PHAT STAX PTY LTD In Person v MR M BLOTT In Person via Telephone [2025] SADC 145

First Applicant: PHAT STAX PTY LTD In Person Counsel: MR L ROWLEY - Solicitor: ADLV LAW Second Applicant: PEK CONTRACTING PTY LTD In Person Counsel: MR L ROWLEY - Solicitor: ADLV LAW First Respondent: MR M BLOTT In Person via Telephone Counsel: MR G ROGERS - Solicitor: REIGNITE LEGAL Second Respondent: MRS A BLOTT In Person via Telephone Counsel: MR G ROGERS - Solicitor: REIGNITE LEGAL Third Respondent: CBDORGANICAUST PTY LTD In Person via Telephone Counsel: MR G ROGERS - Solicitor: REIGNITE LEGAL Hearing Date/s: 14/10/2025 File No/s: CIV-24-007140 B DISTRICT COURT OF SOUTH AUSTRALIA (Civil) DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment. The onus remains on any person using material in the judgment to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court in which it was generated. PHAT STAX PTY LTD & ORS v BLOTT & ORS (NO 2) [2025] SADC 145 Judgment of his Honour Judge Burnett 12 December 2025 PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - COSTS - GENERAL MATTERS - GENERALLY EVIDENCE - ADMISSIBILITY - EXCLUSIONS: PRIVILEGES - PUBLIC INTEREST PRIVILEGE - SETTLEMENT NEGOTIATIONS PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - COSTS - DEPRIVING SUCCESSFUL PARTY OF COSTS - CONDUCT OF PARTY OR PROCEEDING - ABUSE OF PROCESS, VEXATIOUS PROCESS AND ISSUES On 9 July 2025, following a trial, the Court ordered that judgment be entered in favour of the applicants against each of the respondents in the sum of $62,139.50 (or $124,279 in total). Both the applicants and the respondents have made applications for costs. The applicants seek costs on the standard costs basis, assessed on a lump sum basis, save that they seek costs of and incidental to a mediation and the issuing of a subpoena to the Department of Health and Aged Care-Office of Drug Control (ODC) on an indemnity basis. The basis of the application for indemnity costs was that the respondents’ failure to comply with a discovery order amounted to misconduct and had the consequence that the applicants incurred wasted and unnecessary costs. The applicants also seek pre- judgment interest. The respondents, even though they were unsuccessful in the proceedings, have sought costs on an indemnity basis and to be assessed by way of a lump sum. The respondents contended that the -- 1 of 15 -- applicants commenced or carried on the proceedings not for the purpose of obtaining an award of damages, which was sought in the claim, but for an ulterior purpose, namely, to purchase the property owned by the first and second respondents and take full control of the third respondent. In support of that application, the respondents relied on a series of offers of settlement made by them and the applicants and sought to draw the inference from those offers or their rejection that the proceedings were brought for an ulterior purpose. Held: (1) The offers of settlement (with the exception of one offer which was expressed to be an open offer) were not admissible in the hearing as to costs, both at common law and by virtue of s 67C of the Evidence Act (1929)(SA). The settlement privilege applied to a costs hearing: Pizimolas v Pizomolas & Zannis (No 2) [2010] SASC 209, Rayner v Pethick (2006) 243 LSJS 471 applied. (2) The applicants did not bring or continue the proceedings for an ulterior purpose. A person alleging that the proceedings were an abuse of process or brought for an ulterior purpose must show that the predominant purpose of the other party in using the legal process was other than the purpose for which it was designed. The onus to establish these matters is a heavy one: Williams v Spautz (1992) 174 CLR 509 applied. The only legitimate purpose for bringing proceedings is to vindicate legal rights or immunities by judgment or settlement. Proceedings will not be regarded as an abuse of process by reason only that they were brought for the purpose of taking collateral advantage of a judgment obtained in vindication of their legal rights, rather than a collateral advantage from the existence of the proceedings: Treasury Wines Estates Limited v Melbourne City Investments Pty Ltd (2014) 45 VR 585; Packer v Meagher [1984] 3 NSWLR 486 applied. (3) The applicants are entitled to the costs of the proceedings on the standard costs basis, save that they are entitled to the costs of the issuing of the subpoena to the ODC on an indemnity basis. As to the costs of the mediation, it is very difficult to assess the effect caused by a party who obstructs that process: Australian Competition and Consumer Commission v Harris Scarfe Australia Pty Ltd (No 2) [2009] FCA 433 applied. (4) The applicants’ costs are to be assessed on a lump sum basis. Assessing costs on that basis is logical, fair and reasonable: Beach Petroleum NL v Johnson (No 2) (1997) 57 FCR 119. (5) It is appropriate to award pre-judgment interest in favour of the applicants for the loss of opportunity to receive profits from the business. Interest should be calculated from the concluding date that those profits would have been earned: Hartley Poynton v Ali (2005) 11 VR 58 applied. Evidence Act 1929 (SA) s 67C; District Court Act 1991 (SA) ss 39, 42; Narcotic Drugs Act 1967 (Cth) ss 8F, 8M; Uniform Civil Rules rr 182.3, 194.3, 194.5, 194.6 referred to. AMEV Finance Ltd v Artes Studios Thoroughbreds Pty Ltd (1988) 13 NSWLR 486; Australian Competition and Consumer Commission v Harris Scarf Australia Pty Ltd (No 2) [2009] FCA 433; Beach Petroleum NL v Johnson (No 2) (1995) 57 FCR 119; Bibbo v Nikou & Delatex Pty Ltd (No 2) [2011] SADC 140; Colgate Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225; Cornwall v Rowan (No 4) (2006) 244 LSJS 183; Cutts v Head [1984] Ch 290; Express Cargo Services Pty Ltd v Mysko (No 2) [2023] SASC 133; Hamod v New South Wales (2002) 188 ALR 659; Hartley Poynton v Ali (2005) 11 VR 568; Metall and Rohstoff v Donaldson Inc [1990] 1 QB 391; Packer v Meagher [1984] 3 NSWLR 486; Phat Stax Pty Ltd & Anor v Blott & Ors [2025] SADC 82; Pizimolas v Pizimolas & Zannis (no 2) [2010] SASC 209; Rayner v Pethick [2006] SASC 70; R v Seigneur (2009) 103 CLR 207; Treasury Wines Estates Limited v Melbourne City Investments Pty Ltd (2014) 45 VR 585; TSG Franchise Management Pty Ltd v Cigarette & Gift Warehouse (Franchising) Pty Ltd (No 3) [2016] FCA 828; Willaims v Spautz (1992) 174 CLR 509, applied. -- 2 of 15 -- PHAT STAX PTY LTD & ORS v BLOTT & ORS (NO 2) [2025] SADC 145 PHAT STAX-COSTS AND INTEREST Civil Introduction 1 This judgment deals with issues of costs and interest. On 9 July 2025, following a trial, the Court ordered that judgment be entered in favour of the applicants against each of the respondents in the sum of $62,139.50 (or $124,279 in total).1 2 The applicants seek the following costs orders: (1) save for the matters referred to in paragraph [2] below, the respondents pay the costs of the applicants of and incidental to the proceedings on the standard costs basis; (2) the respondents pay the costs of and incidental to the mediation held on 26 August 2024 and the issue of the subpoena to the Department of Health and Aged Care-Office of Drug Control (ODC) on an indemnity basis. The basis of this application, in relation to the mediation, was that the respondents failed to comply with a discovery order which was in breach of their obligations to participate in the mediation in good faith. Further, the respondents’ failure to discover the ODC documents had the consequence that the applicants had to issue a subpoena to the ODC to obtain those documents. The applicants sought, in the alternative to paragraph [1], indemnity costs from 18 October 2024 (or alternatively from 12 November 2024), being the date shortly after the documents were returned by the ODC under the subpoena. The applicants claim that from that date it should have been clear that there was no arguable case for defending the claim as to liability; and (3) costs be paid on a lump sum basis. 3 Even though they were unsuccessful, the respondents seek costs on an indemnity basis, such costs be taxed by way of lump sum. The respondents contended that the applicants had commenced or carried on the proceedings for an ulterior purpose, namely, to purchase the property owned by the first and second respondents and take full control of the company, CBDOrganicsAust Pty Ltd, the third respondent in these proceedings (the third respondent or the Company). Background to the claim and the judgment of the Court 4 The proceedings involved the investment by the applicants in a proposal for the cultivation and production of cannabis for medicinal or scientific purposes that 1 Phat Stax Pty Ltd & Anor v Blott & Ors [2025] SADC 82. -- 3 of 15 -- [2025] SADC 145 2 was to be undertaken on a property (the Property) owned by the first and second respondents, Mr and Mrs Blott (the first and second respondents or Mr and Mrs Blott). 5 The third respondent was the holder of a medicinal cannabis licence (the Licence) issued by the ODC pursuant to s 8F of the Narcotic Drugs Act 1967 (Cth) (NDA). Section 8M of the NDA provides that the licence must specify the persons who are authorised to engage in the licensed activities. The Licence authorised Mr and Mrs Blott, as the directors of the third respondent, to engage in the activities that were the subject of the Licence. As at 27 September 2022, Mr and Mrs Blott each held 80 shares in the third respondent. 6 On 30 November 2022, the applicants and a Mr McCloud entered into a written agreement with the respondents pursuant to which they would become shareholders in the third respondent (the 30 November Agreement). That agreement required the respondents to seek the approval of the ODC for the restructure of the third respondent and for the applicants to carry on the business. Attached to the 30 November Agreement and forming part of that agreement was a draft Shareholders Agreement which recorded that Mrs Blott would resign as a director and her 10 ordinary shares would be transferred to Mr Blott and a further 140 ordinary shares would be issued in the third respondent which would be allotted in the following way: 20 shares to Mr Blott, 40 shares to the first applicant, 40 shares to the second applicant and 40 shares to Mr McCloud. Therefore, had the terms of the 30 November Agreement been carried out, the applicants would have each received a 25% interest in the third respondent. Also annexed to the 30 November Agreement was a copy of the proposed lease pursuant to which Mr and Mrs Blott would lease the Property to the third respondent so that the business of the third respondent could be carried on from the Property. 7 The restructure of the third respondent did not occur, the Shareholders Agreement was not executed and each of the applicants did not receive their promised 25% interest in the third respondent. The respondents did not seek the approval of the ODC for the restructure of the third respondent and for the applicants to carry on the business. 8 The applicants issued proceedings on 1 August 2024 seeking an injunction restraining the respondents from terminating the 30 November Agreement. No injunctive relief was ultimately sought, and the matter was instead referred to mediation. The mediation was not successful. On 12 November 2024, the applicants filed a claim in which they sought damages against the respondents. 9 The trial was heard on 29 January 2025 and 31 January 2025. The Court found that the respondents breached the terms of the 30 November Agreement. The Court assessed damages for the loss of opportunity suffered by each of the applicants in the sum of $62,193.50 and granted judgment in that sum in favour of each of the applicants. -- 4 of 15 -- [2025] SADC 145 3 Claim of the respondents for costs 10 It is appropriate to consider first the respondents’ claim for costs as it represents a departure from the normal order as to costs. The respondents submitted that the applicants commenced and continued the proceedings for the purpose of purchasing the Property and obtaining full control over the third respondent. The respondents contended that this was an ulterior purpose. The respondents further submitted that the Court should draw the inference that there was an ulterior purpose for instituting or continuing the proceedings from some settlement proposals put forward by the applicants and the rejection of the offers made by the respondents. Admissibility of settlement offers on the costs argument 11 It is first necessary to consider whether the offers made either by the applicants or the respondents are admissible on this costs application. The first of the offers made by the applicants was made at the mediation which took place on 26 August 2024. The offer was not expressed to be without prejudice except as to costs and was not an open offer. Both at common law and by virtue of s 67C of the Evidence Act 1929 (SA), the offer is inadmissible on an argument as to costs. At common law, a without prejudice offer to settle the matter, without reservation of the right to use the offer on an argument for costs, invokes the settlement privilege and prevents the offer being admissible on a hearing as to costs.2 Section 67C of the Evidence Act produces the same result. Section 67C provides: (1) Subject to this section, evidence of a communication made in connection with an attempt to negotiate the settlement of a civil dispute, or of a document prepared in connection with such an attempt, is not admissible in any civil or criminal proceedings. (2) Such evidence is, however, admissible if— (a) the parties to the dispute consent; or (b) the substance of the evidence has been disclosed with the express or implied consent of the parties to the dispute; or (c) the substance of the evidence has been partly disclosed with the express or implied consent of the parties to the dispute, and full disclosure of the evidence is reasonably necessary to— (i) enable a proper understanding of the other evidence that has already been adduced; or (ii) avoid unfairness to any of the parties to the dispute; or (d) the communication or document included a statement to the effect that it was not to be treated as confidential; or 2 Cutts v Head [1984] Ch 290, 305; AMEV Finance Ltd v Artes Studios Thoroughbreds Pty Ltd (1988) 13 NSWLR 486, 487. -- 5 of 15 -- [2025] SADC 145 4 (e) the proceeding in which the evidence is to be adduced is a proceeding to enforce an agreement for the settlement of the dispute or a proceeding in which the making of such an agreement is in issue; or (f) the evidence tends to contradict or to qualify evidence that has already been admitted about the course of an attempt to settle the dispute; or (g) the making of the communication, or the preparation of the document, affects the rights of a party to the dispute; or (h) the communication was made, or the document was prepared, in furtherance of— (i) the commission of a fraud or an offence; or (ii) the doing of an act that renders a person liable to a civil penalty; or (iii) the abuse of a statutory power. (3) Subsection (1) does not apply to parts of a document that do not concern attempts to negotiate a settlement of a dispute, if it would not be misleading to adduce evidence of only those parts of the document. 12 None of these exceptions provided by s 67C(2) or (3) are relevant to the application for costs. 13 In Pizimolas v Pizimolas & Zannis (No 2),3 Kourakis J (as he then was) held that if the communications were made in connection with an attempt to settle a dispute and none of the exceptions applied, s 67C prohibited the admission of such communications in any civil proceedings. “Proceedings” were not limited to the trial of the substantive controversy. An application for costs is a proceeding or at the very least a step in a proceeding.4 Bleby J in Rayner v Pethick5 and Judge Beazley in Bibbo v Nikou & Delatex Pty Ltd (No 2)6 reached the same conclusion. 14 The respondents submitted that the applicants had opened up the mediation to scrutiny in their claim that they were entitled to indemnity costs. I do accept that submission. The respondents did not identify the basis for the claim that the settlement privilege no longer applied. Although the respondents did not frame their argument with reference to s 67C(2), the only possible applicable exceptions are s 67C(2)(c) which provides that without prejudice communications are admissible if they have been partly disclosed with the express or implied consent of the parties to the dispute and full disclosure of the evidence is reasonably necessary to enable a proper understanding of the other evidence that has already been adduced or to avoid unfairness to any of the parties to the dispute and possibly s 67C(2)(f) which provides that such evidence is admissible if it contradicts or qualifies evidence that was already admitted about the course of attempting to settle the dispute. The applicants’ submission was that the respondents had failed 3 [2010] SASC 209. 4 Ibid, citing R v Seigneur (2009) 103 CLR 207; [2009] SASC 59. 5 (2006) 243 LSJS 471; [2006] SASC 70. 6 [2011] SADC 140. -- 6 of 15 -- [2025] SADC 145 5 to comply with an order to discover documents relating to communications with the ODC prior to the mediation and had failed to participate in the mediation in good faith by failing to disclose those documents. The applicants adduced evidence in support of that contention. That evidence and contention does not justify an exception to the rule provided for in s 67C(1) that the without prejudice communications are not admissible. In this case, the applicants have not disclosed any of the offers made at the mediation or any aspect of them or what occurred at the mediation. The exceptions do not apply. It follows therefore that the offers made by the applicants at the mediation are not admissible for the purposes of this costs hearing. 15 The second offer made by the applicants falls into the same category. This offer was made a few days after the mediation and as part of the negotiations following the mediation. The mediator was still involved at that time in conveying offers and counter offers. The offer was not expressed to be open or without prejudice. For the same reasons that the offers made by the applicants at the mediation are not admissible, this offer is not admissible for the purposes of this costs hearing. 16 The respondents also rely upon the two written offers that they made and the rejection or non-acceptance of those offers by the applicants. The first offer was made on 2 December 2024. This was prior to the trial of these proceedings. That offer was expressed to be an open offer and an offer that the respondents will rely upon on the question of costs. That offer therefore is admissible on this costs hearing. 17 A further offer was made by the respondents on 3 February 2025. This offer was made shortly after the trial had concluded and during the period that the Court had reserved its decision. This offer was not expressed to be open or without prejudice except as to costs. In these circumstances, by reason of s 67C(1), the offer is not admissible on the question of costs. 18 There were further discussions between the parties following this offer. The applicants wrote a without prejudice letter to the respondents on 6 February 2025 inviting them to participate in a without prejudice meeting. The parties met on 14 February 2025. At that meeting, the applicants made an offer of settlement which was repeated in a letter later that day. The applicants sent a deed dated 26 February 2025 which formalised that offer. In these circumstances, by reason of s 67C(1), these offers and communications are not admissible on the question of costs. These offers were not expressed to be open or without prejudice except as to costs. The letter dated 6 February 2025 was expressed to be without prejudice and the further communications were a continuance of the negotiations and therefore also inadmissible. 19 The respondents rely on a further offer dated 27 August 2025. That offer was made after the delivery of judgment but prior to the costs hearing. This offer was not expressed to be open or without prejudice except as to costs. In these -- 7 of 15 -- [2025] SADC 145 6 circumstances, by reason of s 67C(1), the offer is not admissible on the question of costs. Were the proceedings brought or continued for an ulterior purpose 20 If proceedings were brought or continued for an ulterior purpose, they are an abuse of process.7 The respondent contends that the predominant focus of the offers was the transfer of the Property from the first and second respondents to the applicants rather than the claimed relief in the proceedings. 21 A person alleging an abuse of process or that the proceedings were brought for an ulterior purpose must show that the predominant purpose of the other party in using the legal process is other than for which it was designed.8 The respondents bear a heavy onus to establish these matters.9 The only legitimate purpose for bringing proceedings is to vindicate legal rights or immunities by judgment or settlement.10 A proceeding:11 will not be regarded as an abuse of process by reason only that it is brought for the purpose of taking collateral advantage of any judgment or settlement in vindication of legal rights or immunities which might be obtained in the proceeding. On the other hand, if a proceeding is brought for the predominant purpose of obtaining collateral advantage from the existence of the proceeding as such, as opposed to collateral advantage flowing from any judgment or settlement in vindication of legal rights or immunities which might be obtained in the proceeding, it will be an abuse of process and liable to be stayed. 22 In Packer v Meagher,12 indemnity costs were awarded to a successful respondent on an indemnity basis because of a finding that the applicant brought the proceedings for an ulterior purpose. The Court found that the defamation proceedings were not brought for the purpose of vindicating the applicant’s reputation but were brought for the dominant, ulterior and collateral purpose of investigating the conduct of the Royal Commissioner.13 23 The only admissible evidence in support of the respondents’ contention that the proceedings were commenced or continued for an ulterior purpose is the offer that was made by the respondents on 2 December 2024. That offer: (1) seeks to resolve these proceedings and other proceedings or actions that had been taken by other, related parties, against the respondents. These other proceedings related to the issue of statutory demands against the third respondent; 7 Packer v Meagher [1984] 3 NSWLR 486, 493. 8 Willaims v Spautz (1992) 174 CLR 509, [42]; [1992] HCA 34 citing Metall and Rohstoff v Donaldson Inc [1990] 1 QB 391 at 469. 9 Ibid. 10 Treasury Wines Estates Limited v Melbourne City Investments Pty Ltd (2014) 45 VR 585, [9]; [2014] VSCA 351. 11 Ibid, [11]. 12 [1984] 3 NSWLR 486. 13 Ibid, 500. -- 8 of 15 -- [2025] SADC 145 7 (2) offered to transfer 50% of the shares in the third respondent to the applicants; (3) stated that the applicants have no rights or interests in the third respondent other than as shareholders; (4) stated that each party releases each other from all claims including in relation to the statutory demands; and (5) stated that each party bear their own costs. 24 This offer and its rejection or non-acceptance by the applicants does not permit any inference to be drawn that the proceedings were commenced or continued for an ulterior purpose. That is so because the offer: (1) involves the consent of other parties and the compromise of the other proceedings or rights. There is no evidence that the other parties were prepared to accept the compromise which involved them giving up their claims. The other parties were associated companies, who had spent some $144,518.16 on working capital and the payment of expenses of consultants; (2) the third respondent was not in a position to transfer 50% of its shareholding to the applicants; (3) the applicants would be giving up the right to have any control in the third respondent other than as shareholders; (4) the applicants would be giving up any entitlement to costs. 25 The respondents did not plead or contend that the proceedings were an abuse of process. There is no evidence to support a finding that the applicants have not brought the proceedings for the purpose of obtaining judgment in a monetary amount for the loss of opportunity that they alleged they have suffered by not being able to take up their shareholding in the third respondent and receive a share of the profits that were derived from that company. The loss of opportunity caused by the breach of the 30 November Agreement by the respondents is a genuine claim. There was no serious dispute that the respondents had breached the 30 November Agreement and the Court found that they had done so. Even had there been the predominant purpose of obtaining a collateral advantage to the applicants (which I have not found), such a collateral advantage would have been obtained as a result of a judgment and not as a result of the existence of the proceedings. Effect of the inadmissible offers 26 The offers which I have ruled inadmissible would not, had they been admitted, have provided any evidence that the proceedings were brought for an ulterior purpose. Taken individually, or collectively, the offers did not give rise to an inference that the proceedings were commenced or continued for an ulterior purpose. 27 The offers of the applicants that were made at the mediation and in the period immediately following the mediation contained a proposal that involved the purchase of the Property. Two proposals were put forward by the applicants at the mediation. They were the offer relied upon that included a proposal for the -- 9 of 15 -- [2025] SADC 145 8 purchase of the Property and another proposal (which was quickly withdrawn) involving the payment of money by the respondents to the applicants. The fact that the offer that was not withdrawn involved the purchase of the Property does not permit an inference that the claim (which was for damages for loss of opportunity) was brought for an ulterior purpose, namely to obtain the Property. In fact, the more probable inference was that the offers were made in an attempt to reach a compromise that would be suitable to all parties. 28 The offer made by the respondents by letter dated 3 February 2025 and its non-acceptance by the applicants also does not provide any basis for an inference that the applicants brought the claim for an ulterior purpose. I have come to that conclusion for a number of reasons. First, the offer was made after the trial had concluded but prior to judgment being delivered. In those circumstances, the non- acceptance of the offer simply means that the claim for damages for the loss of an opportunity would proceed to judgment. There can therefore be no inference of an ulterior purpose in bringing the proceedings because an offer made after trial was rejected. Secondly, the offer also required the parties to release each other from all claims, including the statutory demands. This would necessarily involve other further parties to agree to the offer. Thirdly, there was no evidence that the terms of the offer would be more favourable than a judgment. The costs of the applicants at the time were likely to be at least $160,000. The statutory demands involved a further claim for $144,000. The shares were to have been transferred under the 30 November Agreement following the obtaining of the ODC approval. Had it not been for the breach of that agreement, it is likely that the approval would have been obtained such that the first year of operation of the business would have been the financial year 2024. The applicants were entitled to pursue that claim. Against these matters, the respondents were offering to provide the Property rent free to the third respondent for 2 years and for the applicants to receive 70% of the shareholding in the third respondent. There is no evidence that these benefits exceeded the amounts that the applicants were giving up. 29 The offer made by the applicants dated 14 February 2025 and the formalisation of that offer in a Deed were also made after the trial had concluded but prior to judgment being delivered. In those circumstances, the making of the offer cannot provide the basis of any inference that the proceedings were commenced or continued for an ulterior purpose. The offer was incapable of improperly exerting pressure on the respondents as, if the offer was not accepted, the Court would simply proceed to deliver judgment. The offer simply represents a proposal which the applicants have put forward to compensate them for their loss caused by the breach by the respondents of the 30 November Agreement. It is not clear that the amount to be paid under that proposal is in excess of the loss that might have been suffered by the applicants. Even if it were, it does not provide evidence of any ulterior purpose in instituting or continuing the proceedings. 30 The offer made on 27 August 2025 was made after judgment was delivered (but prior to the hearing as to costs). Its non-acceptance therefore could not in any circumstance provide the basis for any inference that the proceedings were -- 10 of 15 -- [2025] SADC 145 9 commenced or continued for an ulterior purpose. Further, the offer included a term that the applicants pay to the respondents costs in the sum of $3,000. The most probable inference is that the offer was rejected because, at the very least, it was unfavourable to the applicants and less than they would have received when the costs were determined. It does not support any inference that the proceedings were commenced for an ulterior purpose. 31 I therefore find that the proceedings were not commenced or continued for an ulterior purpose. It follows that the respondents’ claim for indemnity costs or costs on any basis fails. Claims of the applicants for costs 32 The applicants seek costs on the standard costs basis, save that they seek costs on an indemnity basis in respect of the mediation and the issuing of a subpoena to the ODC. The applicants seek a further order that the costs be taxed on a lump sum basis. The applicants also, on an alternate basis, claim indemnity costs from 18 October 2024. 33 The Court has an unfettered discretion as to costs.14 The general costs rule is that costs will follow the event.15 The applicants were successful in the proceedings and there is no reason for the Court not to apply this general principle. The only matter raised by the respondents in opposition to the order was their contention that the proceedings were commenced and continued for an ulterior purpose. I have rejected that contention. I am satisfied that it is appropriate that the applicants have their costs of the proceedings on the standard costs basis. 34 The applicants seek costs on an indemnity basis in respect of the mediation. The Court, pursuant to UCR194.3(1)(a), may award costs on an indemnity basis. Under UCR194.6(1), the Court may, in exercising its discretion as to costs, have regard to any factors that it considers relevant. Under UCR194.6(2)(a), one of the matters that the Court may have regard to is any misconduct of a party in connection with the proceedings. This rule reflects the general common law principles as to when an order for indemnity costs might be made.16 The basis of the claim for indemnity costs in relation to the mediation is the failure to comply with a discovery order that was made prior to the mediation taking place. On 8 August 2024, the Court made orders that: (1) the matter be referred to mediation; (2) the respondents make limited discovery of all documents recording any communications that they had with the ODC in relation to an application to that office seeking consent to the applicants holding 14 District Court Act, 1991 (SA), s 42. 15 UCR 194.5(2). 16 Colgate Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225, [24]; [1993] FCA 536. -- 11 of 15 -- [2025] SADC 145 10 shares in the third respondent including, without limitation, the application made by or on behalf of the respondent for such approval. 35 The respondents did not provide discovery of all the documents that were required to be disclosed pursuant to the order made on 8 August 2024. The respondents’ compliance with that order was grossly deficient. The respondents did not discover the emails communications dated 11 August 2023, 16 August 2023 and 6 December 2023 referred to at paragraph [20] of the Court’s judgment.17 These communications were clearly discoverable and central to the determination of the claim. 36 It is clear therefore that there was misconduct on the part of the respondents in failing to comply with the order for discovery made on 8 August 2024. The issue that arises is whether that is sufficient, in the circumstances, to justify an order for indemnity costs in relation to the mediation. The respondents submitted that there was no evidence that the mediation was of no utility and that the costs expended on the mediation were wasted. 37 Stein J in Express Cargo Services Pty Ltd v Mysko (No 2)18 quoted the following passage from the judgment of Davies J in TSG Franchise Management Pty Ltd v Cigarette & Gift Warehouse (Franchising) Pty Ltd (No 3),19 where Davies J referred to the circumstances as to when indemnity costs might be awarded: It is well-settled law that indemnity costs should not be ordered unless there is some special or unusual feature of the case that justifies departure from the ordinary practice... The cases illustrate the appropriateness of awarding costs on an indemnity basis where there has been particular misconduct that caused a loss of time to the Court and to other parties, where proceedings were commenced or continued in wilful disregard of known facts or clearly established law, where allegations were made which ought never to have been made, or where the proceeding was unduly prolonged by groundless contentions... 38 It is very difficult for a court to assess the effect caused by a party who obstructs the mediation process. As Mansfield J held in Australian Competition and Consumer Commission v Harris Scarf Australia Pty Ltd (No 2),20 “it is very difficult to know whether negotiations which ought reasonably to have been undertaken would have come to fruition.” 39 In the present case, the applicants sought damages in an amount between $1,169,387.50 and $5,771,208 plus dividends and an account of profits, including future profits. Ultimately, each of the applicants obtained judgment in their favour of $62,139.50. Both the defence filed by the respondents and their conduct at trial indicate that the central issue in the case was the quantum of the applicants’ claim and not liability. The applicants did not obtain an expert report, making the 17 [2025] SADC 82, [20]. 18 [2023] SASC 133, [24]. 19 [2016] FCA 828, [7]. 20 [2009] FCA 433, [33]. -- 12 of 15 -- [2025] SADC 145 11 assessment of loss more difficult. I am not satisfied that the mediation was of no utility and therefore the costs of the mediation wasted. There was no conduct of the respondents that impeded negotiations taking place during the course of the mediation involving the central issue of the case namely the quantum of the applicants’ claim. 40 I also do not consider that the costs of the mediation were wasted in the sense that the mediation would never have taken place had the applicants known that the respondents had not made proper discovery. 41 The question then arises as to whether indemnity costs should be awarded because of the failure of the respondents to comply with the order for discovery. That is, is the breach of the order sufficient in itself to justify an order for indemnity costs? Indemnity costs are not designed to punish a party who is ultimately unsuccessful.21 The guiding principle is that an order for indemnity costs will be made because of conduct of a party of a nature which the courts have recognised, where that conduct has caused the other party to incur costs that they would not have otherwise incurred. I do not consider that the applicants have established that they would not have incurred the costs relating to the mediation. The respondents did not have legal representation at the time that the orders for discovery were made and the mediation was held. Although that does not excuse the failure to comply with the orders for discovery in that the orders were self-evident and easily understood, it does provide further reason to doubt that the mediation would have been successful even if discovery had been made. 42 I therefore do not consider that it is appropriate to award indemnity costs in relation to the mediation. The costs of the mediation will be covered by the general costs order. 43 It is however appropriate to award indemnity costs to the applicants of and incidental to the issue of the subpoena to the ODC on 26 August 2024 for the production of documents relating to communications between the ODC and the respondents about the licence variation application. The need for that subpoena was a direct result of the respondents failing to comply with the order for discovery. Some of the documents that were disclosed were documents that were either sent or received by the respondents. The misconduct of the respondents in failing to comply with their discovery obligations provide justification for an order for indemnity costs. The respondents did not make any submission as to why indemnity costs should not be awarded in relation to the subpoena costs. 44 I therefore order that the respondents pay the costs of and incidental to the issue of a subpoena by the applicants to the ODC on 26 August 2024 on an indemnity basis. 21 Hamod v New South Wales (2002)188 ALR 659, [20]; [2002] FCA 424. -- 13 of 15 -- [2025] SADC 145 12 45 The alternate contention of the applicants that they are entitled to indemnity costs from 18 October 2024 or 12 November 2024 does not arise given that I have accepted the applicants’ primary submission that they have the costs of the proceedings on the standard costs basis. However, I would not have granted that application in any event. In their claim, the applicants sought damages between $1,169,387.50 and $5,771,208. They were not successful in obtaining judgment in that sum or any figure approaching that sum. The respondents were therefore entitled to defend the proceedings and claim that no loss had in fact been suffered. I accept that once the subpoenaed documents had been produced by the ODC, it was clear that the applicants had a strong case as to liability, even though at that time, the claim had not been formulated into a written statement of claim. However, at all times the question of loss was contested. Even if liability had been conceded, the trial would still have proceeded on the question of quantum. Issues relating to quantum took up almost the entire time at trial. There would not have been any saving of time or cost if liability had been conceded on or about 18 October 2024 or following the drawing of the statement of claim. Lump sum costs 46 Both parties agreed that the Court should exercise its discretion to award costs on a lump sum basis. Notwithstanding this agreement, the Court should be satisfied that it is appropriate that costs be awarded on a lump sum basis. The Court must be satisfied that such an award would be “logical, fair and reasonable”.22 The proceedings were heard over two days. I heard the trial and case managed the matter prior to trial. In these circumstances, I am in a position to be able to make an informed decision, with the benefit of the evidence put forward by the parties and their submissions, as to the quantum of the costs. I am satisfied that this approach will be cost effective, efficient, logical, fair and reasonable. Interest 47 Pursuant to s 39 of the District Court Act 1991(SA), the Court has power to award pre-judgment interest. UCR182.3(2) provides that as a guide that interest shall be at the rate of 7 per cent per annum. 48 In Hartley Poynton v Ali,23 the Victorian Court of Appeal held that it was appropriate to award pre-judgment interest, but that interest should be calculated from the concluding date that those profits would have been earned. The Court held that it was not appropriate to award interest as though the profits would have been earned on a weekly basis, as is the case with ordinary wages, because the profits were not payable from week to week and that larger sums would have been earned by way of profits at the later part of the period rather than the earlier part.24 22 Beach Petroleum NL v Johnson (No 2) (1995) 57 FCR 119, [123]; (1995) 57 FCR 119; Cornwall v Rowan (No 4) (2006) 244 LSJS 183, [15]-[16]; [2006] SASC 111. 23 (2005) 11 VR 568, [110]; [2005] VSCA 53. 24 Ibid. -- 14 of 15 -- [2025] SADC 145 13 49 The Court has awarded judgment to each of the respondents in the sum of $62,139.50 based on the estimated, but discounted, profits for the financial year 2024.25 It is reasonable to expect that these profits would not have been earned on a weekly basis, but determined at the end of that period where the costs and expenses over the whole year could be calculated. There was no evidence that a portion of the profits would be distributed earlier than the end of the financial year 2024. 50 I therefore order that each of the applicants are entitled to pre-judgment interest at the rate of 7% per annum from 30 June 2024 to the date of the delivery of judgment on 9 July 2025 on the sum of $62,139.50. That pre-judgment interest is in the sum of $4,576.07. I order that the respondents pay pre-judgment interest in the sum of $4,576.07 to each of the respondents. Conclusion 51 For the reasons that have been expressed, I make the following orders: (1) the claim of the respondents for indemnity costs or any costs is dismissed. (2) Subject to (3), the applicants are entitled to costs of the proceedings on the standard costs basis. (3) The applicants are entitled to the costs of and incidental to the issuing of the subpoena to the ODC on 26 August 2024 on an indemnity basis. The applicants are not entitled to indemnity costs of the mediation. The costs associated with the mediation are to form part of the costs assessed on the standard costs basis. (4) The applicants’ costs are to be assessed on a lump sum basis. (5) The respondents are to pay each of the applicants pre-judgment interest to 9 July 2025 in the sum of $4,576.07. 25 [2025] SADC 82, [88]. -- 15 of 15 --