ACI Operations Py Ltd v Berri Limited [2005] VSC 55 | Case summary

Supreme Court of Victoria|2005-03-09|Before: HABERSBERGER J

PRACTICE AND PROCEDURE - Application for leave to discontinue proceeding - Costs order on discontinuance - No hearing on the merits - Discontinuance brought about by defendant's change of position after proceeding commenced - Plaintiff entitled to its costs of the proceeding on a party and party basis - Section 24(1) of the Supreme Court Act 1986 - Rules 25.05 and 63.15 of the Supreme Court Rules.

"1. An order under Rule 25.02 that the Plaintiff have leave to discontinue the whole of the proceeding. 2. An order that the Defendant pay the Plaintiff's costs of the proceeding on an indemnity basis."

As pointed out by Mr Houghton QC, who appeared with Mr Gleeson of counsel for the defendant, Berri Limited ("Berri"), leave to discontinue the proceeding was not strictly necessary because pleadings had yet to close (r.25.02(a) of the Supreme Court (General Civil Procedure) Rules 1996 ("the Supreme Court Rules")). Nevertheless, the defendant did not oppose the plaintiff's discontinuance of the proceeding. Counsel recognised that the application was required because the plaintiff also sought an order that the defendant pay the plaintiff's costs of the proceeding on an indemnity basis, whereas the defendant submitted that the plaintiff should pay the defendant's costs of the proceeding in accordance with the normal rule following discontinuance as set out in r.25.05 and r.63.15 of the Supreme Court Rules. Thus, the argument was simply about the appropriate order for the costs of this proceeding.

This proceeding is the second round of litigation between the parties arising out of a written agreement between them dated 30 May 2001 ("the ACI supply agreement"). ACI is a manufacturer and supplier of plastic drink bottles and plastic screw tops or bottle closures. Berri is a bottler of fruit juices and other beverages. By the ACI supply agreement, ACI agreed to supply Berri with a range of bottles and closures ("Products") for a period of five years from 30 May 2001.

Clause 5.5 of the ACI supply that agreement provided as follows:

"5.5 Meeting competition If the Customer receives a bona fide arm's length offer from a third party supplier for the supply of all of the Products on the same terms and conditions as those set out in this Agreement, and the overall price which would be payable by the Customer for the Products from the third party is lower than the overall prevailing price of the Products under this Agreement ('Competitive Offer'), the Supplier will have the right of last refusal to match the price set out in the Competitive Offer, failing which the Customer may acquire the Products from the relevant third party."

Brickwood Holdings Pty Ltd ("Brickwood") is another manufacturer and supplier of plastic bottles and closures to Berri. Insofar as it is relevant to this proceeding, by a letter dated 11 December 2003, Brickwood made an offer for the supply of products to Berri for the period between 12 months from the date of acceptance by Berri of the offer and 29 May 2006 ("Brickwood's first offer"). Berri forwarded Brickwood's first offer to ACI by a letter dated 12 December 2003 in which it was stated that ACI had a right to match the offer under clause 5.5. Berri required ACI to respond by 9 January 2004. ACI did not do so and by a letter dated 28 January 2004 Berri advised ACI that it had accepted the Brickwood offer, that Brickwood would commence on 27 January 2005 to supply to Berri all products currently supplied by ACI to Berri under the ACI supply agreement and that from that time ACI would have no further supply obligations under that agreement. In proceeding No. 4079 of 2004, commenced on 13 January 2004, ACI sought a declaration that the Brickwood offer was not within clause 5.5 of the ACI supply agreement. On 25 June 2004, I gave judgment for the plaintiff. I held that for quite a number of reasons the Brickwood offer was not within clause 5.5 of the ACI supply agreement.[1]

By a letter dated 6 October 2004, Ms Alison Watkins, the Chief Executive Officer of Berri, wrote to Mr Greg Ridder of ACI enclosing a copy of Brickwood's first offer which she said remained "on foot" with Brickwood "ready and committed to supplying products under the Brickwood's Letter from the end of January 2005" and that Berri had on 27 January 2004 "agreed to accept" the matters in the Brickwood letter. Ms Watkins also said that:

"Berri made an error in forwarding you the Brickwood's Letter purportedly in pursuance of clause 5.5 of the ACI Contract. It is clear that the Brickwood's Letter should have been sent to you pursuant to clause 4.8 of the ACI Contract."

Accordingly, Ms Watkins said that the Brickwood's letter was now sent to ACI pursuant to clause 4.8, that ACI had a right of last refusal to match the terms and conditions of the Brickwood's letter and that ACI was requested to respond by "no later than 30 days from the date hereof".

Clause 4.8 of the ACI supply agreement provided as follows:

"4.8 Right to match in respect of the Products If the Customer receives a bona fide arm's length offer from a third party for the supply of products which are substantially the same as or substitutable for any Products ('ACI Product Offer'), the Supplier will have the right of last refusal to match the terms and conditions set out in the ACI Product offer with the relevant products from the ACI Group."

Mr Ridder responded to Ms Watkins' letter on 19 October 2004. In his letter Mr Ridder stated that ACI was "confounded" by the statement in Ms Watkins' letter that the Brickwood's letter remained "on foot". He asked that ACI be informed whether the agreement with Brickwood was "still in force or whether it has been terminated". Mr Ridder further stated that ACI needed to know this information before it gave Berri's letter "any further consideration".

By a letter dated 26 October 2004 Ms Watkins again wrote to Mr Ridder. However, she did respond to the question about whether or not the agreement between Berri and Brickwood was still in force. She simply reiterated that Berri looked forward to ACI's response by 6 November 2004 as to whether ACI elected to exercise its right of last refusal in accordance with clause 4.8.

On 3 November 2004 Mr Richard Mereine of Clayton Utz, the solicitors acting for ACI, wrote to Ms Watkins noting that, as she had not answered the question about the status of the agreement between Berri and Brickwood, ACI could only assume that it was still in force. He then stated that asking ACI to match an existing agreement was contrary to the express terms of the ACI supply agreement and was "clearly not a situation contemplated by clause 4.8" of that agreement. It was further stated that, in any event, the Brickwood letter was not an offer within clause 4.8 because it purported to cover not only products which were substantially the same as or substitutable for products "but also some of the identical Products themselves". Mr Mereine accordingly sought written confirmation that day that Berri would withdraw its earlier letters failing which, it was said, ACI would have to initiate a fresh proceeding against Berri seeking a declaration that the Brickwood letter was not an offer within clause 4.8 of the ACI supply agreement and an injunction restraining Berri from "accepting the offer contained in the Brickwood letter (to the extent that Berri Limited has not already done so)" or from purchasing from Brickwood any products referred to in that offer.

On the same day Ms Watkins replied to Mr Mereine expressing some confusion with the reference in his letter to identical products and asking for an explanation. ACI's response was to file the writ in this proceeding on 4 November 2004 seeking the relief referred to in the previous paragraph. In his letter of service of the writ, Mr Mereine described Ms Watkins' responses as "unsatisfactory".

At a hearing before Byrne J on 12 November 2004, his Honour gave directions for the delivery of Berri's defence by 26 November and for the delivery of a possible counterclaim by Berri by 8 December 2004. There was also some discussion about referring this proceeding to me for management, given my involvement with the previous proceeding, despite the fact that I was no longer sitting in the Commercial List.

The matter did come before me at a directions hearing on 10 December 2004. On that occasion Mr Houghton sought an adjournment for a week because, as he informed the Court and ACI, Berri had recently terminated its supply agreement with Brickwood and invited Brickwood to treat with it in terms of a fresh offer to supply. Mr Houghton indicated that if Brickwood did make a fresh offer Berri intended to forward it to ACI under clause 4.8 to see whether ACI wished to match it. The hearing was adjourned for a week so that the parties could consider their positions in the light of these crucial developments.

ACI's application was the subject of the further hearing on 17 December 2004. On this occasion, following an order by me that Berri make available to ACI a copy of the letter of termination, it was common ground that Berri had terminated its supply agreement with Brickwood on 3 December 2004 by a letter delivered on that day. In that letter, from Corrs Chambers Westgarth, the solicitors acting for Berri, to Monahan & Rowell, the solicitors acting for Brickwood, it was stated that in the circumstances of ACI commencing its proceeding, Berri no longer intended to be bound by its supply agreement with Brickwood. The letter continued:

"It may be that it is now open to your client to bring a claim for any damages that your client may suffer as a result of our client's action. However, our client is also aware that in such circumstances, your client has a duty to endeavour to mitigate any damage it may suffer as a result of our client's repudiatory conduct. We advise that our client will be providing your client with an Invitation to Treat in relation to the supply of products to our client. ... We trust that your client, in exercising its duty to mitigate properly, will respond to the Invitation to Treat in good faith and as expeditiously as possible."

It was also revealed at the hearing on 17 December 2004 that on the previous day Berri had forwarded to ACI purportedly under clause 4.8 a further offer from Brickwood. That offer was said to be open for acceptance until 21 December 2004.

Mr Mukhtar QC, who appeared with Mr Waller of counsel for ACI, submitted that Berri's decision to terminate its contract with Brickwood meant there was no useful purpose in continuing with this proceeding. He submitted that Berri's conduct was a tacit acknowledgment that putting Brickwood's "offer" to ACI under clause 4.8 was untenable when it had already become a concluded agreement by virtue of Berri's acceptance of Brickwood's first offer. Mr Mukhtar drew my attention to the statement by Berri's senior counsel at the hearing on 10 December 2004 that:

"We're more bothered by the point that it's not an offer because it's just been accepted ..."

This was said to be recognition by Berri of the strength of the principal way in which ACI put its case. Moreover, it was submitted, as a result of Berri terminating its contract with Brickwood, ACI had, in effect, succeeded in securing the substantive relief that it sought in the proceeding because the Brickwood "offer" was no longer relied on by Berri.

Mr Mukhtar therefore submitted that, in the circumstances, it was appropriate that the proceeding be brought to an end and that ACI should have leave to discontinue the proceeding. Mr Mukhtar submitted, however, that Berri should pay ACI's costs of the proceeding, and that it should be ordered to do so on an indemnity basis. He submitted that Berri had acted unmeritoriously or evasively or shrewdly in that:

(a) it had made an agreement after ACI commenced its first legal challenge to the validity of the offer under clause 5.5, and thus put itself into a predicament where it was bound under two supply agreements;

(b) after Berri lost the first case, it had said that the earlier offer was an "error" and tried to clothe it as a clause 4.8 offer;

(c) it had refused to state, prior to this proceeding being commenced, whether its agreement with Brickwood was still in force or whether it had been terminated;

(d) it had told Byrne J it would counterclaim (and thereby obtained a generous timetable), but a counterclaim had never materialised;

(e) it had ignored a request for particulars (even though Byrne J had forewarned of the need for such particulars); and

(f) it had terminated its contract with Brickwood on 3 December 2004 but had not disclosed that to ACI or the Court until 10 December 2004, even though it had corresponded with ACI on 9 December 2004.

Given all of this, Mr Mukhtar submitted, it would be unjust for the plaintiff to be out of pocket.[2]

On behalf of the defendant, Mr Houghton submitted that there was nothing in the material presented to the Court that took this case outside the normal rule that the party who discontinued a proceeding should pay the costs of the other party. Accordingly, he submitted, ACI should be ordered to pay Berri's costs of the proceeding.

Alternatively, in the event that his first submission was not accepted, Mr Houghton submitted that there should be no order as to costs. He submitted that this followed for two reasons. First, the defendant had a defence and opposed the discontinuance on terms other than that it be awarded costs.[3] Secondly, it was not possible to discern where the merits of the action might lie without a fruitless enquiry that would occupy the Court's time and the time of the parties and there was no suggestion that the defendant had behaved otherwise than sensibly and appropriately during the litigation.[4]

Mr Houghton submitted that the plaintiff had raised only two points of construction in the proceeding. The first point of construction was that it was not possible for the defendant to serve a third party's offer on the plaintiff pursuant to clause 4.8 of the agreement if that offer had already been accepted by the defendant. He submitted that it was arguable that the fact that Brickwood's first offer had been accepted by Berri did not necessarily mean that it was an offer incapable of attracting the operation of clause 4.8. If ACI matched Brickwood's offer it was open to Berri to accept the variation to the ACI supply agreement. The fact that it would then be in breach of its agreement with Brickwood, was Berri's problem not ACI's.

ACI's second point of construction was that the Brickwood offer could not be an offer pursuant to clause 4.8 because it covered some of the identical products being the subject of clause 5.5. Mr Houghton argued that if the proceeding were not discontinued, Berri proposed to demonstrate that each of the allegedly identical products were in fact dissimilar.

Finally, Mr Houghton submitted that although there had been a suggestion at the hearing on 10 December 2004 that ACI would bring an application for summary judgment, it had declined to do so and instead decided to discontinue the proceeding. He submitted that, in the absence of an application for summary judgment, ACI could not obtain an order for costs as if it had successfully made such an application.

It was common ground between the parties that the discretionary power given to the Court by s.24(1) of the Supreme Court Act 1986 enabled the Court in this situation to make whatever order it considered appropriate, including an order that the defendant pay the plaintiff's costs.[5]

One problem in dealing with arguments about costs, where the plaintiff wishes to discontinue, is that there has been no hearing on the merits. As McHugh J pointed out in Re The Minister for Immigration and Ethnic Affairs of the Commonwealth of Australia: Ex parte Lai Qin[6]:

"In most jurisdictions today, the power to order costs is a discretionary power. Ordinarily, the power is exercised after a hearing on the merits and as a general rule the successful party is entitled to his or her costs. Success in the action or on particular issues is the fact that usually controls the exercise of the discretion. A successful party is prima facie entitled to a costs order. When there has been no hearing on the merits, however, a court is necessarily deprived of the factor that usually determines whether or how it will make a costs order."[7]

In Australian Securities Commission v Aust-Home Investments Limited,[8] Hill J outlined the following five propositions concerning the exercise of a court's discretion to order costs where the parties to a proceeding no longer wish to continue:

"(1) Where neither party desires to proceed with litigation the Court should be ready to facilitate the conclusion of the proceedings by making a cost order. ...

(2) It will rarely, if ever, be appropriate, where there has been no trial on the merits, for a Court determining how the costs of the proceeding should be borne to endeavour to determine for itself the case on the merits or, as it might be put, to determine the outcome of a hypothetical trial. ...

(3) In determining the question of costs it would be appropriate, however, for the Court to determine whether the applicant acted reasonably in commencing the proceedings and whether the respondent acted reasonably in defending them. ...

(4) In a particular case it might be appropriate for the Court in its discretion to consider the conduct of a respondent prior to the commencement of the proceedings where such conduct may have precipitated the litigation. ...

(5) Where the proceedings terminate after interlocutory relief has been granted, the Court may take into account the fact that interlocutory relief has been granted ..."[9] (References omitted.)

In Lai Qin[10], McHugh J approved of this approach:

"In an appropriate case, a court will make an order for costs even when there has been no hearing on the merits and the moving party no longer wishes to proceed with the action. The court cannot try a hypothetical action between the parties ... In some cases, however, the court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action. ... Moreover, in some cases a judge may feel confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried ... If it appears that both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the court will make no order as to the cost of the proceedings. This approach has been adopted in a large number of cases."[11]

Applying those principles to the facts of this case, it seems to me that no criticism can be made of ACI's decision to commence this proceeding. One cannot say what it would have done had Berri responded clearly and unequivocally to the question concerning the status of Berri's agreement with Brickwood. But given Berri's failure to state whether the agreement with Brickwood was still in force or whether it had been terminated, it seems to me reasonable for ACI to assume that it was still in force and to commence this proceeding on that basis. Such an assumption was, of course, a correct one.

Equally, however, it seems to me that Berri would have acted reasonably in defending the proceeding through to its conclusion. In the absence of hearing argument on the issues, I cannot say whether or not Brickwood's first offer would have been held to be an offer within clause 4.8 of the ACI supply agreement. But what I can say is that it was Berri's change of position which has resulted in this proceeding being discontinued. Once Berri decided to terminate its supply agreement with Brickwood and to invite a fresh offer from Brickwood (which would not be encumbered by the concluded agreement argument), Berri was in effect abandoning its reliance on Brickwood's first offer. Thus, it was Berri's actions which rendered this proceeding futile, not any change of heart on the part of ACI. Therefore, I consider that ACI was quite correct in submitting that as a result of Berri's change of position it had achieved what it set out to obtain by the commencement of this proceeding.

This means, in my opinion, that ACI is entitled to an order for costs in its favour. As Kaye J said in Garwolin Nominees Pty Ltd v Statewide Building Society in respect of a similar situation:

"It would be quite unjust and unfair if the plaintiff were denied his costs incurred in achieving the relief he sought by the commencement of his action."[12]

I do not, however, agree with ACI's submission that Berri should be ordered to pay its costs on an indemnity basis. Nothing turns, in my opinion, on the failure of Berri to have provided the requested particulars nor on its decision not to bring the counterclaim which it had indicated it was considering. Similarly, I do not consider it to be relevant to the claim for costs on an indemnity basis that Berri may not have responded as clearly and unequivocally to ACI's question concerning the status of Berri's agreement with Brickwood as ACI wanted. Nor do I consider it to be relevant to that issue that Berri did not disclose to ACI the fact of the termination of the Brickwood contract until the hearing on 10 December 2004 even though its solicitors corresponded with ACI's solicitors on the previous day.

The only issue which has given me some cause for hesitation is that having embarked in early October 2004 on the course of relying on Brickwood's first offer as an offer within clause 4.8 of the ACI supply agreement, even though Berri had already accepted that offer some nine month earlier, and having seen the not unexpected response by ACI, Berri initially persisted in its reliance on that letter with the result that this proceeding was commenced. Yet one month later Berri changed its position and abandoned its reliance on Brickwood's first offer with the result that this proceeding was rendered futile. Clearly, if it had decided earlier not to attempt to rely on Brickwood's first offer, this proceeding would not have been necessary. On reflection, however, it seems to me that this is no reason to order that the costs which Berri must pay ACI should be assessed on an indemnity basis. However one might describe that conduct, I do not consider it to be correct to hold that it was unmeritorious or deliberate or high minded or improper such as to warrant the Court showing its disapproval by an order for costs on an indemnity basis.[13]

The order of the Court on the plaintiff's summons filed 15 December 2004 will therefore be that:

1. The plaintiff have leave to discontinue the whole of the proceeding.

2. The defendant pay the plaintiff's costs of the proceeding, such costs to be taxed on a party and party basis in default of agreement.

[1] ACI Operations Pty Ltd v Berri Limited [2004] VSC 219

[2] See Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd [1988] FCA 202; (1988) 81 ALR 397; Colgate-Palmolive Pty Ltd v Cussons Pty Ltd [1993] FCA 536; (1993) 46 FCR 225; Rouse v Shepherd [No. 2] (1994) 35 NSWLR 277.

[3] Garwolin Nominees Pty Ltd v Statewide Building Society [1984] VicRp 38; [1984] VR 469 at 472 per Kaye J

[4] Telstra Corporation Ltd v Australian Telecommunications Authority (30 June 1994) BC 9405104 at 28 per Hayne J

[5] See Blackjack Executive Car Services Pty Ltd v Koulax [2002] VSC 380 where I relied on the decision of Kaye J in Garwolin Nominees Pty Ltd v Statewide Building Society [1984] VicRp 38; [1984] VR 469 as support for declining to follow the decision of O'Bryan J in Dohrmann v Attorney-General for the State of Victoria that there was no such power.

[13] Bass Coast Shire Council v King [1997] 2 VR 5 at 29 per Winneke P

ACI Operations Py Ltd v Berri Limited

At a glance

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Judgment (66 paragraphs)

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Cases Cited (5)