Rozenblit v Vainer (No 3)

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE
COMMERCIAL COURT

S CI 2013 6645

BORIS ROZENBLIT	Plaintiff
v
MICHAEL VAINER AND ALEXANDER VAINER	Defendants

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JUDGE:	Lansdowne AsJ
WHERE HELD:	Melbourne
DATE OF HEARING:	24 July 2015 and 2 September 2015
DATE OF JUDGMENT:	16 December 2015
CASE MAY BE CITED AS:	Rozenblit v Vainer and anor (No 3)
MEDIUM NEUTRAL CITATION:	[2015] VSC 731

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PRACTICE AND PROCEDURE – third application on summons for leave to amend the statement of claim - pleading defects now cured – consideration of discretionary factors – Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175 applied - delay - initial absence of explanation – nature of explanation when provided – wasted costs – failure to pay costs orders – expanded trial – likelihood of future costs and further delay to trial – leave to amend granted on payment of outstanding costs orders.

PRACTICE AND PROCEDURE – application for dismissal or stay for non-payment of costs - consideration of Gao v Zhang (2005) 14 VR 380 – consideration of discretionary factors –stay ordered – Supreme Court (General Civil Procedure) Rules 2015 r 63.03(3).

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr J Korman	Lloyds & Barclay Lawyers (t/a Abrahams Meese Lawyers)
For the Defendant	Mr M G McNamara	CIE Legal

TABLE OF CONTENTS

Introduction......................................................................................................................................... 1

Plaintiff’s application for leave to amend...................................................................................... 3

Background to the application.................................................................................................... 3
Pleading objections....................................................................................................................... 5
Knowing inducement of breach of trust.......................................................................... 6
Knowing assistance to breach of trust.............................................................................. 8
Quantum of loss arising from the liquidation of VRT Global................................... 10
Summary............................................................................................................................. 12

Discretionary considerations..................................................................................................... 12
Delay. .................................................................................................................................. 14
Explanation......................................................................................................................... 16
Impact on the future of the proceeding.......................................................................... 18
The plaintiff’s case............................................................................................................. 19
Costs. .................................................................................................................................. 20

Application for stay or dismissal................................................................................................... 23

Legal principles........................................................................................................................... 23
Submissions................................................................................................................................. 26
Discussion.................................................................................................................................... 28
Conclusion................................................................................................................................... 36

Outcome of the two applications................................................................................................... 37

HER HONOUR:

Introduction

These reasons relate to two summonses heard by me on 24 July 2015 and 2 September 2015. The plaintiff filed a summons on 7 July 2015, seeking leave to file and serve an amended statement of claim. The defendants filed their summons on 17 July 2015, seeking that the proceeding be dismissed or, in the alternative, stayed by reason of the plaintiff’s failure to pay certain costs orders. Both summonses are opposed.

At the time the defendants’ summons was filed there was only one outstanding costs order, being costs ordered by me to be paid on 20 October 2014 and fixed by consent in the sum of $22,000 by the orders of Costs Registrar Ratcliffe on 15 December 2014. When the matter came before me again on 2 September 2015, a second costs order that I had made on 24 June 2015 had been fixed by consent in the sum of $ 28,000 by the order of Costs Registrar Deviny made on 12 August 2015. I gave leave to the defendants, without objection from the plaintiff, to amend the summons so that it refers to both those unpaid costs orders.

The plaintiff’s summons is his third summons seeking leave to amend his statement of claim. Some proposed amendments, which are now not opposed, delete some of the existing claims and amend others. The defendants have opposed throughout, and continue to oppose, proposed amendments to add claims arising from the liquidation of a company in which the plaintiff ultimately had an interest. An original claim that the plaintiff still wishes to pursue alleges that the defendants wrongly caused his shares in that company to be transferred from him about a year before the liquidation. Two earlier applications by the plaintiff for leave to amend the statement of claim, made by summons filed 29 August 2014 and further summons filed 10 November 2014, each failed on pleading grounds. I delivered reasons in relation to each of these applications which are reported as Rozenblit v Vainer and anor[1] and Rozenblit v Vainer and anor (No 2).[2]
[1][2014] VSC 510.
[2][2015] VSC 234.

The costs orders that are the subject of the defendants’ summons relate to orders made in favour of the defendants arising from these two unsuccessful earlier attempts to amend the statement of claim. On each occasion, I made orders allowing the costs to be taxed immediately. On each occasion, the plaintiff has agreed that the costs be fixed in the amount the subject of the order made by the Costs Court, without requiring their taxation. The plaintiff contends that he is presently unable to meet these costs due to his limited means, and offers no proposal for their payment other than offset against a costs order in his favour if he is ultimately successful at trial.

For the reasons which I now elaborate, I have concluded that leave should be granted to file the amended statement of claim as now proposed. I do not consider that the objections taken by the defendants on pleading grounds are made out. Some of these objections are reiterations of matters which I have already considered in the previous reasons and not considered valid. The plaintiff has also now corrected errors I identified in the reasons on the second summons.

The defendants also oppose the grant of leave to amend on discretionary grounds. There are indeed significant factors weighing against the grant of the discretion to grant leave to amend. On balance I have concluded, however, that it would not be appropriate to require the plaintiff to go to trial on only half the case that he wishes to run. The significant factors that tend against the grant of leave are the nature of the explanation he afforded at the hearing on 2 September 2015 for seeking to amend after the proceeding had already substantially advanced; the delay that has been occasioned by the multiple attempts to amend; and the fact that the costs ordered to be paid by the plaintiff arising from those attempts remain unpaid and the plaintiff has no proposal to advance as to how they will be paid unless he is successful in the ultimate trial.

The first two of these can, in my view, be sufficiently met by allowing the defendants to make application for any costs thrown away by the lateness of the application for leave to amend. The final matter, the unpaid costs, is the subject of the defendants’ application for dismissal or stay. In my view, the defendants’ application is the better avenue for addressing the issue of the unpaid costs than refusal of leave to amend the statement of claim, or making payment a condition of the grant of leave to amend. If payment of the unpaid costs orders was expressed to be a condition of the grant of leave to amend, the plaintiff would still be at liberty to prosecute that part of his claim represented by the existing statement of claim without payment of the unpaid costs. I do not consider this to be a just outcome. I consider that justice as between the parties requires that the proceeding as a whole be stayed until those unpaid costs orders are paid.

It is implicit in this summary of my conclusions that I do not consider it appropriate to dismiss the proceeding as a whole at this stage for want of payment of the costs orders. I am conscious, however, as I assume the parties are, that that may be an ultimate outcome if the costs are not paid.

Plaintiff’s application for leave to amend
Background to the application

I delivered judgment in respect of the plaintiff’s second application for leave to amend the statement of claim on 28 May 2015. The parties were unable to agree on orders to give effect to the judgment, and came before me on 24 June 2015 for argument. On that day, the plaintiff made a further oral application for leave to amend the statement of claim in yet a further iteration. The defendants opposed the grant of that leave, on the basis that any further application should be made on summons. I agreed with that submission, and directed that any such summons be filed and served by 10 July 2015.

The plaintiff filed that summons on 7 July 2015, supported by an affidavit of Dmitry Shtifelman exhibiting what was said to be the proposed amended statement of claim for which the plaintiff had sought leave on 24 June 2015. The affidavit claimed that this proposed amended statement of claim sought to- incorporate the amendments I had allowed in my reasons of 28 May 2015; address the poor drafting I had identified in those reasons; and make necessary ancillary amendments. The defendants responded to this proposed amended statement of claim by letter dated 9 July 2015, and by submissions to the same effect dated 23 July 2015. The letter and submissions identified clear errors in the document.

The plaintiff’s summons came before me on 24 July 2015. It was agreed by the parties that I hear the objections first. It was not until the defendants had been heard in respect of those objections, previously made plain to the plaintiff by their letter of 9 July 2015 and submissions of 23 July 2015, that counsel for the plaintiff realised that the proposed amended statement of claim exhibited to the affidavit in support of the summons was incorrect. He then sought to rely on the correct iteration, which was handed up and marked Exhibit A that day. The whole of paragraphs [76]-[84] of Exhibit A, relating to a claim of knowing assistance by the second defendant to a claimed breach of fiduciary obligation by the first defendant, were in a different form to those paragraphs in the proposed amended statement of claim exhibited to the affidavit in support. I refused the application to proceed that day on the basis of Exhibit A.

The defendants had filed their summons shortly before the return date of the plaintiff’s summons, on 17 July 2015, and their summons was also returnable on 24 July 2015. Prior to 24 July 2015 the parties had agreed that the defendants’ summons be adjourned, until after taxation of the second costs order, which had been listed for callover on 18 August 2015. At the commencement of the hearing on 24 July 2015, the defendants also sought adjournment of the plaintiff’s summons, so that both could be heard together. The plaintiff opposed that course, and, as indicated, I agreed that the plaintiff’s summons should proceed. Ultimately, however, due to the plaintiff’s failure to ensure that the correct proposed amended statement of claim was on notice to the defendants, I adjourned both summonses to the same date, which became 2 September 2015.

On that date, the balance of the application for leave to amend proceeded, now in respect of Exhibit A. As the earlier hearing and the defendants’ written submissions were in respect of the proposed amended statement of claim exhibited to the affidavit in support, it is still helpful for me to refer to that document in these reasons, at least to identify any changes made by Exhibit A. The defendants identified in oral submissions on 2 September 2015 to what extent they still pressed their earlier written and oral objections in relation to Exhibit A. It is also helpful to refer to the proposed amended statement of claim which I addressed in my second reasons, which was received by the Court on 9 February 2015, as many of the amendments there considered are repeated in Exhibit A. That proposed amended statement of claim was not exhibited to an affidavit or identified by an exhibit number in those reasons. For ease of future reference I will refer to it in these reasons as Exhibit B, and will place a copy so marked on the file.

Pleading objections

The defendants take no objection on pleading grounds to the first 65 paragraphs of the proposed amended summons exhibited to the supporting affidavit. The first 65 paragraphs of Exhibit A are in the same form. Those paragraphs relate to causes of action arising from what is said to have been a wrongful transfer of the plaintiff’s shares in VR Tek Global Pty Ltd (‘VRT Global’) to the second defendant in December 2011.

The balance of the proposed amended statement of claim exhibited to the affidavit in support, and the balance of Exhibit A, relate to various causes of action said to arise from the voluntary liquidation of VRT Global in November 2012. As a result of the share transfer, the plaintiff no longer held any shares in VRT Global at the time of its liquidation. In my first reasons of 10 October 2014, I rejected proposed causes of action arising out of the liquidation of VRT Global that were premised on the assertion that the plaintiff retained an equitable interest in the shares he previously held in VRT Global, which he asserted had been wrongfully transferred to the second defendant.[3]
[3]Rozenblit v Vainer and anor [2014] VSC 510 at [47]-[56].

In the proposed amended statement of claim that came before me on the next application by the plaintiff to amend, the plaintiff’s claims arising out of the liquidation were recast. In that proposed amended statement of claim (Exhibit B), the plaintiff’s standing to challenge the liquidation was said to arise from his ultimate interest in VRT Global by reason of his interest in a unit trust, the VR Tek Unit Trust (‘Trust’). The trustee of the Trust, VR Tek Pty Ltd (‘VRT’) held a 50% interest in the shares of VRT Global through its wholly owned subsidiary, VR Tek Operations Pty Ltd (‘Operations’). The defendants objected to this recasting on the basis that it did not expose a cause of action. In my second reasons of 28 May 2015 I disallowed that objection, but upheld objection in respect of some drafting concerns.[4] The plaintiff contends that he has now corrected those drafting issues.
[4]Rozenblit v Vainer and anor (No 2) [2015] VSC 234 at [60]-[88].

The first objections are taken to the proposed claim against the first defendant for knowing inducement of a breach of trust, sought to be pleaded at paragraphs 66-75.

Knowing inducement of breach of trust

By these paragraphs, the plaintiff pleads that VRT acted in breach of trust by failing to instruct the directors of its wholly owned subsidiary, Operations, to vote against the liquidation of VRT Global. The plaintiff seeks to allege against the first defendant that he knowingly induced that breach of trust.

Paragraphs [66]-[75] of Exhibit A are in the same form as paragraphs [66]-[75] of the proposed amended statement of claim exhibited to the affidavit in support of the summons, to which the defendants responded by their written submissions dated 23 July 2015, and oral submissions of 24 July 2015. Accordingly, those submissions apply to Exhibit A. The paragraphs are also the same in substance as the similarly numbered paragraphs in Exhibit B, with the one departure being the removal from paragraph 67 of an allegation that VRT Global could have returned to solvency by taking steps to compel the second defendant to honour his obligation to provide access to collateral worth $600,000. I upheld the defendants’ objection to that allegation in my second reasons.[5]
[5]Rozenblit v Vainer and anor (No 2) [2015] VSC 234 at [70]-[71].

The defendants object to a number of the allegations that VRT Global was solvent or could have returned to solvency at the time it went into voluntary liquidation on the basis that the allegations are incorrect or misconceived.[6] The defendants also object to the allegation that it was to the detriment of the Trust unit holders for VRT Global to go into voluntary liquidation because the allegation relies on a forecast net worth made twelve months prior to the liquidation.[7]
[6]In proposed paragraph 67. See Defendants’ Outline of Submission dated 23 July 2015 at [8(1.1)-(1.4)].
[7]In proposed paragraph 71. See Defendants’ Outline of Submission dated 23 July 2015 at [8(3)].

These are similar to the objections that the defendants have taken throughout to claims arising from the liquidation. They may ultimately have merit, in the sense that the plaintiff will not be able to prove these matters at trial. As I have already ruled twice, however, I consider that these are not proper pleading objections, but relate to the prospects of proof at trial.[8] The defendants should not have raised these objections before me again as a matter of pleading. If my view is incorrect, their remedy lies elsewhere.
[8]Rozenblit v Vainer and anor [2014] VSC 510 at [38]; Rozenblit v Vainer and anor (No 2) [2015] VSC 234 at [76], [85]-[86].

The remaining objection that the defendants take to the claim of knowing inducement of breach of trust is that the plaintiff does not plead in paragraph 69 a means of quantifying the value of the units in the Trust prior to the liquidation.[9] As noted earlier, this paragraph is in the same form as the proposed amended statement of claim that I considered in my second reasons. The same objection was taken at that time. [10] The plaintiff says that the paragraph was not the subject of any adverse comment in the second reasons,[11] and so should not be the subject of objection now.
[9]Defendants’ Outline of Submission dated 23 July 2015 at [8(2)].
[10]Defendants’ Outline of Submission dated 13 February 2015 page 9 at (f).
[11]Submissions in Support of the Plaintiff’s Summons dated 7 July 2015 at [24].

It is correct that I did not address the objection to paragraph 69 expressly. However, I did rule on a similar objection to the pleading in related proposed paragraph 85 of Exhibit B. I held that the pleading was deficient because it contained no factual link between an asserted value of the units in October 2009 and immediately prior to the liquidation of VRT Global in November 2012.[12] The plaintiff has sought to address that deficiency by new proposed paragraphs [86]-[89]. They are objected to, and I will consider them shortly. If the pleading of loss in those paragraphs is sufficient, then, reading the pleading as a whole, I will consider paragraph 69 to be sufficiently pleaded.
[12]Rozenblit v Vainer and anor (No 2) [2015] VSC 234 at [81].

Knowing assistance to breach of trust

Proposed paragraphs 76-84 of Exhibit A seek to plead a claim against the second defendant of knowingly assisting this breach of trust. These paragraphs have been recast in Exhibit A in an endeavour to address deficiencies I identified in my second reasons.

Proposed paragraphs 76-81 relate to the actions of the first defendant. They plead that the first defendant in inducing the breach of trust by VRT did so in pursuance of a fraudulent and dishonest breach of his fiduciary obligations to VRT. It is pleaded in proposed paragraph 76 that his plan was to obtain personal gain by causing the liquidation of VRT Global; effecting the purchase by him or his nominated entity from the liquidators of a tyre recycling machine owned by VRT Global; and establishing a business utilising this machine for his own profit. This plan, called in Exhibit A the ‘Acquisition Plan’, is said to have been in the first defendant’s interests, but not in the interests of the VRT (proposed paragraph 77). Further, it is pleaded that as a director of VRT the first defendant was under an obligation to disclose his plan, and certain other matters relating to the proposed liquidation, to the Trust unit holders and the plaintiff, but instead deliberately concealed them (proposed paragraph 80).

Proposed paragraphs 82-84 plead that the second defendant, who is the father of the first defendant, knowingly assisted this fraudulent and dishonest breach of fiduciary obligations.

The defendants took proper objection to these paragraphs as they appeared in the proposed amended statement of claim exhibited to the affidavit in support of the summons, because that iteration reverted to an earlier formulation of the claim that I had rejected in the first reasons.[13] Those objections fall away with the correction in Exhibit A.
[13]Defendants’ Outline of Submission dated 23 July 2015 at [8(5) and (6)] page 5.

The defendants have four remaining objections to the pleading of this proposed cause of action. The first is that there is no sufficient pleading of the business carried on by VRT Global prior to the liquidation, by way of comparison with the business that the first defendant dishonestly planned to undertake utilising the assets of VRT Global purchased at its liquidation.[14] In my view, this objection is rooted in the earlier proposed pleading of the dishonest and fraudulent design, which I did consider objectionable for want of proper comparison of the two businesses.[15] It does not address the new formulation, which does not seek to compare businesses, and assert that they are ‘functionally identical’, or refer to the acquisition of undefined plant and equipment. The new formulation in proposed paragraph 76 identifies a specific asset that was intended to be, and was, purchased by the first defendant after the liquidation, being the tyre recycling machine. It is pleaded that the plan was to use this machine in the new business that the first defendant planned to, and did, establish after the liquidation (proposed paragraph 76(b) and (c), and proposed paragraph 79). This pleading is much more specific than the rejected earlier pleading. I consider it sufficiently particularised. This objection fails.
[14]Defendants’ Outline of Submission dated 23 July 2015 at [8(4)] page 5.
[15]Rozenblit v Vainer and anor (No 2) at [78]-[79].

The second objection is that ‘there are serious allegations of fraud that ought to be properly pleaded and particularised.’[16] It is certainly the case that the allegations are very serious. However, the only two matters identified by the defendants as insufficiently pleaded or particularised, in addition to those claimed above, are the date of development of the tyre recycling machine and whether or not it was ever used by VRT Global. In my view these matters relate to loss, not the plea of knowing assistance to the breach of trust i.e. quantum, not liability. I will address them shortly. In the absence of elaboration of other claimed deficiencies, I consider the pleading sufficient.[17]
[16]Defendants’ Outline of Submission dated 23 July 2015 at [8(7)] page 5.
[17]I took the same approach to similar general objection in Rozenblit v Vainer (No 2) at [80].

The next pleading objection to this proposed cause of action is that ‘(t)hese allegations overlook the fact that a liquidator would offer assets for sale to the public’.[18] This may be a good defence, but it is not a pleading objection. It is a matter for trial. I gave the same response to the same objection taken on the last occasion.[19]
[18]Defendants’ Outline of Submission dated 23 July 2015 at [8(7)] page 5.
[19]Rozenblit v Vainer and anor (No 2) at [87].

The final objection is that the particulars in proposed paragraph 83 a. (which deals with what the second defendant knew or ought to have known) refer to a non- existent earlier paragraph. That is correct. The plaintiff concedes that it is a drafting error, and the particulars should refer to paragraph 67(b).

Quantum of loss arising from the liquidation of VRT Global

Proposed paragraphs 85-89 plead two alternative means of quantifying the plaintiff’s loss arising from the liquidation. Proposed paragraphs 85-88 seek to value a unit in the Trust, as at the date of liquidation of VRT Global, by reference to the value of units issued on 6 October 2009 and asserted increase in that value between then and the date of liquidation by reason of claimed increase in the value of VRT Global shares over that time. It is not pleaded what the value of a unit was as at the date of the liquidation- merely that by reason of the increase in the value of VRT Global shares the value of a unit was more on 27 November 2012 than it was on 6 October 2009. The plaintiff intends to further particularise the increase in value after expert reports.

Proposed paragraph 89 seeks to quantify the plaintiff’s loss by the alternate means of the loss of 16% of the value of VRT Global immediately prior to its liquidation, this being the proportion of ultimate interest held by the plaintiff in VRT Global by virtue of his unit holding in the Trust.

The defendants object to the first proposed means of quantification, by reference to the value of the units in the Trust, on the basis that there is no pleading of the value of a unit immediately prior to the liquidation. It is correct to say that the plaintiff still only gives a value for the units as at 2009 and still fails to value the units as at the date of liquidation. It is not uncommon, however, for quantification of loss to depend on expert evidence. I ruled in the second reasons that the link between a 2009 valuation and value at 2012 was not purely a matter of evidence. I said that an asserted factual link is required to be pleaded, on the basis of which the expert evidence is then obtained.[20] The factual link that is now sought to be pleaded is increase in the value of VRT Global shares over that time, having regard to the matters specified in the particulars to proposed paragraph 86. These are said to be two positive factors- the development of the tyre recycling machine and a business plan projecting significant growth - and the absence of any countervailing negative factor.
[20]Rozenblit v Vainer and anor (No 2) at [81].

The defendants say that reliance on development of the machine is insufficiently particularised because the particulars do not state the date on which the machine was developed and usable, and, indeed, whether or not VRT Global did use it prior to its liquidation. They say the second and third factors identified, growth projected in a business plan prepared in December 2011 and no adverse later development, are factually incorrect.

In relation to reliance on the business plan and the claim that there was no later adverse development, I repeat my view that these are matters for trial, or summary judgment, if as the defendants assert, they have no real prospect of success.

In relation to reliance on the development of the tyre recycling machine, I do not consider the further particulars identified to be essential for the statement of claim. If the defendants are truly ignorant of these matters, they may seek further and better particulars. I think that is an adequate remedy for any inadequacy in disclosure of the reasons for the claimed increase in value.

I say further in response to these objections that both proposed means of quantification of the plaintiff’s loss arising from loss of value of his units in the Trust ultimately depend on the value of VRT Global shares at liquidation. I ruled in my second reasons that the plea in then proposed paragraph 87 of Exhibit B, which is now the alternate means of quantification sought to be pleaded in proposed paragraph 89 of Exhibit A, was sufficient, subject to correction of the number of units that the plaintiff owned.[21] That correction has now been made. It follows that the first proposed means of quantification, which also ultimately depends on the value of VRT Global at liquidation, is also sufficiently pleaded.
[21]Rozenblit v Vainer and anor (No 2) at [82].

I do not consider the defendants’ objections to the pleading of loss from the liquidation to be made out. As noted earlier, their objection to proposed paragraph 69 stands or falls with their objections to the pleading of loss from the liquidation. It accordingly also fails.

Summary

In summary, the only pleading objection by the defendants that is made out is their objection to the particulars in proposed paragraph 83 a. The plaintiff conceded that there was a drafting error, and corrected it in the running. I have marked the correction on Exhibit A.

Discretionary considerations

The principles that now apply to the exercise of the discretion to grant leave to amend a pleading as established by the High Court in Aon Risk Services Australia Ltd v Australian National University[22] (‘Aon’) are well known. In particular, the plurality emphasised that historical approaches to case management, which almost implied a right to amend subject only to payment of costs by way of compensation, were no longer applicable. They stated unequivocally (citations omitted):

An application for leave to amend a pleading should not be approached on the basis that a party is entitled to raise an arguable claim, subject to payment of costs by way of compensation. There is no such entitlement. All matters relevant to the exercise of the power to permit amendment should be weighed. The fact of substantial delay and wasted costs, the concerns of case management, will assume importance on an application for leave to amend. Statements in J L Holdings which suggest only a limited application for case management do not rest upon a principle which has been carefully worked out in a significant succession of cases. On the contrary, the statements are not consonant with this Court's earlier recognition of the effects of delay, not only upon the parties to the proceedings in question, but upon the court and other litigants. Such statements should not be applied in the future.
A party has the right to bring proceedings. Parties have choices as to what claims are to be made and how they are to be framed. But limits will be placed upon their ability to effect changes to their pleadings, particularly if litigation is advanced. That is why, in seeking the just resolution of the dispute, reference is made to parties having a sufficient opportunity to identify the issues they seek to agitate.[23]

[22](2009) 239 CLR 175.

[23]Aon per Gummow, Hayne, Crennan, Kiefel and Bell JJ at [111]-[112].

The plurality and French CJ, who agreed with them in the approach now to be taken to applications to amend and the outcome in that case, identified the following factors as being relevant to the exercise of discretion: delay; wasted costs; whether an explanation for the delay had been given and whether it was satisfactory[24]; the necessity for further interlocutory processes if the amendment is allowed;[25] the impact of litigation on litigants, in particular personal litigants [26]; any impact on other litigants awaiting trial;[27] the need to maintain confidence in the judicial system;[28] and the public interest in the proper and efficient use of public resources.[29]
[24]Aon per French CJ at [4]-[5]; Gummow, Hayne, Crennan, Kiefel and Bell JJ at [106], [114].
[25]Aon per French CJ at [35].
[26]Aon per Gummow, Hayne, Crennan, Kiefel and Bell JJ at [100]-[101].
[27]Aon per Gummow, Hayne, Crennan, Kiefel and Bell JJ at [114].
[28]Aon per French CJ at [5] and [35].
[29]Aon per French CJ at [23].

As both parties also recognise, a more rigorous obligation on the parties and the Court to properly manage cases than was historically the case has also been recognised by the Victorian Parliament in the Civil Procedure Act 2010 (‘the CPA’). The Court and the parties are required to implement the overarching purpose of the CPA, being the ‘just, efficient, timely and cost- effective resolution of the real issues in dispute’ (s 7). The parties and their lawyers are under specific obligations to, amongst other things, co-operate (s 20); narrow the issues in dispute (s 23); ensure costs are reasonable and proportionate (s 24); and minimise delay (s 25).

I now consider relevant aspects of these matters in relation to this application for leave to amend.

Delay

This is the third application on summons seeking leave to amend the statement of claim, essentially to the same end - to introduce claims arising from the liquidation of VRT Global. The first summons was filed 29 August 2014; the third almost a year later. As noted, the hearing of this summons, the third, could not be completed on its return date because of an administrative error in the attachment of the correct proposed statement of claim to the affidavit in support. That error would appear to be the responsibility of the plaintiff’s legal practitioners. It occasioned yet further delay in the resolution of the application for leave to amend.

Prior to the plaintiff’s applications to amend his statement of claim the proceeding had progressed with relative expedition. The writ and statement of claim was filed 23 December 2013; a notice of appearance for both defendants on 17 January 2014; defence and counterclaim by both defendants on 14 February 2014; defence to the counterclaim on 25 March 2014; affidavits of documents by all parties by 26 June 2014; resolution of the counterclaim by consent dismissal on 15 July 2014; and mediation held on 13 August 2014.

Amendment of the statement of claim was first proposed by the plaintiff to the Court at a directions hearing on 25 August 2014, when the plaintiff sought, quite inappropriately, to proceed without summons. The defendants had first received a proposed amended statement of claim on 19 August 2014, to which they responded promptly, and then a further iteration to which they also responded with objections prior to the directions hearing. Ultimately, five iterations of a proposed amended statement of claim were served on the defendants prior to the hearing of the plaintiff’s first summons seeking leave to amend on 1 October 2014.[30]
[30]Rozenblit v Vainer and anor [2014] VSC 510 at [3].

Exhibit A, on which the plaintiff now seeks to proceed, is at least[31] the eight iteration of a proposed amended statement of claim to which the defendants have been required to respond. The sixth was the proposed amendment on which the plaintiff relied in his second summons.[32] The seventh iteration was the version on which the plaintiff sought to move, again quite inappropriately, on oral application on the date on which orders were to be considered arising out of the second summons. This was subsequently exhibited to the affidavit in support of this summons, and later identified as exhibited in error.
[31]The defendants have on occasion counted more iterations than this.
[32]Defendants’ Outline of Submission dated 23 July 2015 at [18].

The plaintiff contends that the history of his various applications for leave to amend are irrelevant to the Court’s discretion to grant leave to amend in respect of Exhibit A, as ‘Aon and the Act (ie the CPA) look forward, not back’.[33] I consider that this submission is incorrect. Certainly, French CJ in Aon held that a ‘punitive approach’ is not appropriate[34], but the emphasis all members of the Court placed on adequate explanation for delay in bringing the application, not just future delay that amendment would occasion, shows that the applicant’s past conduct is highly relevant. Further, the CPA requires this Court to give effect to the overarching purpose of the Act in the exercise of any of its powers, and permits the Court to have regard to past conduct in this regard.[35]
[33]Submissions in Support of the Plaintiff’s Summons dated 23 July 2015 at [38].
[34]Aon, per French CJ at [35].
[35]CPA at ss 8 and 9. See also the sanction provisions, which include determining future steps in the proceeding, and necessarily turn on past conduct- ss 28-29.

In summary, it has taken the plaintiff and his legal practitioners two inappropriate oral applications, three summonses, multiple attendances and eight iterations of a proposed amended statement of claim from August 2014 to the hearing on 2 September 2015 to draw a proper amendment. Further, the flaws that I identified in my second reasons were not major. Many were drafting matters that I considered could likely be readily corrected. That has now proved to be the case. Nevertheless, two further iterations were required to get to that result. The carriage of the application for leave to amend by the plaintiff and his legal practitioners has occasioned very substantial delay to the proceeding, and has been characterised by inattention to detail and unnecessary administrative error.

That delay is a factor that tends against the exercise of discretion in favour of the amendment.

Explanation

Given the principles in Aon and the CPA, it should have been plain to the plaintiff’s legal practitioners from the outset that explanation was required for an application for leave to amend the statement of claim after substantial interlocutory steps had already been taken, being discovery and mediation. Yet there has never been any explanation on oath provided to the Court and the defendants. No explanation was provided at all for the various applications for leave to amend until the afternoon of the second day of hearing of the third summons on 2 September 2015, and only after counsel for the plaintiff was pressed by me to provide one. That application was from the bar table. It was startling in its content. Counsel for the plaintiff sought and obtained instructions to waive legal professional privilege for the limited purpose of telling the Court and the defendants that the plaintiff had wished from the end of 2013, i.e. from the outset, to bring a claim arising from the liquidation of VRT Global, but his legal practitioners had thought at that time that it was too difficult to do so. His counsel later considered that there may be a way to plead such a claim, leading to the first unsuccessful application for leave to amend in August 2014.

In response to my enquiry as to whether it was appropriate to allow the case to proceed through discovery and mediation until August 2014 in these circumstances, counsel for the plaintiff relied on Sherrin Hire Pty Ltd v Sherrin Rentals Pty Ltd[36] (‘Sherrin’) and Van der Velde and anor v Ng and ors (‘Van der Velde’).[37] Both are single judge instances of indulgence to a party notwithstanding delay. In Sherrin, a single judge of the Federal Court allowed leave to amend a defence raising new grounds after evidence had been filed and the proceeding fixed for trial. In Van der Velde, another single judge of the Federal Court declined to dismiss a proceeding for want of compliance with orders requiring a proper application for leave to amend the statement of claim. Sherrin is said by the plaintiff to be an example of the balancing exercise in the discretion weighing in favour of amendment, because of the importance of the amendments to the defendant’s case, notwithstanding that there had been past delay, inadequate explanation for that delay, loss of a hearing date and consequential future delay. The plaintiff relies on Van der Velde as an instance of default on the part of the legal representatives of the party seeking the indulgence not being held against that party.
[36][2013] FCA 1204.
[37]Unreported decision of Greenwood J in the Federal Court dated 22 May 2009 in proceedings QUD 405 of 2007.

These cases are informative, but are only instances of the application of the general principles to particular factual scenarios, neither of which is identical to that here. In Sherrin, two limbs of amendments were proposed. The first limb arguably only became apparent due to conferences with witnesses, and so in that respect the case is distinguishable from this case, where there is no new circumstance other than further consideration by his legal practitioners on which the plaintiff can rely to explain the late amendment. The second limb of amendments in Sherrin, as here, had been under consideration from an earlier point in time, but not prosecuted at that time because of a combination of legal and commercial reasons.[38] This is more similar to the explanation for delay in this case. In Van der Velde, the solicitor for the plaintiff went on oath to accept responsibility for the plaintiff’s delay. That the fault lay with the lawyer rather than the party was an important factor in the exercise of the Court’s discretion in favour of that party.[39] In this case, by contrast, the legal representatives have not on oath accepted responsibility for the delay.
[38]Sherrin at [36].
[39]Van der Velde at [6] and [12].

The claims that the plaintiff seeks to bring arising out of the liquidation of VRT Global are complicated. They are further complicated by the fact that it was necessary to think through carefully what standing the plaintiff might have to bring such a claim, given that he was no longer a shareholder at the time of the liquidation. It is not entirely surprising that time and some attempts might be required to properly formulate them. This explanation does not, however, adequately explain the number of attempts and the manner of their prosecution. Further, it should not have been necessary for the Court to insist on explanation to obtain one. It should have been offered at the time of the first application. These factors also weigh against the grant of leave to amend.

Impact on the future of the proceeding

Plainly, the delay and timing of the application for leave to amend in this case are not as egregious as in Aon. In that case, amendment was sought without adequate explanation on the first day of a four week trial. The trial was vacated as a consequence, and substantial further delay occasioned. These amendments are not sought at trial, and although the case had otherwise progressed through interlocutory steps and could have been set down for trial, no trial date had been set which must now be vacated if leave is given to amend.

Nevertheless, the amendments sought are very substantial. They introduce a whole new factual scenario, being the liquidation and what followed it, on which instructions must be taken and documents and evidence obtained. If leave is granted, the amended statement of claim will require at a minimum an amended defence, and probably further discovery and further expert evidence. Expert evidence as to the value of the VRT Global shares at the time of the share transfer in December 2011 is required by the existing statement of claim. To that, if the new claims are allowed, will be added the need to obtain expert evidence as to their value at the time of the liquidation 11 months later, together with expert evidence as to whether or not VRT Global was solvent, or could have been returned to solvency, at the time of the liquidation. Expert evidence will also be required as to the value of the units in the Trust at least at the time of the liquidation, and possibly earlier, if calculation of loss on the basis of their value is pursued.

It is likely that these additional steps will require significant time and cost. The trial date the parties might otherwise have obtained has already been delayed more than a year by unsuccessful applications made by the plaintiff. It is likely it will be substantially further delayed by the expansion of the case, if the amendment is allowed, and the usual approach taken that a trial date is not set until all interlocutory steps are complete.

On one view, it is the plaintiff who potentially suffers the greatest prejudice from this further delay till trial. He is elderly, and, somewhat in contrast to the manner of his applications for leave to amend, has sought an expedited trial date. Whether or not that should be granted is a matter for the listing associate judge. If granted, because of his age or state of health, however, potential prejudice will also be occasioned to the defendants, as an expedited trial date will put considerable pressure on them to respond quickly to a very much enlarged case. Further, all parties are individuals, and it is recognised in Aon, that litigation imposes a significant stress on the individuals involved, which is only exacerbated by delay.

The plaintiff’s case

As against these factors, which all tend against the grant of leave, Exhibit A is the case that the plaintiff wishes to bring, and, it seems, has wished to bring from the outset. It seems that he did not advance his whole case at the outset on legal advice, which subsequently changed. These are in my view significant factors tending towards the grant of leave to amend. Refusal of leave would require the plaintiff to go to trial or settle on the basis of only part of his grievances against the defendants. It would not be consistent with that part of the overarching purpose of the CPA which requires resolution of the ‘real issues in dispute’.[40]
[40]CPA s 7.

The nature of those grievances is also in my view significant. The plaintiff’s case is that he has been wrongfully excluded by the defendants from the potentially profitable exploitation of his expertise and their joint work on tyre recycling. Further, he says that he was so excluded in circumstances where he reposed personal trust and confidence in the defendants, to their knowledge. In other words, his case is one of abuse of personal trust and reliance, as well as wrongful commercial dealing.

In my view, these are powerful factors tending towards the grant of leave.

Costs

The balance is, however, settled in my view against the grant of unconditional leave to amend by factors relating to costs. Leaving aside for the moment the costs orders unpaid by the plaintiff, it is plain that the amendments if allowed will impose additional cost on all parties to prepare for the trial, and will also likely extend the length and complexity of the trial itself. They will come at significant cost.

There may also be costs thrown away, in addition to those incurred in the various attempts at amendment. The mediation, for instance, may never have been likely to result in settlement given only half the plaintiff’s case had by that time been pleaded. Some of the discovery, to the extent it related to causes of action now abandoned, may also have been wasted.

If the plaintiff had sufficient assets to meet any costs orders against him, any past wasted costs and likely increased future costs would be of less moment. The defendants and the Court could in that circumstance have some confidence that the defendants would be adequately protected by actual and potential costs orders. That is not the case, however. The plaintiff has now deposed on oath twice[41] to the fact that neither he nor his wife have any appreciable assets, or any income other than pensions from Centrelink and from Russia. Despite this, the plaintiff has agreed twice to the quantum of costs ordered against him. He says in relation to the first order, that he did so to avoid a ‘pointless’ fight, as he had been advised the quantum would likely be approved, noting that in any event he had no funds to pay.[42] He says in relation to that order, that he has not paid it ‘because I have no way of doing so’.[43]
[41]Affidavit of Boris Rozenblit affirmed 18 June 2015 and Supplementary Affidavit of Boris Rozenblit affirmed 23 July 2015.
[42]Affidavit of Boris Rozenblit affirmed 18 June 2015 at [10].
[43]Affidavit of Boris Rozenblit affirmed 18 June 2015 at [9].

Counsel for the plaintiff says that the plaintiff has not paid the costs orders because of inability due to impecuniosity, not disinclination. He notes that there is no evidence from the defendants that suggests the non-payment of the costs orders have hindered their prosecution of their defence. For these reasons, the plaintiff says that his conduct in relation to the unpaid costs orders has not been such as to justify him being refused leave to ventilate his claims.[44]
[44]Submissions in Support of the Plaintiff’s Summons dated 23 July 2015 at [44].

I disagree. I consider that the plaintiff’s non-payment of these costs orders and his approach to that non-payment are relevant further factors against the grant of leave to amend.

The plaintiff agreed to pay the first costs by 4pm 19 December 2014. This was only four days after the consent order settling their quantum and so implied a readiness to pay promptly, although on the plaintiff’s case he already knew that he could not pay. Nevertheless, there is no indication that he apprised the defendants that he was unable to pay those costs before or at the time he agreed the quantum. A further aggravating factor is that the plaintiff obtained by that order the benefit of an offset of costs that the defendants had been ordered to pay him in respect of the dismissal of their counterclaim. The plaintiff did not contact the defendants after the time for payment had expired, to explain his non - payment or seek an extension. It was left to the defendants to pursue the payment. When they did so, they were told by counsel for the plaintiff that the plaintiff could not pay.[45] When the defendants thereafter sought to test this assertion by warrant of seizure and sale, the solicitors for the plaintiff threatened legal action. The solicitors for the defendants in response made the legitimate request for an affidavit confirming the plaintiff’s claimed limited means. No response, not even by letter, was received,[46] although the plaintiff’s first affidavit as to his means was subsequently filed.
[45]Affidavit of Mark Waters sworn 16 July 2015 at [17].
[46]Affidavit of Mark Waters sworn 16 July 2015 at [19]-[22].

This conduct by the plaintiff shows in my view almost a wanton disregard for the prejudice to which he has already exposed the defendants and the future prejudice that they will suffer if costs orders in their favour are not met. The only proposal the plaintiff advances through his counsel as to how he may meet past and any future costs orders against him is from a judgment in his favour. It may be that the defendants are in a superior financial position to the plaintiff, and do not depend on payment of the costs orders to be able to fund their defence. As against this, the plaintiff does not say that his impecuniosity has been occasioned by the defendants, only that by their actions he has not received the financial benefits that he anticipated. Further, the costs in question incurred to date by the defendants in respect of the first two applications for leave to amend are substantial in quantum. They were said to be in the order of $71,000 as at 15 July 2015, adding back in the offset costs.[47]
[47]Defendant’s Outline of Submission dated 23 July 2015 at [21].

In answer to enquiry from me as to how the plaintiff was funding his own legal costs, counsel for the plaintiff implies that he and his instructor are either acting pro bono or on a no win/no fee basis, which he describes as a common practice. The precise financial basis on which they are acting is not on oath. He could not account for the apparent payment of filing fees by the plaintiff, [48] and accepted that they had been paid. Further, the plaintiff proposes to adduce evidence of his loss by obtaining expert evidence, and will need expert evidence to support his contentions as to the solvency or ability to return to solvency of VRT Global at the time of its liquidation. If the company was in fact insolvent when it went into liquidation, it is difficult to see how any complaint that the liquidation was wrongful can be made out. Expert evidence of this type will be expensive, yet the plaintiff does not indicate how he will be able to meet those future disbursements. Counsel for the plaintiff said he had no instructions as to how these disbursements would be met. If the plaintiff has financial resources on which he can draw to do so, then it may be the case that he could also draw on those financial resources, not currently disclosed, to meet his obligations in respect of past costs orders.
[48]There is no indication of any fee waiver on the Court file.

In summary, I infer that there are two possible financial scenarios in relation to the plaintiff’s own future costs and disbursements. The first is that the plaintiff has in truth no financial resources on which he can draw to pay his own future disbursements, even if his lawyers are prepared to act without payment, let alone those incurred by the defendants if he is ultimately unsuccessful and costs are ordered against him. If this is the case, then it is a strong argument against permitting enlargement of his claim in a way that requires substantial disbursements. The alternative view, is that the plaintiff does in fact have some financial resources on which he believes he can draw to meet at least his own future disbursements. If this is the case, then he has chosen not to disclose that resource or use it to pay any of the costs ordered against him. That also tends against the grant of an indulgence to him as a discretionary matter.

The unpaid costs orders are of course the principal basis on which the defendants bring their own summons. I will now turn to that summons.

Application for stay or dismissal
Legal principles

The defendants seek by their summons filed 17 July 2015 and amended by leave on 2 September 2015 that the proceeding be dismissed or stayed by reason of the plaintiff’s failure to pay the costs orders made by me on 20 October 2014 and 24 June 2015, the amounts of which were subsequently fixed by agreement by orders made by costs registrars on 15 December 2014 and 12 August 2015 respectively.

The provision on which the defendants rely in r 63.03 (3) of the Supreme Court (General Civil Procedure) Rules 2015 (‘the Rules’). That rule replicates the rule in the Supreme Court (General Civil Procedure) Rules 2005, which was in force when the summons was filed. The rule provides as follows:

63.03 Time for costs order and payment
…
(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.

The rule was considered by the Court of Appeal in Gao v Zhang.[49] That case was an application for leave to appeal from a decision of a trial judge. The trial judge had upheld an order of a Master that the proceeding be stayed until the plaintiff made payment of costs ordered against him in respect of a number of unsuccessful interlocutory applications. Ormiston JA, with whose remarks Vincent JA specifically agreed, was critical of what he saw as the too ready tendency of first instances judges to stay proceedings pending the payment of interlocutory costs, particularly when such a stay was likely by reason of the plaintiff’s impecuniosity to prevent the plaintiff further prosecuting the proceeding to trial. On the particular facts before them, however, the Court of Appeal did dismiss the application for leave to appeal and so upheld the decisions below to order a stay.
[49][2005] VSCA 200.

Prior to the introduction of r 63.03(3), the Full Court had held in Exell v Exell[50] that, in the absence of a rule of Court conferring the power, the Court had no power to dismiss an action for want of payment of interlocutory costs. If a sanction was required against a plaintiff for non-payment of costs orders, the Full Court held that that sanction should at most be a stay until payment is made, and that should only be ordered in ‘the most exceptional circumstances, or as a last resort’.[51]
[50][1984] VR 1.
[51]Exell v Exell at 8-9.

In Gao v Zhang, Ormiston JA accepted that r 63.03(3) had been introduced to overcome the restrictions imposed by Exell v Exell, and that exceptional circumstances are not required for the exercise of the power. He said, however, that ‘it does not necessarily follow that whenever costs remain outstanding some such order should be made’.[52] He added that ‘it is appropriate for this Court 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.’[53]
[52]Gao v Zhang at [9].
[53]Gao v Zhang at [11].

Ormiston JA gave as an example of an appropriate order for stay a case where the Court believes, or has reason to suspect, that the party refusing to pay the costs order is being recalcitrant.[54] He also identified the purpose of the rule as being to ‘ensure justice as 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.’[55] If this is what is alleged, evidence to that effect is required.[56]
[54]Gao v Zhang, at [13].
[55]Gao v Zhang at [14].
[56]Gao v Zhang at [16].

The observations by Ormiston JA as to the proper use of the discretion conferred by r 63.03(3) are discursive. As I distill them, he did not hold that the power may only be exercised where non-payment of the costs is affecting the ability of the other party to conduct the litigation. He could not have done so, because there was no evidence to that effect in the case before him, and yet he upheld the order made for a stay.[57]
[57]Gao v Zhang at [18].

I consider that Ormiston JA, and so the Court, determined only two essential requirements for the exercise of the power. First, that the reason for exercise of the power must be ‘serious’, and the exercise of the power the ‘only practical way to ensure justice between the parties.’[58] Secondly, that if an order for stay 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’.[59]
[58]Gao v Zhang per Ormiston JA at [15].
[59]Gao v Zhang per Ormiston JA at [17].

Ormiston JA noted that ‘ordinarily’ that conduct would involve a ‘series’ of orders, arising from applications which ‘did not involve the genuine resolution of disputes relating interlocutory matters which have to be resolved before the matter can go to trial’.[60]
[60]Ibid.

In that case, the plaintiff had made a series of unsuccessful interlocutory applications, which he then unsuccessfully appealed all the way to the High Court. The Court considered that these applications were of less and less merit and more and more ill-conceived the higher they went up the appellate chain, and that the trial judge could fairly have reached the view that this amounted to harassment of the other party, which should not be permitted to continue without payment of costs.[61] I do not read the judgment as requiring, however, that the element of the defaulting party’s conduct that ‘falls for condemnation’ must necessarily be a series of ill-conceived or unmeritorious applications, or amount to harassment of the other party.
[61]Gao v Zhang per Ormiston JA at [18]-[19].

Submissions

The defendants submit that the essential requirements for the exercise of the discretion conferred by r 63.03(3), as identified in Gao v Zhang, are here met. They contend that the reasons for making an order for dismissal or stay are serious, and such an order is the only practical way to ensure justice between the parties. They rely in their written submissions on the following conduct by the plaintiff as being conduct which falls for condemnation to the extent of making such an order:

· the number of applicationsfor leave to amend, including oral applications, and number of iterations of a proposed amended statement of claim;

· the administrative error made on the part of the plaintiff in seeking to rely on the wrong proposed amended statement of claim in support of the oral application made for leave to amend on 24 June 2015 and subsequently exhibited to the affidavit in support of the current summons;

· the failure on the part of counsel for the plaintiff to observe this error until well into the hearing on 24 July 2015, and consequent need for adjournment;

· the fact that the plaintiff consented to the quantum of costs in the first order and the time frame for their payment, thereby obtaining the benefit of a set-off, but subsequently responded by threatening legal proceedings when the defendants sought to enforce the order;

· that the outstanding costs are substantial in quantum, incurred solely in response to unsuccessful applications by a plaintiff who says he cannot pay; and

· the delay to date, and the likelihood of further delay before trial if leave to amend is given due to the need for further interlocutory steps.[62]

[62]Defendant’s Outline of Submissions (re defendants’ summons) dated 31 August 2015 at [12]-[16].

I will address other matters put orally in the course of my discussion.

The defendants submit that even if the plaintiff is, as he deposes, impecunious, that is not a decisive consideration against the making of an order for stay until payment. They also note that he has provided no explanation as to how, given his circumstances as deposed, he has been able to fund his case to date, and will be able to do so in future. They submit that fairness between the parties must be the primary consideration, and that it would be unjust to allow the plaintiff to make repeated unsuccessful applications, over a substantial period of time, with effective impunity as to the defendants’ costs.

Counsel for the plaintiff in opposition to the summons submits in his revised written submissions that:

· on the basis of his two affidavits, the plaintiff is impecunious;

· there is no evidence that the defendants have suffered financial inconvenience as a result of non-payment of the costs orders ‘of such a magnitude as to prevent them from conducting their defence’;

· the applications to amend the statement of claim have not been peripheral to the litigation, or attempts to harass or unfairly deal with the defendants.[63]

[63]Revised Submissions in Opposition to Defendant’s Summons filed 17 July 2015 dated 31 August 2015 at [4]-[6].

I will address his elaborated oral submissions in my discussion.

Counsel for the plaintiff submits that it is ‘patently obvious’ that the plaintiff’s conduct in seeking to file an amended statement of claim is not conduct calling for such condemnation as would justify him being permanently shut out of litigating his case. The plaintiff submits that he would be so shut out even if a stay is expressed to be temporary pending his payment of the costs orders, because he cannot pay them.[64]
[64]Revised Submissions in Opposition to Defendant’s Summons filed 17 July 2015 dated 31 August 2015 at [6].

Discussion

In addition to Gao v Zhang, the parties have referred me to two other instances of curial consideration of stay due to unpaid costs. The defendants rely on Welsh v Digilin Pty Ltd,[65] (‘Welsh v Digilin’) a decision of the Full Federal Court, dismissing an appeal from a decision at first instance to stay a claim until unpaid costs orders were met. That case turned on a power in the rules of the Federal Court to stay or dismiss proceedings due to default. The Full Court considered Gao v Zhang, but held that it did not prescribe a standard of conduct that must be met before the discretion conferred by the Federal Court rule could be exercised. They held that the discretion conferred by the Federal Court rule was unconditional and ‘(t)here is no need for the defaulting litigant to have engaged in contumelious conduct in the nature of harassment or unfair dealing’ before that discretion is enlivened. [66]
[65](2008) 250 ALR 13.
[66](2008) 250 ALR 13, at [31].

Counsel for the plaintiff submits that notwithstanding this statement of principle, the defaulting party’s conduct in that case was in fact worthy of criticism to a greater degree than the plaintiff’s conduct in this case. There, the costs orders in question arose from the loss of two trial dates at the instance of the party in default, as well as costs thrown away by reason of claims no longer pursued and other matters.[67] Counsel for the plaintiff seeks to distinguish the case on that basis.
[67]Welsh v Digilin Pty Ltd (at first instance) [2007] FCA 2064, at [2]-[3].

The plaintiff in turn relies on Rubik Financial Ltd v Herskope (No 2)[68] (‘Rubik’), a judgment of the Chief Justice of the West Australian Supreme Court. The Court in that case considered both Gao v Zhang and Welsh v Digilin. The plaintiff relies on Rubik to show the necessity of vexatious conduct for the exercise of the power, and seeks to distinguish it in relation to outcome on the basis that the conduct there in question was much more egregious than the plaintiff’s conduct in this case.
[68][2014] WASC 115.

In that case Martin CJ granted a permanent stay of a counterclaim, and dismissal of a defence by way of set off, in favour of the plaintiff as against Mr Herskope as defendant and plaintiff by counterclaim, unless Mr Herskope paid unpaid costs within 21 days. He did so as an exercise of the Court’s inherent jurisdiction. Martin CJ held that the inherent jurisdiction to grant a stay should only be exercised if, in addition to non-payment of costs orders made against the defaulting party, that party had conducted the proceedings in a manner that can be characterised as ‘vexatious’, meaning in this context ‘productive of serious and unjustified trouble and harassment’.[69]
[69]Rubik at [13].

These cases differ as to the necessity for vexatious conduct, in addition to non- payment of costs. They each also arise under a different head of power to r 63.03(3). Rubik is an illustration of the exercise of the inherent jurisdiction to grant a stay by reason of default. Welsh v Digilin turns on the Federal Court rule, and distinguished Gao v Zhang on that basis. I consider that I am bound in relation to the exercise of the power conferred by r 63.03(3) by Gao v Zhang. That case holds that conduct requiring condemnation is required, in addition to non-payment of costs. That is the test I will apply. As noted above, however, I do not consider that the Court of Appeal held that the only form of conduct that would suffice is the conduct that was evident in that case, being repeated unmeritorious and ill-conceived applications and appeals, peripheral to the main issues in the litigation. Each case must be decided on its own facts, bearing in mind the principles elaborated in Gao v Zhang.

I accept the submission put on behalf of the plaintiff that his attempts to amend his statement of claim have been genuine, and go to the heart of the case he wishes to bring. There is no evidence that his intention has been to vex or harass the defendants by those applications, or by the manner of their conduct. I do not consider, however, that Gao v Zhang requires that the party seeking an order under r 63.03(3) must show intentional harassment or conduct amounting to contemptuous disregard of court orders. Conduct may fall for condemnation by reason of the manner of its exercise, or its result, not its intention. I consider that the plaintiff’s conduct in relation to his applications for leave to amend requires condemnation for both these reasons, irrespective of what I accept to be his genuine desire to include claims relating to the liquidation.

I deal first with the way the applications for leave to amend have been conducted. I have detailed earlier in these reasons the number of iterations of the proposed amended statement of claim, and the number of applications to amend, including inappropriate oral applications. I accept the submission of the plaintiff that he has made repeated applications with the bona fide intention of meeting objections upheld by the Court. Nevertheless, the defendants have been required to address multiple iterations and repeated applications, which has imposed on them both cost and considerable time, due to the failure of the plaintiff to properly identify changes between iterations.

The applications have also been attended by administrative error. I have noted earlier that the first hearing of the plaintiff’s current summons had to be adjourned due to what counsel for the plaintiff described as a ‘document management’ problem. The same sort of confusion attended preparation for the hearing of the first summons, due to the plaintiff having sent a further iteration to the defendants shortly before the hearing, on which he subsequently did not rely at the hearing.[70]
[70]Rozenblit v Vainer and anor [2014] VSC 510 at [5]-[6].

A further aspect of the conduct of the applications that properly attracts criticism in my view is the absence of any explanation at all for the applications for leave to amend, until counsel was pressed by me to provide one at the hearing on 2 September 2015 in relation to the current application, and the continued absence of any explanation on oath. The defendants submit that the nature of the explanation eventually given should also attract criticism, because it shows that that the proposed amendments do not result from oversight, or, I would add, a change in circumstance. Rather, a deliberate forensic decision was taken at the outset not to plead claims arising from the liquidation, which decision was then resiled from.

If this submission implies that an application to amend unless there has been some change in circumstance or admitted oversight is necessarily conduct deserving of criticism, it goes too far. Amendment is a frequent occurrence in litigation, to the extent that the costs presumption now in relation to a successful application for leave to amend a pleading is that the costs of the application, and of and occasioned by the amendment, are costs in the proceeding (r 63.17). To the extent the plaintiff allowed the litigation to progress through various interlocutory steps including discovery and mediation, however, before making plain his wish to plead claims arising from the liquidation, I agree that his conduct deserves criticism. This is because it occasioned delay, and in all likelihood wasted costs.

Counsel for the plaintiff says that to the extent the conduct of the applications should attract criticism, it should be levelled at the plaintiff’s legal practitioners, not at the plaintiff himself. If this is so, the proper course would be for this to be deposed to on oath. I accept that the plaintiff’s lawyers, and not him, may be responsible for document management errors, but this alone does not satisfactorily explain the changes in forensic approach that have given rise to the applications, that in turn have led to the unpaid costs orders. Further, in the absence of evidence on oath or concession by the legal practitioners at the time costs were sought that they, and not the plaintiff, should bear the burden of some of the costs orders, then the only proper course is to assign the consequences of the conduct to the plaintiff himself, both as to the making of the costs orders and as to the consequences of their non-payment.

I turn now to the result of the applications for leave to amend. The principal result, apart from costs, has been to occasion substantial delay of over a year in the progress of the litigation, and, if leave to amend is given, to so substantially enlarge the trial that substantial further delay will in all likelihood be also occasioned. The defendants do not say that the plaintiff intended to occasion delay, merely that that has been the result. If the usual time is not given for preparation of the enlarged trial, because expedition is granted, then the defendants will be required to prepare in greater haste than would otherwise be the case.

The usual position in relation to interlocutory costs, since amendments to Order 63 of the Rules that commenced in April 2013, is that by virtue of r 63.20.1, interlocutory costs are not taxable until the determination of the proceeding, unless the Court otherwise orders. The defendants are only in a position to seek the exercise of the power to stay or dismiss for non-payment of these interlocutory costs orders under r 63.03(3) because on the two occasions in question I considered that a departure from the usual rule was justified. Each of those applications, that the costs be taxable immediately, was opposed by the plaintiff. 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 lead me to make orders that the costs could be taxed forthwith, over the objections of the plaintiff.

Thus, the plaintiff has been on notice from the time the costs orders were made of the defendants’ concerns in relation to costs. Yet as noted earlier he took no steps, on the evidence before me, to inform the defendants of his inability to pay. I accept the submission of the defendants that by agreeing readily as to quantum and a brief time for payment in respect of the first order, the plaintiff in fact created the opposite impression - that he could and would pay. His conduct in relation to non-disclosure of his financial circumstances in a timely way, and in taking unjustified umbrage at the attempts at enforcement by the defendants, also requires condemnation in my view.

The change in the costs rules as to taxation of interlocutory costs is a matter that justifies reading Gao v Zhang in its historical context. At that time, there was no presumption that interlocutory costs were taxable only at the conclusion of the proceeding, and so there was the potential that any interlocutory costs order, once taxed and not paid, could lead to an application under r 63.03(3). The Court in Gao v Zhang was clearly concerned at this possibility, and at pains to point out that the rule is not to be used as a matter of routine or by way of debt collecting.[71] Under the current Rules, a party may only seek to utilise the power conferred by r 63.03(3) after already obtaining the Court’s approval to tax the interlocutory costs immediately. The earlier need to discourage routine debt collection no longer applies. Indeed, arguably, it would defeat the intention of an order that costs be taxable immediately unless there was an effective sanction for non-payment.
[71]Gao v Zhang per Ormiston JA at [14].

A further significant change has also taken place in the management of civil litigation since Gao v Zhang, in the enactment of the CPA. As discussed earlier in relation to the discretion to grant leave to amend, by sections 7 and 8 of the CPA, the Court is now required to have regard to the overarching purpose in consideration of the exercise of any power conferred by the Rules. That obligation is not in itself a straight line to a result, as the overarching purpose includes both the resolution of the ‘real issues in dispute’, an aspect on which the plaintiff relies, and that the resolution of those issues be ‘just, efficient, timely and cost-effective’, aspects on which the defendants rely. However, I consider that the paramount obligations imposed on the parties by that Act, in particular the obligations to co-operate (s 20) and to ensure costs are reasonable and proportionate (s 24) and the power of the Court to sanction a party for breach of such an obligation support a robust exercise of the power conferred by r 63.03(3).

In summary, I consider that the defendants have shown that the reasons for exercising the power in this case to stay the proceeding until the costs orders are paid are serious, and that there is conduct on the part of the plaintiff that justifies the exercise of the power.

The exercise of the power must also be the only practical way to do justice as between the parties. There are significant factors that tell against its exercise, having regard to this requirement. These are first that, if as the plaintiff deposes, he cannot meet the orders, a stay of the proceeding until he does so will effectively terminate it and so prevent him from litigating his claims entirely. The plaintiff has not deposed that this will be the outcome on oath, but I accept that it follows if his evidence as to his financial position means he has no financial resources to meet the orders.

A further relevant factor that tends against the grant of a stay is that there is no evidence that the defendants have been so financially prejudiced by the non-payment that they cannot conduct their defence. I infer from the absence of any such evidence, that this is not the case. Thus, on the one hand, the plaintiff is said to be so impecunious that a stay will bring his claims to an end, and on the other, the defendants are not so seriously financially prejudiced that the refusal of a stay will prevent them defending those claims.

These are very important matters. That there is this degree of financial disparity between the plaintiff on the one hand, and the defendants on the other, in relation to their ability to conduct the proceeding is in my view also relevant because they were previously jointly engaged in the commercialisation of the plaintiff’s expertise, and he says the defendants have wrongfully excluded him from it. I have given these matters anxious consideration. On balance, I consider that they do not outweigh the matters tending towards the grant of a stay for the following reasons.

First, the plaintiff has failed to properly account for how he has funded necessary disbursements to date, and how he will do so in future. This leads me to infer that he may have some financial resources on which he has called in the past, and may be able to do so again. He has chosen not to disclose those resources. It is not just as between the parties that the plaintiff be able to call on these resources for the conduct of his own case, but fail to utilise them to meet his obligations to the defendants.

Secondly, although the non-payment of the costs may not hinder the defendants in their defence, the sum involved, now $50,000, is not inconsiderable. There will be future costs that the defendants must incur if the amendment is allowed, and even if it is not. The plaintiff makes no proposal at all for payment of the outstanding costs, other than from the fruits of the litigation. Presumably, this would also be his approach to any future interlocutory costs awarded against him. This is of concern because the conduct of the litigation to date by the plaintiff does not instil confidence that he will conduct it in a timely and cost effective manner in future, particularly in relation to the expert evidence he contemplates and requires for his case, but for which he does not identify a financial source. If there are future interlocutory costs ordered against him, the defendants will, on the plaintiff’s case, be out of pocket until the end of the litigation. If the plaintiff fails in his claims, they will be out of pocket entirely, with, on the plaintiff’s case, no prospect of recovery.

The plaintiff has laid some stress on analogy with security for costs, and submits that the Court is reluctant to order security for costs against an impecunious individual litigant. I accept that that is often the case. However, the current application is in respect of costs orders already made; already ordered to be taxable forthwith; and already unpaid. The orders arise from applications whose merits have already been assessed and found wanting, and costs already incurred, not potential costs arising from a case whose merits have not yet been fully assessed. I think that to that extent the analogy with applications for security for costs fails.

Further, although the plaintiff complains of being wrongfully deprived by the conduct of the defendants from an enterprise he considered would be profitable, he does not say that they have caused him to become poor; merely that they have prevented him from becoming wealthier. To the extent the analogy with an application for security for costs against an individual impecunious litigant is appropriate, there is no claim here that the impecuniosity that may prevent payment is due to the actions of the party who may obtain a costs order. Such a claim is reason for refusing an application for security for costs. It is not here made in relation to the current application.

The final factor on which I rely in relation to the justice of the case as between the parties, is the attitude shown by the plaintiff to payment of the costs orders against him. These are orders of the Court, and so he is required to comply with them. Non-compliance plainly also imposes a burden on the defendants. Yet neither the plaintiff in his evidence, nor his counsel in submissions, expresses any regret for the non-payment, or apology. Indeed, the plaintiff’s attitude could fairly be described as indignant assertion of his own rights, with cavalier disregard for the rights of the defendants. An instance of this is the plaintiff’s response, through his solicitors, to attempts to enforce the first order by warrant. A further instance is a submission first put by counsel for the plaintiff, and later properly withdrawn, that it was not the plaintiff’s conduct that was harassing, but the bringing of this application by the defendants.[72]
[72]Compare the plaintiff’s written submissions in opposition to the defendant’s summons dated 23 July 2015, and the revised submissions dated 2 September 2015.

Conclusion

For these reasons, I conclude that a stay of the proceeding until the costs orders fixed on 15 December 2014 and 12 August 2015 are paid is the only practical way to do justice as between the parties, and should be made. I do not consider that dismissal of the proceeding is warranted at this time.

Outcome of the two applications

I have identified the factors that lead me to the conclusion that refusal of leave to amend the statement of claim is justifiable in the Court’s discretion, notwithstanding that the pleading survives objection, and the factors that lead me to the conclusion that an order for stay until the costs orders are paid should be made. The factors for and against in each instance are substantially the same. Given that overlap, I have given thought to how best to achieve justice between the parties in respect of the applications viewed together. In my view, it would not be just to reflect the factors that justify a stay by only making the grant of leave to amend conditional on the payment of the costs orders. If those were the orders, the plaintiff could choose not to amend, and continue to prosecute his original claims without meeting the costs orders. This would not be a sensible outcome for the plaintiff, who seeks to remove some claims by Exhibit A. Further, if anything it would be even more prejudicial to the defendants, as the whole pursuit of amendment would then have been entirely wasted, and to their cost.

I consider the appropriate outcome of the two applications is to stay the proceeding until the costs are paid, but thereafter grant leave to the plaintiff to amend his statement of claim in the form of Exhibit A, as corrected at the hearing on 2 September 2015. The plaintiff thus has the option of proceeding with the claims he wishes to bring, after meeting his obligations in respect of the costs incurred in unsuccessful pursuit of that objective. If the costs orders are met, the prejudice to date to the defendants is ameliorated, and they may also be reassured to some extent in relation to the future costs that the amendment will require.

In relation to the costs of the applications, my preliminary views, subject to hearing from counsel to the contrary, and on the basis of what I currently know, are as follows. I consider that the costs of the amendment application should be costs in the proceeding, in the spirit of one limb of r 63.17, because the defendants’ objections on pleading grounds have failed, and the discretionary factors are dealt with by the result on the defendants’ summons. The fact that the first application to amend the statement of claim was not made until after the completion of interlocutory steps may have caused some costs to be wasted. I will preserve the right of the defendants to make application for those costs. To that extent I depart from r 63.17. I consider that the plaintiff should pay the defendants’ costs of the defendants’ successful summons, but on the usual terms only i.e. on a standard basis, and taxable only at the conclusion of the proceeding.

For these reasons, I would make orders to the following effect:

1. The proceeding be stayed until the plaintiff has paid the amounts outstanding to the defendants pursuant to the orders of Costs Registrar Ratcliffe made 15 December 2014 and Costs Registrar Deviny made 12 August 2015.

2. On payment of these amounts, the plaintiff may file and serve within 14 days an amended statement of claim in the form of Exhibit A, as amended in Court on 2 September 2015 to correct the particulars to paragraph 83.a.

3. The plaintiff and the defendants are both required to request no later than 14 days thereafter that the proceeding be relisted for directions.

4. The costs of the plaintiff’s summons filed 7 July 2015 are costs in the proceeding.

5. The defendants’ costs thrown away by reason of the amendment to be effected by Exhibit A as corrected, if any, are reserved.

6. The plaintiff pay the defendants’ costs of the defendants’ summons filed 17 July 2015 on a standard basis.

7. Both summonses are otherwise dismissed.

I will hear the parties further if they seek that orders 1-3 be different in form (although not in substance) to what I have proposed, or if they wish to seek different costs orders to those I have suggested.

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[2015] VSC 731

16 December 2015