Rozenblit v Vainer
[2017] VSCA 52
•17 March 2017
SUPREME COURT OF VICTORIA
COURT OF APPEAL
S APCI 2016 0120
| BORIS ROZENBLIT | Applicant |
| v | |
| MICHAEL VAINER and ALEXANDER VAINER | Respondents |
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| JUDGES: | WHELAN, KYROU and McLEISH JJA |
| WHERE HELD: | MELBOURNE |
| DATE OF HEARING: | 10 February 2017 |
| DATE OF JUDGMENT: | 17 March 2017 |
| MEDIUM NEUTRAL CITATION: | [2017] VSCA 52 |
| JUDGMENT APPEALED FROM: | [2016] VSC 451 (Cameron J); [2015] VSC 731 (Lansdowne AsJ) |
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PRACTICE AND PROCEDURE – Stay pending payment of interlocutory costs – Applicant made several unsuccessful applications for leave to amend statement of claim – Applications occasioned delay and wasted costs, and attended by administrative errors – Applicant did not pay interlocutory costs ordered to be taxed immediately – Associate judge ordered proceeding be stayed pending payment of interlocutory costs pursuant to Supreme Court (General Civil Procedure) Rules 2005 r 63.03(3) – Whether test in Gao v Zhang (2005) 14 VR 380 continues to apply following introduction of Civil Procedure Act 2010 and Supreme Court (General Civil Procedure) Rules 2005 r 63.20.1 – Whether judge erred by failing to apply Cox v Journeaux [No 2] (1935) 52 CLR 713, 720 – Whether discretion to order stay miscarried – Leave to appeal granted, appeal dismissed.
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APPEARANCES: | Counsel | Solicitors |
| For the Applicant | Mr J Korman | |
| For the Respondents | Mr M G McNamara | CIE Legal |
WHELAN JA
McLEISH JA:
This case concerns the power of the Court to stay proceedings pending the payment of an interlocutory costs order under r 63.03(3) of the Supreme Court (General Civil Procedure) Rules 2005 (‘the Rules’).
The history of the proceeding
The applicant and the first respondent entered into an oral agreement and written heads of agreement to develop and commercialise tyre recycling technologies that had been invented by the applicant while he was a resident of Ukraine. The VR Tek Unit Trust was established pursuant to the heads of agreement and VR Tek Global Pty Ltd (‘VR Tek Global’) was incorporated on 13 August 2009. The applicant along with other entities held units in the unit trust and shares in VR Tek Global.
At a meeting of members of VR Tek Global in late 2011, it was resolved that the applicant, among others, would transfer his shares in VR Tek Global to the second respondent, who is the first respondent’s father. The first respondent voted in favour of this transfer on behalf of entities he controlled and also on behalf of the applicant, in respect of whom he said that he held a proxy. The applicant contends that the transfer took place without his knowledge or consent.
VR Tek Global was placed into voluntary liquidation on 27 November 2012. By reason of the share transfer, the applicant was not a shareholder of VR Tek Global at the time.
The applicant filed and served a writ and statement of claim on 23 December 2013. He originally made two claims, the first of which is no longer pursued. The second claim, which remains on foot, alleges that the applicant’s shares in VR Tek Global were transferred fraudulently, without his knowledge, approval or consent, and for no consideration.
The respondents filed and served a defence and counterclaim on 17 February 2014. The applicant filed and served his defence to the counterclaim on 25 March 2014. Pleadings closed in April 2014 and discovery took place in June 2014.
Following an application for summary dismissal of the counterclaim, on 15 July 2014 an associate judge ordered by consent that the counterclaim be dismissed and the respondents pay the applicant’s costs, to be taxed forthwith.
An unsuccessful mediation occurred on 13 August 2014.
At a directions hearing before another associate judge on 25 August 2014, the applicant made an oral application for leave to file and serve an amended statement of claim. The application was refused. The associate judge ordered that the applicant make any such application by summons.
By summons dated 29 August 2014, the applicant duly sought leave to file and serve an amended statement of claim. Among other things, he sought to add a claim arising from the voluntary liquidation of VR Tek Global. He also sought an expedited hearing date.
On 20 October 2014, the associate judge refused the application for leave to amend.[1] In short, the pleading sought to establish a constructive trust in favour of the applicant as the basis for his standing, despite not being a registered shareholder, to challenge the liquidation of VR Tek Global. The applicant had failed to show a basis on which he could have the necessary standing. The associate judge ordered that the applicant pay the respondents’ costs of and incidental to that day’s hearing, the costs of the directions hearing of 25 August 2014 and the costs of and incidental to the oral application made at that directions hearing, all of which were to be taxed immediately. She also ordered that any further application for leave to amend the statement of claim be made by 10 November 2014.
[1]Rozenblit v Vainer [2014] VSC 510.
By summons dated 10 November 2014, the applicant again sought leave to file and serve an amended statement of claim, this time asserting an alternative basis for his standing to challenge the liquidation of VR Tek Global. He alleged that the respondents had breached fiduciary obligations to the applicant, and engaged in a fraudulent and dishonest design, by causing the VR Tek Unit Trust, through its shareholding in a company which held shares in VR Tek Global, to bring about the liquidation.
In the meantime, on 15 December 2014, a costs registrar ordered by consent that the applicant pay the respondents $22,000 by 4:00 pm on 19 December 2014. The order made clear that the sum of $22,000 set off the sum owed under the costs order stemming from dismissal of the counterclaim against the associate judge’s costs order of 20 October 2014.
The respondents caused a warrant of seizure and sale to be executed in respect of the amount owed. On 7 May 2015 the applicant’s solicitor advised the respondents’ solicitor that the sheriff had attended the applicant’s home on the previous day and that he had no possessions that could lawfully be seized under the warrant. The solicitor stated that he would seek injunctive relief if any further attempt was made to have the sheriff attend the applicant’s home.
The $22,000 required to be paid by the order of 15 December 2014 remains unpaid.
On 28 May 2015, the associate judge gave reasons dismissing the second summons.[2] She did not accept the respondents’ objection that the new claims did not expose causes of action. However, leave to amend was refused because the pleading contained inconsistencies and formal deficiencies. The question of costs was left for further submissions.
[2]Rozenblit v Vainer [No 2] [2015] VSC 234.
In an affidavit affirmed on 19 June 2015, the applicant stated that he had no assets other than his personal possessions and his only income was from the aged pension. He said that he had not paid the 15 December 2014 costs order because he had no way of doing so. He had consented to the order to avoid a ‘pointless court fight’ which he was likely to lose.
On 24 June 2015 the associate judge made orders formally dismissing the summons and ordering that the applicant pay the respondents’ costs of and incidental to the summons, to be taxed immediately. An oral application for leave to amend was sought to be made on the same day. The associate judge rejected it and required any further application to be made by summons.
In her order, the associate judge recorded, under ‘Other matters’, short reasons for making the above costs orders:
In brief summary, the Court considers that the better view is that r 63.17[3] … does not apply, as the amendment was not allowed. If r 63.17 does apply, the Court considers that the complexity and number of the proposed amendments, and the fact that significant causes of action were new, make a costs order in favour of the defendants appropriate, especially as the amendments were not in the result allowed. The history of attempts to amend the statement of claim means that more than usual costs have been incurred by the defendants in relation to [the] proposed amendment, and justifies an order that the costs be taxable immediately.[4]
[3]Rule 63.17 provides that ‘[w]here a pleading is amended (whether with or without leave) the costs of and occasioned by the amendment and the costs of any application for leave to make the amendment are the parties’ costs in the proceeding, unless the Court otherwise orders’.
[4]The order recites that the associate judge gave oral reasons as well. These were not available to this Court.
In her reasons regarding the application the subject of the present proposed appeal, the associate judge added this:
It was largely the manner in which the applications for leave to amend had been conducted, the delay thereby occasioned and the fact that at the time of the second order the plaintiff foreshadowed the third application for leave to amend that [led] me to make orders that the costs could be taxed forthwith, over the objections of the plaintiff.[5]
[5]Rozenblit v Vainer [No 3] [2015] VSC 731 [101] (‘AsJ Reasons’).
By summons dated 7 July 2015, the applicant for the third time sought leave to file and serve an amended statement of claim.
On 17 July 2015, the respondents filed a summons seeking that the proceeding be stayed pursuant to r 63.03(3) of the Rules until the applicant paid the costs fixed by the order of 15 December 2014.
Rule 63.03 relevantly provides:
(3)Where the Court makes an interlocutory order for costs, the Court may then or thereafter order that if the party liable to pay the costs fails to do so—
(a)if that party is the plaintiff, the proceeding shall be stayed or dismissed;
(b)if that party is a defendant, the defendant’s defence shall be struck out.
(4)In paragraph 3—
“defendant” includes any person against whom a claim is made in a proceeding;
“plaintiff” includes any person who makes a claim in a proceeding.
In a further affidavit affirmed on 23 July 2015, the applicant expanded on his financial circumstances, including by making reference to those of his wife. Their combined assets, apart from personal possessions, consisted of two small bank balances and the only income each of them received was from the aged pension and a smaller overseas pension.
The hearing of the applicant’s summons was set down for 24 July 2015. At the hearing it emerged that the applicant had, apparently due to an administrative error, exhibited the wrong version of the draft amended statement of claim to his affidavit in support of his summons. The associate judge therefore ordered that the further hearing of the summons be adjourned to the date set down for hearing of the respondents’ summons seeking a stay.
In the meantime, on 12 August 2015, a costs registrar ordered by consent that the applicant pay the respondents $28,000 in respect of the costs order made by the associate judge on 24 June 2015. This sum also remains outstanding.
Both summonses were heard on 2 September 2015. Without objection, the respondents were granted leave to amend their summons so that it referred to both unpaid costs orders.
On 16 December 2015, the associate judge published reasons in which she granted the applicant leave to file and serve an amended statement of claim but also granted the relief sought in the respondents’ summons, ordering that the proceeding be stayed until the applicant paid the amounts owing to the respondents pursuant to the costs orders of 15 December 2014 and 12 August 2015.[6] Orders giving effect to those reasons were made on 22 December 2015. An appeal to a judge of the Trial Division was dismissed on 4 August 2016.[7] It is from that decision that the present application for leave to appeal is brought.
The decisions below
[6]Ibid.
[7]Rozenblit v Vainer [No 4] [2016] VSC 451 (‘Trial Reasons’).
The associate judge
The associate judge rejected the respondents’ objections to the pleading in respect of the liquidation.[8] She then considered discretionary reasons favouring refusal, none the less, of the application for leave to amend.[9] Those considerations included the very substantial delay caused by the carriage of the successive applications, the absence of any proper explanation for that situation on the part of the applicant and the impact of granting leave on the future conduct of the proceeding. On the other hand, it appeared that the applicant had initially not advanced his whole case as a result of legal advice which subsequently changed, and the nature of his grievances was significant.
[8]AsJ Reasons [14]–[40].
[9]Ibid [41]–[62].
The associate judge held that the balance was settled against an unconditional grant of leave by the significant costs that would be caused if leave were to be granted, in circumstances where the applicant lacked sufficient assets to meet any costs orders against him.[10] His non-payment of the costs ordered and his attitude to the orders were further factors against the grant of leave to amend.[11] The applicant had shown an ‘almost … wanton disregard for the prejudice’ to which the respondents had been, and would continue to be, exposed.[12] Either the applicant had no financial resources from which he could meet his own future disbursements in the litigation and any costs orders, or he had chosen not to disclose such resources.[13]
[10]Ibid [63]–[65].
[11]Ibid [67].
[12]Ibid [69].
[13]Ibid [70]–[71].
The associate judge then turned to the respondents’ summons. She held that this Court’s decision in Gao v Zhang[14] outlined two essential requirements for the exercise of the power in r 63.03(3): first, that the reason for its exercise be ‘serious’ and ‘the only practical way to ensure justice between the parties’[15]; and secondly, that there was ‘some conduct on the part of the party in default which [fell] for condemnation to the extent of making so draconian an order’.[16]
[14](2005) 14 VR 380.
[15]Ibid 385 [15] (Ormiston JA; Vincent JA agreeing).
[16]Ibid 386 [17]. See AsJ Reasons [80].
The associate judge said that Gao v Zhang had to be read in its historical context. When it was decided, the default position was that interlocutory costs were taxable immediately. As such, the Court in Gao v Zhang was at pains to ensure that r 63.03(3) was not used as a means of routine debt collection. By reason of r 63.20.1, interlocutory costs are now not taxable until the proceeding has concluded, unless the Court orders otherwise. A party may therefore only seek a stay pursuant to r 63.03(3) if it has first been successful in displacing the presumption and obtaining an order that the interlocutory costs be taxed immediately. Accordingly, the associate judge said, the need to discourage routine debt collection no longer applies.[17]
[17]AsJ Reasons [103].
Gao v Zhang was also decided prior to the enactment of the Civil Procedure Act 2010 (‘CPA’). The CPA requires the Court to consider the overarching purpose contained in s 7(1), namely ‘to facilitate the just, efficient, timely and cost‑effective resolution of the real issues in dispute’. The associate judge held in particular that the obligations to co-operate[18] and to ensure costs are reasonable and proportionate[19] supported a ‘robust exercise’ of the power in r 63.03(3).[20]
[18]CPA s 20.
[19]Ibid s 23.
[20]AsJ Reasons [104].
The associate judge held that the attempts of the applicant to amend his statement of claim were genuine, and went to the heart of the case he sought to bring. His intention was not to vex or harass the respondents. However, his conduct still fell for condemnation.[21]
[21]Ibid [94].
First, there had been several iterations of the proposed amended statement of claim and four prior applications for leave to amend, including two ‘inappropriate’ oral applications.[22] By the time of the third summons, there had been at least eight iterations of the proposed amended statement of claim served on the defendants.[23] The applications had also been attended by administrative error. The wrong version of the proposed amended statement of claim had been exhibited to the supporting affidavit for the third application for leave to amend.[24] The first summons involved a similar error; the applicant sent a further iteration of the proposed amended statement of claim to the respondents shortly before the hearing but then did not rely on it at the hearing.[25]
[22]Ibid [95].
[23]Ibid [48].
[24]See [20] above.
[25]Ibid [96].
There had been no explanation on oath for the applications for leave to amend. An explanation was given by counsel for the applicant, when pressed by the associate judge at the hearing: the applicant’s legal advisers had initially decided that pleading a claim arising from VR Tek Global’s liquidation was too difficult, before changing their view.[26] This did not mean that the ‘admitted oversight’[27] fell for condemnation. Indeed, in light of the frequency of amendments in litigation, the presumption was that the costs of the application and the amendment were now costs in the proceeding.[28] But because the litigation had progressed through interlocutory stages including discovery and mediation, delay and wasted costs had been occasioned.[29] While counsel for the applicant contended that the conduct of the applications was the responsibility of his legal practitioners, in the absence of the applicant’s legal practitioners conceding that they should bear some of the burden of the costs orders, responsibility had to be borne by the applicant himself.[30]
[26]Ibid [52].
[27]Ibid [98].
[28]Supreme Court (General Civil Procedure) Rules 2005 r 63.17.
[29]AsJ Reasons [98].
[30]Ibid [99].
In the result, the applications for leave to amend had caused delay of over a year and would substantially extend the trial itself. Moreover, if the applicant’s request for an expedited trial were granted, the respondents would have to prepare more quickly than usual.[31]
[31]Ibid [100].
Finally, the applicant had been on notice as to payment of the costs orders from the time the orders were made, given that the associate judge had ordered — contrary to the presumption in r 63.20.1 — that they be taxed forthwith. Despite this, the applicant did not communicate his inability to pay to the respondents in a timely fashion, but consented to the fixing of costs and then took ‘unjustified umbrage’ when the respondents sought to enforce the first costs order.[32]
[32]Ibid [102].
All of these matters showed that the reasons in favour of granting a stay were serious and that there was conduct justifying the exercise of the power.[33]
[33]Ibid [105].
As to whether a stay was the only practical way to do justice between the parties, there were ‘significant factors’ telling against a stay.[34] On the applicant’s evidence, a stay would effectively prevent him from litigating his claims.[35] There was no evidence that the respondents were so financially prejudiced that they could not conduct their defence.[36] This financial disparity between the parties was especially relevant in light of the fact that the applicant had, on his case, been wrongfully excluded from the commercialisation of his invention. The associate judge gave these matters ‘anxious consideration’, but concluded that the matters tending in favour of a stay outweighed them.[37]
[34]Ibid [106].
[35]Ibid.
[36]Ibid [107].
[37]Ibid [108].
Those matters were as follows. The applicant had not properly accounted for how he had funded his case to date, and how he would do so in the future (including by paying court fees and meeting the costs of an envisaged expert report). The associate judge therefore inferred that the applicant ‘may have some financial resources on which he [had] called in the past, and may be able to do so again’.[38]
[38]Ibid [109].
The sum outstanding, $50,000, was ‘not inconsiderable’.[39] And there would be future costs by reason of the amendments, even if they were not allowed. The applicant made no proposal for the payment of these costs, other than that they be taken from the fruits of the litigation. On this approach all future interlocutory costs would go unpaid and, if the respondents were ultimately successful, they would have no prospect of recovering anything from the applicant.
[39]Ibid [110].
The associate judge rejected an analogy suggested by the applicant between r 63.03(3) and security for costs, which relied on the courts’ reluctance to order security for costs against impecunious individuals. Rule 63.03(3) was distinguishable as it concerned costs already incurred due to applications whose merits have been determined, not potential costs arising from a pending case.[40] To the extent that an analogy could be drawn between r 63.03(3) and security for costs, in the present case it was relevant that the applicant’s impecuniosity was not said to be due to the party seeking the costs order.[41]
[40]Ibid [111].
[41]Ibid [112].
Lastly, the applicant’s attitude to payment of the costs orders weighed in favour of a stay. He had not expressed regret or apologised for non-payment, either in evidence or through counsel in submissions. His attitude ‘could fairly be described as indignant assertion of his own rights, with cavalier disregard for the rights of the [respondents]’.[42]
[42]Ibid [113].
For these reasons, the associate judge concluded that it was appropriate to order a stay of the proceeding pending payment by the applicant of the amounts in the two costs orders. Subject to payment of those amounts, the applicant was granted leave to amend the statement of claim. The associate judge considered that it would not be just simply to impose such a condition on the grant of leave to amend without ordering a stay, because that would leave the applicant free to abandon the amendments, despite the costs incurred, while not meeting the costs orders.[43]
[43]Ibid [115].
The trial judge
The applicant appealed to the trial judge on seven grounds.[44] It is not necessary to set out those grounds or the judge’s reasons for rejecting them. It suffices to note that the judge endorsed the associate judge’s analysis of Gao v Zhang[45] and found no error in her approach to the discretion in r 63.03(3). For that reason also, the proposed grounds of appeal can be treated as taking issue with the associate judge’s reasons and orders, even though in form they are directed to the fact that the judge upheld the stay order.
[44]An eighth ground was not pressed: Trial Reasons [6].
[45]Ibid [43]–[47].
Proposed grounds of appeal
The application for leave to appeal relies on four proposed grounds of appeal. It is convenient to deal with each in turn.
Ground 1 — the legal test
Ground 1 alleges that the associate judge failed to apply the ‘basal principle’ that a suit should only be stayed when to permit it to proceed would amount to an abuse of jurisdiction or would clearly inflict unnecessary injustice upon the opposite party.
This principle was said to derive from the following passage in the judgment of Dixon J in Cox v Journeaux [No 2]:
The inherent jurisdiction of the Court to stay an action as vexatious is to be exercised only when the action is clearly without foundation and when to allow it to proceed would impose a hardship upon the defendants which may be avoided without risk of injustice to the plaintiff. The principle, in general paramount, that a claim honestly made by a suitor for judicial relief must be investigated and decided in the manner appointed, must be observed. A litigant is entitled to submit for determination according to the due course of procedure a claim which he believes he can establish, although its foundation may in fact be slender. It is only when to permit it to proceed would amount to an abuse of jurisdiction, or would clearly inflict unnecessary injustice upon the opposite party that a suit should be stopped.[46]
[46](1935) 52 CLR 713, 720.
This statement of the law (omitting the first sentence) was described by Ormiston JA in Gao v Zhang as the ‘basal principle’.[47]
[47](2005) 14 VR 380, 384 [12].
The applicant submitted that the power to stay a proceeding is not to be exercised to register disapproval of a party’s past conduct, but rather to protect the other party’s ongoing interests. In the present case, the court had not found (nor had the respondents submitted) that the proceeding amounted to an abuse of jurisdiction.[48] Permitting it to proceed would not ‘clearly inflict unnecessary injustice’ on the respondents. While the respondents would, if ultimately successful, not be able to enforce any costs orders in their favour, that was the result in all cases where an impecunious plaintiff was unsuccessful. Moreover, the injustice was contingent, in that it depended on the applicant’s claim failing. In view of these factors, the ‘basal principle’ did not justify exercise of the discretion in r 63.03(3).
[48]As already noted, the associate judge described the applicant’s attempts to amend his statement of claim as genuine, saying that they ‘go to the heart of the case he wishes to bring’: AsJ Reasons [94].
Counsel for the applicant emphasised the fundamental importance, as a human right, of access to justice. To defeat this right required establishing nothing less than that its exercise would inflict unnecessary injustice on the other party. In that situation, the court would be used other than for the purpose of dispensing justice.
The respondents observed that Ormiston JA went on, in Gao v Zhang, to quote the following observation of Sugerman ACJ (with whom Holmes and Mason JJA agreed) in Rochfort v John Fairfax & Sons Ltd:
[the passage in Cox v Journeaux [No 2]] is not intended to question the extensive inherent jurisdiction of the court to grant stays of proceedings in the interest of justice; it is merely intended to demonstrate the gravity of an exercise of this power and the necessity for the existence of proper grounds for its exercise.[49]
[49][1972] 1 NSWLR 16, 19, quoted in Gao v Zhang (2005) 14 VR 380, 384 [12].
The respondents submitted that continuation of the present proceeding would ‘clearly inflict unnecessary injustice’ on the respondents, who would have to continue to defend a claim after having already been put to great delay and expense by repeated applications to amend in circumstances where costs orders made in their favour had not been paid and any future costs orders would not be met either.
The respondents also submitted that the application of r 63.03(3) involved consideration of past conduct, not merely future injustice. So much was clear from Gao v Zhang’s requirement that the court consider whether the applicant’s conduct fell for condemnation to the extent of making ‘so draconian’ an order.[50] The position was strengthened by the subsequent introduction of r 63.20.1 and the CPA.
[50](2005) 14 VR 380, 386 [17].
The first ground raises for consideration the test to be applied by the Court when determining whether to exercise the power to stay a proceeding under r 63.03(3). As the parties’ submissions acknowledged, the leading case is Gao v Zhang. But the submissions revealed different understandings of the reasoning in that case and its applicability in light of intervening developments.
In Gao v Zhang, this Court upheld an order staying a proceeding pending payment of a series of costs orders. The plaintiff had harassed the defendant persistently with interlocutory applications over minor procedural matters, which were of progressively less merit over time.[51] In the course of his reasons, Ormiston JA (with whom Vincent JA agreed), said that it was necessary to ‘sound a word of warning lest it be thought that orders of this kind can be adopted as a day‑to-day means of recovering costs ordered by the court’.[52] The power to stay the proceeding ‘ought not to be employed unless it is the only fair way of protecting the interests of the party seeking such an order’.[53] It was in that context that he described what was said by Dixon J in Cox v Journeaux [No 2] as the ‘basal principle’.[54]
[51]Ibid 387 [18]–[19].
[52]Ibid 384 [11].
[53]Ibid 384 [12].
[54]Ibid 384 [12].
Ormiston JA also warned that orders staying a proceeding pending payment of relevant costs
should ordinarily be made only if the court believes or at least has reason strongly to suspect that the party refusing to pay the orders for costs is being recalcitrant and will in fact pay the order if it is forced to do so. Otherwise, the order … is like a wolf in sheep’s clothing, seemingly temporary but effectively permanent.[55]
[55]Ibid 385 [13].
Ormiston JA decried what he saw as a tendency to regard the power
almost as a means of debt collecting, whereas what it was intended to do was to ensure justice between the parties in circumstances where one party builds up a large debt of costs to the extent that it deprives or restricts the other party of the ability fairly to conduct the litigation.[56]
If the power was used for another purpose, it should be treated as effectively ending the litigation. ‘The reason for making such an order must therefore be serious and essentially the only practical way to ensure justice between the parties.’[57] He continued:
Finally, at least for the present, if an order of this kind is to be made, there must be seen to have been some conduct on the part of the party in default which falls for condemnation to the extent of making so draconian an order. For this purpose, frequent litigation of minor interlocutory points may, at least in due course, point to misuse of the court’s process, in the limited sense of a deliberate harassing of the other side, such that it can no longer be permitted to continue. Ordinarily, therefore, one would assume before making an order of this kind that there would be a series of orders for costs and that they usually would be of a kind which did not involve genuine resolution of disputes relating to interlocutory matters which have to be resolved before the matter can go to trial.[58]
[56]Ibid 385 [14].
[57]Ibid 385 [15].
[58]Ibid 386 [17].
As pointed out by both the judge and the associate judge in the present matter, Gao v Zhang must be understood in the context that, when it was decided, interlocutory costs were ordinarily able to be taxed at once, without awaiting the end of the proceeding. Now, by virtue of r 63.20.1, costs ordered on an interlocutory application or hearing are not to be taxed until the proceeding is completed, unless the Court orders that they may be taxed immediately. The risk that r 63.03(3) might be employed ‘as a means of debt collecting’[59] is correspondingly reduced. However, that does not mean that the fact that costs have been taxed and remain unpaid, without more, justifies an order under the rule. Notwithstanding that the occasions for engaging r 63.03(3) will have reduced as a result of there being fewer instances of taxation of interlocutory costs in the course of a pending proceeding, the potential consequences of a stay remain as profound as ever. The implications for the just disposition of the proceeding mean that the power to order a stay is still not appropriately employed simply as a means of enforcing the costs order in question.
[59]Ibid 385 [14].
At the same time, the change in the Rules means that the power in r 63.03(3) now arises for exercise only in cases where the Court has already decided that something in the conduct of the proceeding has warranted the making of an order that costs ordered against a party in an interlocutory matter be taxed immediately. That factor cannot be overlooked. The fact that the Court has required that the costs in question be paid before the proceeding concludes indicates that the case is unusual. The Court’s reasons for imposing that requirement must therefore be taken into account.[60] But it remains the case that a stay should not be ordered simply to give effect to an interlocutory costs order that is taxable immediately. Such an order, after all, will give rise to a debt that may be able to be pursued by other means of enforcement.
[60]As to the factors relevant to the making of an order that interlocutory costs be taxable immediately, see, eg, Setka v Abbott [No 2] [2013] VSCA 376 [27] (Warren CJ, Ashley and Whelan JJA).
The above analysis is consistent with the other relevant development since Gao v Zhang was decided: the enactment of the CPA. As is well-known, the Court is required, when exercising its powers under the Rules, to seek to give effect to the overarching purpose of the CPA, being ‘to facilitate the just, efficient, timely and cost-effective resolution of the real issues in dispute’.[61] The grant of a stay represents the extreme case where the dispute is not to be resolved at all pending the meeting of a costs order. Consistently with the approach in Gao v Zhang, that circumstance can only arise when there is no other fair and practical way of ensuring justice between the parties.
[61]CPA ss 7(1), 9.
It does not follow, as the applicant contended, that the circumstances justifying an order are confined to those which Ormiston JA said in Gao v Zhang would ‘ordinarily’ obtain, namely recalcitrant refusal to satisfy the order. This was not posited as a condition circumscribing the power, but as an example of the case where a truly ‘temporary’ order might be made, with reason to suspect that the party in question will succumb and pay the amount involved as the price of continuing the proceeding.
It is wrong to regard the ‘basal principle’ articulated by Dixon J in Cox v Journeaux [No 2] as posing some stricter test than that in Gao v Zhang. That misconstrues the use to which Ormiston JA put the earlier case, which was to support his conclusion that the stay had to be the only fair way of protecting the interests of the other party.[62]
[62]See [57] above.
In any event, nothing in the ‘basal principle’ is inconsistent with the cautionary approach taken by Ormiston JA to the power now in issue. In each case, it is apparent that the interests of justice require that the exercise of the power be a last resort. That is because the conduct of the party in default has been such as to make it necessary in the interests of justice between the parties that the order be made. Inevitably, to use other language employed by Ormiston JA, such conduct will be conduct warranting ‘condemnation’ by the court in the form of a stay order.
There is no reason why a court asked to stay a proceeding under r 63.03(3) must consider only the future conduct of the litigation rather than the past conduct of the parties. While the ultimate question concerns the doing of justice between the parties in the proceeding, the manner in which one party has conducted the proceeding to date will invariably bear on that issue. The issue, as already noted, is whether the proceeding cannot justly proceed unless costs are first paid. For example, the offending party’s conduct (including or quite apart from the failure to meet the relevant costs order) may have put the other party to unwarranted expense or given rise to ongoing delay. Those matters are relevant in deciding whether the proceeding should be allowed to go further without costs first being paid.
In summary, then, the power to order a stay under r 63.03(3) is to be exercised according to the following principles:
(a) a stay for failure to satisfy an order for costs in an interlocutory matter may only be ordered if it is the only fair and practical way of facilitating the just, efficient, timely and cost-effective resolution of the proceeding;
(b) justice between the parties requires regard to be had to the interests of the party in whose favour the costs were ordered to be paid;
(c) the parties’ conduct of the proceeding to date, and in particular the reasons for which costs were ordered to be taxed immediately, are relevant to the exercise of the power;
(d) a stay should not be ordered unless the conduct of the party in default warrants the condemnation inherent in such an order;
(e) the power is not to be used simply as a means of enforcing payment of the costs in question unless there are grounds for concluding that the party in default is recalcitrant and is capable of remedying the default.
Some of the observations made by both the associate judge and the judge in the present matter are capable of being read as treating the observations of Ormiston JA regarding debt collecting as being able to be put aside as a result of the change in the Rules. As explained, that is not so. However, it is correct to say that those observations must now be read in a different light. The fact that the orders have not been complied with remains highly relevant, and here the associate judge clearly addressed the central question whether there was any other practical way of doing justice between the parties.[63] In doing so, she was not looking solely at compliance with the costs orders, but at the just disposition of the whole proceeding.[64] She was conscious that a stay should only be ordered where the defaulting party’s conduct called for condemnation.[65] On a fair reading, the associate judge proceeded in accordance with the principles articulated above, and the judge was right to dismiss the appeal in that respect.
Ground 2 — irrelevant considerations
[63]AsJ Reasons [106]–[114].
[64]The associate judge’s reference to the ‘robust’ application of r 63.03(3) in light of the CPA did not involve any departure from these tests: ibid [104]. As explained, the CPA serves to reinforce, rather than to alter, the fundamental basis for the exercise of the power.
[65]AsJ Reasons [93]–[105].
Ground 2 contends that the judge erred in failing to find that the associate judge took into account a series of considerations which are said not to have constituted conduct warranting an order under r 63.03(3). Ten matters are identified. Seven of them concern the number of iterations of the proposed pleadings and the making of oral applications for leave to amend (including the making of administrative errors in the course of the process). The eighth matter is the failure of the applicant to provide an explanation for the evolution of the statement of claim until the hearing on 2 September 2015. The next is the applicant’s failure to inform the respondents of his inability to pay the first costs order when he consented to the fixing of those costs. The final matter is the fact that the applicant took umbrage at the respondents’ attempts to enforce the first costs order.
The applicant submitted that the first five iterations of the draft proposed amended statement of claim were provided before the first summons. Two of them were ‘compromise documents’ that sought to ‘bridg[e] the gap between the parties’, two involved trivial changes and the fifth involved a change to eight paragraphs, two weeks prior to the hearing of the first application. Next, the two oral applications did not adversely affect the progress of the proceeding or cause any identifiable expense or inconvenience. Further, applications for minor amendment of pleadings in the Commercial Court are permitted on notice.[66]
[66]Supreme Court of Victoria, Practice Note No 10 of 2011 — Commercial Court, 28 November 2011, 23 [9.3.5]. That practice note has recently been replaced: Supreme Court of Victoria, Practice Note SC CC 1 — Commercial Court, 30 January 2017. The position as to minor amendments of pleadings without a summons is unchanged: at 11 [11.3.3].
The applicant accepted that the first summons occasioned expense and delay, and was filed and served after completion of discovery and mediation, but submitted that this did not justify shutting him out of court. The second summons was largely successful; leave was only refused because of minor drafting flaws that were easily corrected. The administrative error on the first day of the hearing of the third summons caused no delay, given that the Court needed to hear the respondents’ summons at a later date in any event. Further, it was an error on the part of the applicant’s legal representatives, not the applicant himself. The applicant contended that, although drafting issues in the second summons created the need for the third summons, they were not so grave as to justify preventing the applicant from continuing his claim.
In relation to the applicant’s failure to advise the respondents of his inability to pay the first costs order, there was no evidence that the first respondent, who worked closely with the applicant for several years, was unaware of the applicant’s financial position. The applicant’s ‘umbrage’ at the attempt to enforce the first costs order was due to the possible repercussions on his physical health. Finally, while the lateness of the applicant’s explanation for the delay in bringing the application to amend was rightly criticised, reasons were ultimately provided and the conduct did not warrant the order being made.
The applicant’s contentions under this proposed ground seek to isolate specific matters, each of which is said to be insufficient to sustain the order made. To the extent that he submitted that the matters were irrelevant or extraneous to the proper exercise of the power under r 63.03(3), the submission must be rejected. For the reasons already given, it was relevant for the associate judge to take account of the manner in which the proceeding had been conducted so as to give rise to the orders for costs which had not been met. It was also relevant to take account of the attitude of the applicant to the payment of costs. It would have been wholly artificial to contemplate staying the proceeding without having regard to the circumstances in which the Court had been led to making the orders for costs which enlivened the power to order a stay, or the conduct of the party in default in respect of those orders.
To the extent that the applicant sought under this proposed ground to take issue with the findings of the associate judge, there is no substance in the ground. It must be remembered that the proposed appeal seeks to impugn the exercise of a discretion in a matter of practice and procedure (albeit one with very significant consequences). The test for appellate intervention in the circumstances is that in House v The King, which bears repetition:
The manner in which an appeal against an exercise of discretion should be determined is governed by established principles. It is not enough that the judges composing the appellate court consider that, if they had been in the position of the primary judge, they would have taken a different course. It must appear that some error has been made in exercising the discretion. If the judge acts upon a wrong principle, if he allows extraneous or irrelevant matters to guide or affect him, if he mistakes the facts, if he does not take into account some material consideration, then his determination should be reviewed and the appellate court may exercise its own discretion in substitution for his if it has the materials for doing so. It may not appear how the primary judge has reached the result embodied in his order, but, if upon the facts it is unreasonable or plainly unjust, the appellate court may infer that in some way there has been a failure properly to exercise the discretion which the law reposes in the court of first instance. In such a case, although the nature of the error may not be discoverable, the exercise of the discretion is reviewed on the ground that a substantial wrong has in fact occurred.[67]
[67](1936) 55 CLR 499, 504–5 (Dixon, Evatt and McTiernan JJ).
The applicant sought under this ground to minimise the significance of, and to place in context, the ten matters to which he referred. In doing so, he took issue with the associate judge’s decision without seeking to bring his complaint within the confines of House v The King. Once it is seen that each of the factors was relevant for the associate judge to consider, the only objection can be seen to be a challenge to the way in which the associate judge weighed the various matters before her. Unless the associate judge’s weighing of these matters led her to reach a conclusion that was ‘unreasonable or plainly unjust’, the applicant’s argument amounted to an invitation for this Court impermissibly to substitute its own view as to how the discretion ought to have been exercised.
Although not expressed in these terms, the applicant’s contention under this ground should therefore be treated as a submission that the associate judge’s decision was unreasonable or plainly unjust in the sense explained in House v The King, by reference to the ten matters identified.
It may fairly be accepted that the first five ‘iterations’ of the proposed amended statement of claim preceded the first summons and that the differences between them in some cases were slight (noting that this Court did not have all the iterations before it). To emphasise the mere number of iterations could therefore be misleading. Even so, the repeated service of proposed pleading amendments inevitably causes other parties to incur legal costs which should preferably be avoided. This was the fundamental significance of the associate judge’s reference to the pleading history. There may of course be an explanation why repetitive production of documents has taken place, but as the associate judge noted, no such explanation was proffered by the applicant except in a belated and unsatisfactory fashion. Each of the ten matters was one upon which it was open to the associate judge to rely. Although minds may differ as to their significance and the weight to be attached to them, of itself that does not establish legal error.
Moreover, the associate judge did not rest her decision on any one of the ten matters relied on under this proposed ground, nor did she confine herself to those matters. She was well aware of the grave consequences of her order and, as already observed, made references throughout her reasons to the correct legal tests. Among the many other considerations which she took into account, she inferred that the applicant may have resources upon which he could draw to fund the litigation, which he had not disclosed.[68] This aspect of her decision was not challenged.
[68]AsJ Reasons [109].
It is impossible to conclude that the associate judge’s decision was so unreasonable or plainly unjust that she must have failed properly to exercise the discretion. The second proposed ground must be rejected.
Ground 3 — mistake of fact
The third proposed ground of appeal alleges that the associate judge ‘mistook the fact’ that the applicant had conducted the proceeding in a manner that caused unnecessary delay and expense. The applicant contends that the applicant missed no court deadlines, caused only one adjournment (the adjournment of 24 July 2015, which, as mentioned, caused no delay) and caused no delay through the carriage of the applications for leave to amend, including the ‘iterations’ of the proposed draft amended statement of claim and the ‘inappropriate’ oral applications for leave to amend. As such, he could not be criticised for delays in the progress of the litigation. Nothing done by the applicant beyond the three summonses, which were ultimately successful, had generated any costs or delay. This was evidenced by the fact that 90% of the 484 days lost between the directions hearing at which the first oral application for leave to amend was made and the trial judge’s orders was attributable to court processes and just 10% to the preparation of draft pleadings and associated court appearances.
When pressed, counsel for the applicant submitted that this ground fitted within the requirements of House v The King because there was no evidence that any conduct of the applicant beyond his three summonses had caused any costs or delay.
There is no substance in this ground. It is axiomatic that seeking leave to add a new claim after mediation, raising new allegations of dishonest and fraudulent conduct, will give rise to expense and delay. To seek such leave repeatedly over a period of over a year exacerbates those consequences. In any event, the applicant did not take issue with the respondents’ submission that, except for a minor matter concerning some subpoenas, the litigation has not progressed since August 2014. The delays and attendant costs speak for themselves. The associate judge who had conduct of relevant interlocutory matters through the period was in the best position to determine the cause of the cost and delay, and it was well open to her to find that they stemmed from the applicant’s applications to amend.
Ground 4 — miscarriage of discretion
The final proposed ground of appeal alleges that the associate judge’s discretion miscarried and the judge ought to have exercised her own discretion in its place to dismiss the application for a stay. Both parties treated this ground as simply going to the result that should follow if their respective submissions on the other grounds were accepted. It follows that this ground fails also. It is not necessary or desirable for us to express any view as to how we would have exercised the discretion ourselves.
Conclusion
The application for leave to appeal should be allowed in light of the questions of law raised regarding the exercise of the power in r 63.03(3). But the appeal must be dismissed.
KYROU JA:
I have found this application very troubling. It is in the interests of the administration of justice and consistent with the overarching purpose in s 7(1) of the Civil Procedure Act 2010 that impecunious individuals have access to the courts and that their claims, if honestly made, be heard and determined on their merits. On the facts of this case, I would not necessarily have made the stay order. Of course, that is not the principle by which this application is to be determined. Whelan and McLeish JJA have stated the applicable principles and I agree with their reasons and the order they propose. As is clear from those reasons, the outcome of this case should not be seen as signalling a softening of the courts’ traditional reluctance to shut out a genuine plaintiff by granting a stay of a proceeding based on his or her non-compliance with an interlocutory costs order.
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