate rights to the Koonara equipment as between Koonara, the Bank and Fabriano: it only sought that the equipment be sold by the receivers as an interim measure. Secondly, the Reschke action related to a pre-existing dispute concerning the ownership of the Wine (insofar as Fabriano did not accept Reschke’s ownership of the wine and refused to deliver it up to Reschke). This had been the subject of communications between the parties over the previous six months. By contrast, in the Koonara action, there was no pre-existing dispute and, as observed above, the receivers had not previously put any proposal to Fabriano that the equipment be sold by them as an interim measure. Thirdly, the Reschke action involved the determination of substantive rights; whereas the Koonara action involved only the pragmatic question of who should sell the Koonara equipment. Fourthly, I accept that the Koonara action would not have been brought at all in the absence of the Reschke action.
In these circumstances, Reschke should recover from Fabriano its costs of the action except those costs that were incurred only by reason of including the claim by Koonara in the action. For example, to the extent that the costs would be allowed on adjudication, Reschke should recover the costs of preparing, swearing, filing and serving the Hart affidavit except those paragraphs and exhibits that relate exclusively to the claim by Koonara (paragraphs 17 to 33 and exhibits 7 to 14); the filing fee for the action; and the costs of the hearing on 24 October 2018 except insofar as the Koonara action was addressed during that hearing.
Fabriano should recover from Koonara its costs of defending the Koonara claim insofar as those costs were incurred over and above costs incurred in relation to the Reschke claim. For example, to the extent that the costs would be allowed on adjudication, Fabriano should recover the costs of reading paragraphs 7 to 33 of and exhibits 7 to 14 of the Hart affidavit and the costs of preparing paragraphs 27 to 32 of the Gowans affidavit.
I will hear the parties as to the precise form of the orders to be made to reflect these reasons.