Rozenblit v Vainer [No 4]
[2016] VSC 451
•4 August 2016
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
| AT MELBOURNE | |
| COMMERCIAL COURT |
S CI 2013 06645
| BORIS ROZENBLIT | Plaintiff |
| v | |
| MICHAEL VAINER and ALEXANDER VAINER | Defendants |
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JUDGE: | CAMERON J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 23, 31 May & 20 June 2016 |
DATE OF JUDGMENT: | 4 August 2016 |
CASE MAY BE CITED AS: | Rozenblit v Vainer and anor (No 4) |
MEDIUM NEUTRAL CITATION: | [2016] VSC 451 |
JUDGMENT APPEALED FROM: | Rozenblit v Vainer (No 3) [2015] VSC 731 |
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PRACTICE AND PROCEDURE – Appeal from an Associate Judge – Whether the Associate Judge erred in staying the proceeding – Supreme Court (General Civil Procedure) Rules 2015 r 77.06 – Discretionary power –.Stay of the proceeding – Impecunious litigant – Failure to pay consent costs orders – Order staying proceeding indefinitely unless costs paid - Numerous iterations in applying for leave to amend a statement of claim – Consideration of Gao v Zhang (2005) 14 VR 380 – Supreme Court (General Civil Procedure) Rules 2015 r 63.03(3).
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr J Korman | |
| For the Defendants | Mr M McNamara | CIE Legal |
HER HONOUR:
What is this case about?
This is an appeal by way of notice of appeal dated 13 January 2016 from orders made by Lansdowne AsJ on 22 December 2015. Her Honour ordered that the proceeding be stayed until the plaintiff paid the amounts outstanding to the defendants pursuant to two previous costs orders that her Honour had made, and made ancillary orders as to the conduct of the proceeding.[1]
[1]Order of Costs Registrar Ratcliffe made on 15 December 2014; Order of Costs Registrar Deviny made on 12 August 2015.
Relevant background facts
The background of the case, relevantly, may be summarised as follows.
The plaintiff and the first defendant jointly owned a tyre recycling company, VR Tek Global (the company) in which the plaintiff contributed technology and the first defendant contributed commercial expertise. A unit trust was set up so that the plaintiff owned 45% and the first defendant owned 55% of the interests in the company. The company went into voluntary liquidation in November 2012.
In late 2011, a shareholders’ meeting was held in which the first defendant was the only shareholder with voting rights attending. Through proxy voting (purportedly authorised by the plaintiff), the first defendant caused a resolution to be passed unanimously to transfer all ordinary shares to the second defendant who is the father of the first defendant. The plaintiff disputed that authorisation was given to the first defendant to vote in such a way and sued, claiming, initially, inter alia, breach of contract, breach of trust and misleading and deceptive conduct under the Australian Consumer Law.[2] The interlocutory applications in relation to this matter were heard by her Honour.
[2]Australian Consumer Law and Fair Trading Act 2012 (Vic); Competition and Consumer Act 2010 (Cth), Sch 2, Australian Consumer Law, s 18.
In the proceeding before her Honour, the plaintiff brought two oral applications for leave to amend the statement of claim, which subsequently were ruled to be inappropriate. The plaintiff then made two applications on summons seeking leave to amend the statement of claim, which were refused with costs.[3] The plaintiff then filed a third application to amend, occasioned by an administrative error. Although this application was ultimately successful, her Honour ordered a stay of the proceeding until the costs were paid pursuant to r 63.03(3) of the Supreme Court (General Civil Procedure) Rules 2015 (the Rules).
[3]Rozenblit v Vainer and anor [2014] VSC 510; Rozenblit v Vainer and anor (No 2) [2015] VSC 234.
The plaintiff now appeals seeking to have the stay lifted. Eight grounds of appeal were stated. The eighth ground was not pressed by the plaintiff. I set out the submissions on the remaining grounds below.
Grounds of appeal
Ground 1: The ‘Basal Principle’
By ground 1, the plaintiff alleged that the ‘Basal Principle’ stood for the principle that a suit should only be stopped when to permit it to proceed would amount to an abuse of jurisdiction, or would clearly inflict unnecessary injustice upon the opposite party.[4] The plaintiff submitted that her Honour failed to apply the principle in Gao v Zhang,[5] thereby acted on a wrong principle. For ease of reference, in this judgment I will refer to this authority as Gao v Zhang. The plaintiff further contended that the decision of her Honour had the effect of stopping the proceeding without regard to the impecuniosity of the plaintiff.
[4]Cox v Journeaux & ors (No 2) (1935) 52 CLR 713, 720 (Dixon J).
[5](2005) 14 VR 380 (‘Gao v Zhang’).
The defendants argued that firstly, the ‘Basal Principle’ was not agitated before her Honour. In addition, they submitted that unnecessary injustice would be inflicted on the defendants arising from the need to continue to defend a claim in circumstances where they have been put to very great delay and expense by the plaintiff’s repeated applications and failure in paying the costs orders. I note here that in arriving at her decision to exercise the power under r 63.03(3), her Honour identified three factors that tell against the exercise of the power and gave ‘anxious consideration’ to the financial disparity between the parties.
The defendants further submitted that her Honour was in a unique position to exercise the power conferred on her under the Rules to make the orders because she had overseen the case since inception for 16 months, in essence had a detailed knowledge of the matter and had adjudicated the long line of applications in this case.
Ground 2: Conduct falling for condemnation per se is not enough
The plaintiff alleged that her Honour exercised the power under r 63.03(3) on the premise that the requirement is for there to be ‘conduct which falls for condemnation’ and thereby omitted to observe the additional requirement that the conduct must fall for condemnation to the extent of making so draconian an order as to bring an end to litigation. The plaintiff further submitted that the following ancillary requirements apply being that the conduct must also:
(a) Going forward, threaten the interests of the opposite party, so that the court must take steps to protect those interests; and
(b) Call for condemnation to the extent that no judicial response other than imposition of a stay will, going forward, protect the opposite party.
The plaintiff further argued that the six instances of the manner of the plaintiff’s conduct do not ‘fall for condemnation’. These instances are:
(a) The way the applications for leave to amend were conducted;
(b) Absence of explanation for the application for leave to amend until pressed by the court to provide one;
(c) Allowing litigation to progress through discovery and mediation before an application for leave to amend was made;
(d) Unintended but nevertheless real delay resulting from the plaintiff’s applications;
(e) Administrative error;
(f) The plaintiff’s conduct in failing to disclose his financial circumstances in a timely way and in taking ‘unjustified umbrage’ at the defendants’ attempts at enforcement.
In relation to the first four instances ((a) - (d)) the plaintiff said that because the process of the application for leave to amend the pleadings has now concluded and leave to amend has been contingently granted, these instances do not threaten the defendants’ interests going forward and so should not be the basis of the exercise of the power under r 63.03(3).
In relation to the fifth instance (e), the plaintiff argued that because the administrative error has been corrected, this again does not threaten the defendants’ interests going forward.
In relation to the sixth instance (f), the plaintiff submitted that because these aspects of the plaintiff’s conduct are historical, they equally do not threaten the defendants’ interests going forward.
In making these arguments, the plaintiff also made a distinction between the result and intention of the conduct of the plaintiff and implied that the intention should be looked at in deciding whether the conduct fell for condemnation.
The defendants submitted that her Honour had in fact taken into consideration the ‘additional requirement’ that the relevant conduct must fall for condemnation to the extent of making so draconian an order as to bring an end to litigation. Her Honour quoted the requirement set out in Gao v Zhang in full and applied the relevant principle.
The defendants contended that the plaintiff’s submission that the assessment of the relevant conduct is forward looking only is not supported by authority. In addition, the six instances of the manner of the plaintiff’s conduct identified caused substantial delays and incurred substantial costs for the defendants which remain unpaid. As such, so said the defendants, the plaintiff’s submissions under this ground should be rejected.
Ground 3: Discretion miscarried because a temporary stay ought not to have been ordered
Ground 3 is to the effect that a necessary requirement for the exercise of the power under r 63.03(3) is that the court needs to ‘believe or at least has reason strongly to suspect that the party refusing to pay an order for costs is being recalcitrant and will in fact pay the order if it is forced to do so’.[6] The plaintiff claimed that by ordering the stay without such belief or reason to form such a strong suspicion, her Honour again acted on a wrong principle.
[6]Gao v Zhang (2005) 14 VR 380, 385 [13].
The defendants argued that the statement the plaintiff relied upon under this ground is not a requirement for the exercise of the power under r 63.03(3) based on Gao v Zhang. Read in context, the statement the plaintiff relied on was made in Gao v Zhang to demonstrate the seriousness of the power under r 63.03(3). The fact that the court in Gao v Zhang refused to interfere with an order staying a proceeding against an impecunious litigate further confirms that an order under r 63.03(3) can be made notwithstanding the impecuniosity of the parties.
Ground 4: No explanation of application for leave to amend
The plaintiff submitted that the fact that the plaintiff gave no explanation for his application for leave to amend until 2 September 2015 was not a relevant factor in exercising the power under r 63.03(3).
The defendants submitted that her Honour was entitled to consider the circumstances of the interlocutory applications, and that the conduct of the plaintiff, or the plaintiff’s legal representative, as the case may be, were factors effectively counting against the plaintiff in the exercise of the power under r 63.03(3).
Ground 5: Failure to find that security for costs is analogous
The plaintiff submitted that her Honour acted on a wrong principle in failing to find that the power conferred by r 63.03(3), and the power to order provision of security for costs were, in this, case analogous.
The defendants submitted that the analogy made in Gao v Zhang was an example of the general reluctance to terminate a proceeding without a trial on the merits. It demonstrated, it was contended, that the reason for making an order under r 63.03(3) must be serious and essentially the only practical way to ensure justice between the parties.
The plaintiff’s submission that abuse of jurisdiction or the existence of unnecessary injustice upon the opposite party is an essential consideration in exercising the power under r 63.03(3) has been dealt with under ground 1.
The plaintiff’s submission in the second part of ground 5, ground 5(b), appears to contradict the plaintiff’s own submission. The plaintiff effectively submitted that the plaintiff’s impecuniosity is both a relevant and an irrelevant factor guiding the exercise of the discretion under r 63.03(3). The defendants submitted that, In any event, the result of Gao v Zhang shows that impecuniosity is not a deciding factor in exercising the power granted by r 63.03(3).
Ground 6: Irrelevant considerations
As ground 6, the plaintiff contended that a number of the plaintiff’s actions, individually or in aggregate, did not constitute conduct which falls for condemnation to the extent of making the order to temporarily stay the proceedings. As such, the plaintiff said, they are irrelevant or extraneous to the exercise of the discretion under r 63.03(3). The relevant actions are:
(a) The plaintiff’s solicitor engaged with the defendants’ solicitor in a process aimed at narrowing the dispute between the parties by redrafting the proposed pleading amendments to take account of the defendants’ objections, in an ‘iterative fashion’;
(b) The plaintiff initially applied orally for leave to amend his pleadings;
(c) The plaintiff applied on summons for leave to amend drafting errors identified by her Honour in the proposed amended pleadings, which her Honour found were not major and many of which could likely be readily corrected;
(d) The plaintiff applied orally for leave to amend drafting errors identified by her Honour in the proposed amended pleadings, which her Honour found were not major and many of which could likely be readily corrected;
(e) An administrative error on the part of the plaintiff’s legal representatives resulted in an incorrect version of the proposed amendments being exhibited to the pleading summons;
(f) The plaintiff applied for leave to amend his statement of claim after discovery and mediation were complete;
(g) The plaintiff failed to inform the defendants of his inability to pay the first costs order made against him;
(h) The plaintiff took umbrage at the defendants’ attempts at enforcing their first costs order; and
(i) In the alternative to Ground 4, the plaintiff provided no explanation for his application for leave to amend until 2 September 2015.
The plaintiff argued that in relation to the multiple iterations, the plaintiff was in consultation with the defendants and therefore was engaging in ‘the normal conduct of a responsible litigant’. In support of this contention, the plaintiff pointed to the fact that the second iteration was produced in response to the defendants’ request for the pleading to be provided in open correspondence, that the third iteration was produced also in response to the defendants’ request, and that a letter setting out the changes between the third and the fourth iteration was served on the defendants.
In addition, the plaintiff submitted that the defendants did not allege that they were inconvenienced or prejudiced by the changes in the second iteration.
The defendants submitted that it is impossible to engage in meaningful discussion of the exact nature of the conduct around the multiple iterations without evidence of all iterations. The evidence, however, points to the fact that the conduct of the plaintiff fell short of the ‘normal conduct of a responsible litigant’. This argument is based on three sources of evidence. Firstly, the defendants produced a three-page letter dated 21 August 2014 detailing objections to the plaintiff’s first iteration. Secondly, the plaintiff’s solicitor’s letter dated 29 August 2014 contained no reference to the defendants’ letter dated 21 August 2014 nor did it comment on the objections raised by the defendants’ solicitors. Thirdly, the fourth iteration was served only four days later which only provided a brief statement of the changes.
In relation to the plaintiff’s claim that the defendants failed to plead inconvenience or prejudice, the defendants pointed to the letter produced by the defendants’ solicitors dated 3 September setting out the cost and inconvenience caused by being forced to go through multiple iterations of the plaintiff’s application and the unnecessary cost incurred because the plaintiff failed to provide an outline of the changes at times. The defendants, in that letter, also made it clear that the letter would be produced on the question of costs.
The defendants further pointed to the string of unsuccessful applications, the sheer number of the iterations, the timing of the first oral application being made after pleadings had closed, discovery had been completed and mediation had taken place, and the considerable costs incurred by the defendants due to the delay, all of which are because of the fault of the plaintiff, to argue that the plaintiff’s conduct was not ‘the normal conduct of a responsible litigant’.
Ground 7: Factual errors
Finally, the plaintiff submitted that her Honour made a number of errors in her finding of facts, namely:
(a) The plaintiff may be able to call on financial resources to meet his obligations to the defendants, where in fact the plaintiff is unable to call on financial resources to do so;
(b) The plaintiff did not say that the defendant caused him to become poor, and did not make a claim that the impecuniosity that prevented payment of the costs orders was due to the defendants’ actions, where in fact:
(i) The plaintiff’s sworn evidence was that, other than his personal belongings, on 23 July 2015 he had assets of $1,265.57;
(ii) The plaintiff’s pleaded case was that the defendants on 7 December 2011 deprived him of assets valued (in the alternative) at $544,000; and
(iii) The plaintiff sought to amend his pleading by alleging that the defendants on 28 November 2012 further deprived him of assets valued (in the alternative) at $960,000;
(c) The plaintiff had indignantly asserted his own rights with cavalier disregard for the rights of the defendants, because:
(i) There was no evidence of the plaintiff’s attitude to the defendants’ rights, in circumstances where the defendants had no right to enter the plaintiff’s premises, or to seize his assets, either directly or through the agency of the Sheriff; and
(ii) Her Honour was not entitled to rely upon counsel’s submission in circumstances where it was withdrawn prior to the hearing of the defendants’ application.
The defendants submitted, in relation to paragraph 32 (a), that her Honour’s finding in this regard was not stated in a definitive way. Her Honour’s reasons merely raised the suspicion that the plaintiff may have some financial resources to pay his legal costs. The defendants quoted her Honour’s reasons where her Honour stated the basis on which the inference was drawn was the fact that the plaintiff failed to properly account for how he funded necessary disbursements to date and how he will do so in future. On the evidence available, and the evasive manner in which the plaintiff’s counsel answered her Honour’s questions as to whether the plaintiff had resources, it was open for her Honour, it was contended, to make the finding that the plaintiff may have some financial resources available.
In relation to paragraph 32 (b), the defendants argued that there was no evidence as to the value of the shares of which the defendants were allegedly deprived. In any event, the plaintiff did not say that the defendants caused him to become poor, merely that the defendants prevented him from becoming richer. The defendants argued that evidence has shown that the plaintiff had been poor for many years and was poor when he met the defendants.
In relation to paragraph 32 (c), the defendants submitted that there was ample evidence as to the plaintiff’s attitude to the defendants’ rights and that her Honour did not mistake the facts. The defendants further submitted that her Honour was entitled to refer to the facts in the plaintiff’s written submissions dated 23 July 2015, which was properly withdrawn in the course of the proceedings.
Legal principles – appeal from an Associate Judge
Under r 77.06 of the Rules, an appeal may be brought against a decision of an Associate Judge.
Prior to 1 January 2013, appeals from orders of Associate Judges were by way of hearing de novo. Now, error must be demonstrated on the part of the Associate Judge before appellate power can be exercised.[7]
[7]Schreuders v Grandiflora Nominees Pty Ltd [2014] VSC 310, [4] (Garde J); see also, Hou v Westpac Banking Corporation [2014] VSC 606.
The operation of the current r 77.06 was considered by Ferguson J (as her Honour then was):
[A]ppeals [under r 77] are no longer by way of rehearing de novo. Instead, they are rehearings which, in the absence of further evidence or a change in the law, ordinarily require the appellant to show error on the part of the Associate Judge before appellate power may be exercised. In addition, if the orders from which an appeal is brought relate to a matter of practice and procedure (as the orders in this case do), an appellate court will exercise particular caution in reviewing the decision.[8]
[8]Oswal v Carson [2013] VSC 355, [11]. See also GLS v Goodman Group Pty Ltd(t/a Goodman Group Lawyers) [2015] VSC 627, [4].
Similarly, in GLS v Goodman Group Pty Ltd, Macaulay J held:
In the absence of further evidence or a change in the law, ordinarily an appellant must show error on the part of the associate judge before appellate power may be exercised.[9]
[9]Oswal v Carson [2013] VSC 355, [4].
In Mainstream Construction (Aust) Pty Ltd v Carr Electrical Pty Ltd, Cavanough J dealt with an interlocutory order which was based on non-compliance with a previous order. His Honour discussed whether a distinction should be drawn between an appeal from a final decision of an Associate Judge and an appeal from an interlocutory order. His Honour cited Freeman v Rabinov and found that such a distinction is unwarranted, that where injustice in the result would flow from the operation of an interlocutory order, an appeal should not be barred because of the interlocutory nature of the order.[10]
[10][2014] VSC 317, [81]-[85] citing Freeman v Rabinov [1981] VR 539.
The power under r 63.03(3) is a discretionary power of the court. As such, the applicant needs to discharge ‘a heavy burden’ in showing that it is appropriate to allow an appeal.[11]
[11]Gao v Zhang (2005) 14 VR 380, 383 [9].
Legal principles in relation to a stay
Rule 63.03(3) grants the court the power to stay or dismiss a proceeding if an interlocutory order for costs has been made against a party and the party fails to pay the order. The rule is extracted below:
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)—
(a) defendant includes any person against whom a claim is made in a proceeding;
(b) plaintiff includes any person who makes a claim in a proceeding.
The operation of r 63.03(3) was discussed in Gao v Zhang.[12] In Gao v Zhang, the Court of Appeal agreed with the trial Judge that r 63.03(3) has the effect of widening the court’s power to make an order such as the orders presently one, but sounded a note of caution as to the exercise of such discretion so as not to endorse so wide a view of the intended discretion.[13] The court is no longer bound by the restriction imposed in Exell v Exell,[14] which requires ‘exceptional circumstances’ to be shown. Nevertheless, the court warned that the power to stay proceedings under r 63.03(3) should not be adopted as a day-to-day means of recovering costs ordered by the court.[15]
[12]Ibid.
[13]Ibid 383 [9]-[11].
[14]Exell v Exell [1984] VR 1.
[15]Gao v Zhang (2005) 14 VR 380, 384 [11].
However, as her Honour, in my opinion, correctly observes, the principles set out in Gao v Zhang should be read in its historical context:
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. 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.[16]
[16]Rozenblit v Vainer and anor (No 3) [2015] VSC 731, [103] (citations omitted)
In exercising the power under r 63.0(3), caution must be taken because an order made under such a power, despite seemingly temporary, can have the effect of permanently staying or dismissing a proceeding, thereby shutting a party out of court.[17]
[17]Gao v Zhang (2005) 14 VR 380, 384 [12].
As the court in Gao v Zhang held, the purpose r 63.03(3) is 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.[18] However, as her Honour correctly observed, Ormiston JA could not have held that this power can only be exercised where non-payment is affecting the ability of the other party to conduct the litigation because the court in Gao v Zhang upheld the stay in the absence of evidence to this effect.[19]
[18]Ibid 385 [14]-[15].
[19]Rozenblit v Vainer and anor (No 3) [2015] VSC 731, [79].
Two essential requirements are identified in Gao v Zhang for the exercise of the power under r 63.03(3). Firstly, the reason for making an order under this rule must be ‘serious and essentially the only practical way to ensure justice between the parties’.[20] Secondly, an element of the conduct of the defaulting party must fall for condemnation to the extent of making so draconian an order.[21]
[20]Gao v Zhang (2005) 14 VR 380, 385 [15].
[21]Ibid 386 [17].
Ormiston JA further observed that an order made under r 63.03(3) is ordinarily based on a series of orders for costs which do not involve the genuine resolution of disputes relating to interlocutory matters which have to be resolved before the matter can go to trial. To this end, the way in which each interlocutory application has been handled may be relevant.[22]
[22]Ibid.
Another observation in Gao v Zhang is that ordinarily a temporary order such as one made under r 63.03(3) should only be made ‘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’.[23] However, as her Honour correctly identified, this is but an example that Ormiston JA gave in discussing the effect of such an order to permanently stay a proceeding.[24] As such, this does not form part of the requirement for the exercise of the power under r 63.03(3).
[23]Ibid 384 [13].
[24]Rozenblit v Vainer and anor (No 3) [2015] VSC 731, [78].
On the facts of Gao v Zhang, the Court of Appeal refused to grant leave to appeal because the court considered that the series of applications brought by the plaintiff, each of which went up the appellate chain all the way to the High Court, were progressively of less merit and progressively more ill-conceived so that the trial judge could fairly conclude that this amounted to a harassment of the respondent.[25]
[25]Gao v Zhang (2005) 14 VR 380, 387 [18].
Her Honour, in my view, correctly recognised that the principles enunciated in Gao v Zhang do not support the conclusion 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.[26]
[26]Rozenblit v Vainer and anor (No 3) [2015] VSC 731, [82].
Consideration and analysis
Grounds 1 and 3
It is convenient to deal with grounds 1 and 3 together.
The first question that needs to be answered is whether the ‘Basal Principle’ applies. This principle as is referred to in Gao v Zhang, was stated by Dixon J in Cox v Journeaux (No 2):
… 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.[27]
[27]Gao v Zhang (2005) 14 VR 380, 384 [12] quoting Cox v Journeaux (No 2) (1935) 52 CLR 713, 720.
In setting out this principle, the High Court in Cox v Journeaux (No 2) was dealing with the court’s inherent jurisdiction to stay an action as vexatious.[28] The case before this court arises from a statutory power granted by the Rules which carries different considerations. A distinction should therefore be drawn.
[28](1935) 52 CLR 713.
Furthermore, contrary to the plaintiff’s submission, the Court of Appeal in Gao v Zhang did not apply the ‘Basal Principle’ per se. Ormiston JA held that the principle is not intended to question ‘the extensive inherent jurisdiction of the court to grant stays of proceedings in the interests of justice’, but 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.[29]
[29]Gao v Zhang (2005) 14 VR 380, 384 [12] cited Rochfort v John Fairfax & Sons Ltd [1972] 1 NSWLR 16, 19 (Sugerman ACJ).
In Gao v Zhang, the Court of Appeal refused to grant leave to lift a stay ordered by the lower court against a litigant who had no means of paying the costs order despite sounding an extensive warning of the gravity of such an order. In refusing the application, the Court of Appeal stated that impecuniosity should be weighed very heavily against the exercise of the power under r 63.03(3). Nevertheless, the court expressly left open the possibility that impecuniosity can be said to be not determinative in some cases.[30]
[30]Ibid 385 [15].
In Gao v Zhang, the applicant failed to pay cost orders to the amount of just over $8,000. This sum, in commercial terms, is relatively small and there was no suggestion that the failure to pay this sum has prevented the respondent from conducting her defence in the proceedings. Nevertheless, and despite the impecuniosity of the applicant, the court in Gao v Zhang upheld the stay order because of the conduct of the applicant. In that case, the $8,000 sum was made up of a series of orders each of which went up the appellate chain and appeared of less and less merit and more and more ill-conceived.[31]
[31]Ibid [18]-[19].
In the current case, two cost orders arising from failed applications for leave to amend the statement of claim remain to be paid by the plaintiff in the amount of $22,000 and $28,000 respectively, both of which were made by consent.[32] The first order was made on 15 December 2014 to be paid forthwith on 19 December 2014. It is noteworthy that the plaintiff specifically consented to pay the order within four days of the order. No due date for payment was set in relation to the second order, although the plaintiff did consent to the amount.
[32]Rozenblit v Vainer and anor (No 3) [2015] VSC 731, [2].
However, these are not the only failed attempts made by the plaintiff to amend the pleadings. Her Honour summarised the plaintiff’s numerous iterations as follows:
47Amendment 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.
48Exhibit A, on which the plaintiff now seeks to proceed, is at least the eight[h] 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. 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.
…
50In 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…[33]
[33]Ibid [47]-[48], [50] (citations omitted).
The plaintiff’s application before me effectively seeks the imprimatur of this court for the plaintiff to disregard orders properly made by an Associate Judge of this court. It is noteworthy that neither of her Honour’s orders were the subject of an appeal.
A core consideration for r 63.03(3) is justice between the parties. On one hand, justice is not served if one party is deprived of its right to agitate its claims. On the other, justice is also not served if an innocent or opposing party is forced to continue to defend a case in circumstances where the opponent blatantly disregards orders made by the court to which the parties consented.
It may well be the case that the failure to comply with certain orders results from impecuniosity and the other party may have resources to continue defending the legal action. However, in my opinion, this is no excuse to rely on the more affluent party’s resources. This is especially the case where the relevant orders have been consented to by the parties. In my opinion, enforcement of the orders consented to by the parties, is the only practical way to ensure justice between them.
Further, as her Honour correctly pointed out, in my view, it would defeat the intention of a costs order taxable forthwith in the absence of an effective sanction for non-payment.[34]
[34]Ibid [103].
Ground 2
It is clear from her Honour’s reasons that the requirement that there be conduct on the part of the party in default which falls for condemnation to the extent of making so draconian an order, in its full form, was applied by her Honour. Her Honour both quoted the text of the requirement in its full form,[35] and repeatedly referred to the requirement in its full form when referring to the submissions of the parties.[36] The fact that her Honour may have, on occasion, referred to this requirement simply as ‘requiring condemnation’ does not suggest to me that her Honour failed to take into account the additional qualification that the conduct falls for ‘condemnation to the extent of making so draconian an order’.[37]
[35]Ibid [80].
[36]Ibid [83], [88].
[37]Gao v Zhang (2005) 14 VR 380, 386 [17].
The definition of the word ‘condemn’ in the Macquarie Dictionary is, ‘to … express strong disapproval of’.[38] Regard must be had to this definition in assessing the relevant conduct.
[38]Susan Butler (ed), Macquarie Dictionary (Macquarie Dictionary Publishers, 6th ed, 2013).
In fact, it is clear that her Honour was fully conscious of the gravity of the order and was clearly alert to the high degree of condemnation that should be attributed to the conduct of a party which would justify the making of such an order.
Her Honour carefully considered both the way the application for leave to amend had been conducted and the result of the various applications and concluded that the plaintiff’s conduct imposed substantial delay and costs on the defendants and attracted condemnation.[39] In my opinion, her Honour’s finding that the plaintiff’s conduct called for significant condemnation was based on a firm foundation of evidence and rigorous analysis. I see no reason to disturb those findings.
[39]Rozenblit v Vainer and anor (No 3) [2015] VSC 731, [95]-[105].
The plaintiff sought to introduce two ancillary requirements that emphasised that any assessment of the relevant conduct must be forward looking.
Plainly, this submission by the plaintiff is not supported by the authorities and should be rejected. Firstly, assessment of conduct is not restricted to the impact on the future, but looks also to the past. The court in Gao v Zhang gave an example that frequent litigation of minor interlocutory points may constitute harassment of the other side and therefore falls for condemnation.[40] The emphasis of this example is not forward looking, but backward looking. It was the ‘harassment’ itself that called for condemnation, not its future effect. The result of Gao v Zhang further confirms this position. In refusing to lift the stay, the court in Gao v Zhang emphasised on the harassment the applicant inflicted on the defendant through its numerous interlocutory proceedings and not the future effect of the harassment.[41]
[40]Gao v Zhang (2005) 14 VR 380, 386 [17].
[41]Ibid 386-387 [18]-[20].
Secondly, the alleged requirement of intention is also not supported by the authorities. Neither Gao v Zhang nor r 63.03(3) supports the proposition that the element of intention must accompany the conduct that calls for condemnation prior to the exercise of the power under r 63.03(3). Certainly if there is intention on the part of a party to harass or vex the other, the culpability of the conduct would be greater. However, lack of intention does not disqualify a conduct from condemnation. As her Honour, in my view, correctly said:
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.[42]
[42]Rozenblit v Vainer and anor (No 3) [2015] VSC 731, [94].
Ground 4
As her Honour correctly, in my opinion, points out, counsel should be well aware that reasons are required for an application for leave to amend a statement of claim.[43] What the plaintiff contended is that its failure to give reasons in applying for leave to amend the statement of claim is not a consideration for the exercise of the power under r 63.03(3).
[43]Ibid [52].
In setting out the requirement for the exercise of the power under r 63.03(3), the court in Gao v Zhang expressly said that for the purpose of assessing the relevant conduct and especially conduct during interlocutory proceedings, ‘the way in which each interlocutory dispute has been contested may well be relevant’.[44] As such, the plaintiff’s conduct during the interlocutory applications is directly relevant in the exercise of the power under r 63.03(3).
[44]Gao v Zhang (2005) 14 VR 380, 386 [17].
In addition, the Civil Procedure Act (‘CPA’) requires the court to give effect to the overarching purpose to facilitate ‘the just, efficient, timely and cost-effective resolution of the real issues in dispute’.[45] Also, parties and practitioners are required, pursuant to the CPA, to, inter alia, narrow the issues in dispute, minimise delay, ensure costs are reasonable and proportionate and cooperate in the conduct of civil proceeding.[46] The CPA further grants the court the power to impose sanctions for contravening the overarching obligations.[47]
[45]Civil Procedure Act 2010 (Vic) ss 7 and 8 (‘CPA’).
[46]Ibid ss 10-11, 20, 23-25.
[47]Ibid pt 2.4.
Practitioners should be well aware that, as her Honour pointed out, reasons for an application to amend the statement of claim should have been offered at the time of the application and it should not have been necessary for the court to insist on receiving them.[48] The plaintiff’s failure to offer reasons at first opportunity caused delay. I note also, that when pressed, the plaintiff’s counsel admitted that its failure to give reasons was by deliberate choice.[49] This is a further matter that ought be given due weight. In view of considerations under the CPA, I consider that her Honour was correct in weighing the plaintiff’s failure to give reasons for its application to amend the statement of claim (given the provisions, intention and spirit of the CPA) in exercising the power under r 63.03(3).
[48]Rozenblit v Vainer and anor (No 3) [2015] VSC 731, [55].
[49]Transcript, 2 September 2015, 69.
For the reasons above, the plaintiff’s submission that the fact that the plaintiff gave no explanation for his application for leave to amend until pressed by the court was an irrelevant consideration for the exercise of the power under r 63.03(3) should be rejected.
Ground 5
In Gao v Zhang, the court drew an analogy between the power under r 63.03(3) with an application for security for costs. An application for security for costs is not lightly granted where the party to be subject to the order is impecunious.
This analogy was made to emphasise the gravity of the power under r 63.03(3) in the sense that a seemingly temporary order made under r 63.03(3) against an impecunious party would effectively put the proceeding on halt permanently, thereby depriving the party’s right to agitate its claim in the court. However, in sounding this warning, the court in Gao v Zhang did not establish a rule that the power under r 63.03(3) cannot ever be exercised against an impecunious party. Rather, it said:
If a party is clearly shown to be impecunious, then a court cannot act to grant even a temporary stay order under r 63.03(3) except upon the understanding that it will thereby be bringing the litigation effectively to an end.[50]
[50]Gao v Zhang (2005) 14 VR 380, 385 [15] (emphasis added).
Her Honour in exercising the power under r 63.03(3) was fully conscious that the stay may effectively terminate the proceeding for the applicant. Her Honour said:
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.[51]
[51]Rozenblit v Vainer and anor (No 3) [2015] VSC 731, [106] (emphasis added).
Her Honour went on to say:
[T]he 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.[52]
[52]Ibid [111].
In my opinion, her Honour did not fall into error in exercising the power under r 63.03(3) in relation to this matter. There is a clear distinction, in my view, between a security for costs application and costs orders (even if they may be ordered to be taxed or paid forthwith).
Security for costs protects and gives financial comfort to litigants who find themselves in a situation of being pursued by an impecunious plaintiff. In essence, it is insurance for costs yet to be incurred.
The situation that this case presents, as her Honour correctly observed, is entirely different. This case concerns the enforcement of consent orders where the underlying applications have been considered and decided on their merits.
Ground 6
As I set out above, parties and legal practitioners are bound by the overarching obligations under the CPA. Her Honour correctly observed that Aon Risk Services Australia Ltd v Australian National University and the CPA support the proposition that past conduct forms part of the consideration of the court in exercising a discretion.[53]
[53]Ibid [49] citing Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175 (‘Aon’) and CPA pt 2.3, ss 8, 9.
The mere fact, as the defendants submitted, of there being eight iterations of the statement of claim, is alarming. On the evidence available, the plaintiff’s conduct fell short of ‘the normal conduct of a responsible litigant’. As her Honour correctly said, in my view:
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.[54]
[54]Ibid [47]-[48], [50].
In my opinion, the plaintiff’s conduct does call for condemnation, in the sense that it is worthy of ‘strong disapproval’.
This case involves a matter of assessing whether her Honour has fallen into error. Relevant to this consideration is whether the matter has been conducted in a manner that has caused unreasonable delay, inconvenience or expense.
There can be little doubt that the plaintiff’s conduct of this matter has caused delay in progressing the matter to trial and indeed visited upon the defendants expense and inconvenience.
So much can be discerned from observing the objective facts, two oral applications, three summonses, numerous attendances and eight iterations of a proposed amend mended statement of claim.
It needs to be borne in mind that the first oral application made by the plaintiff was after pleadings had closed, discovery had been completed and mediation had taken place.
For all intents and purposes, the parties were, objectively, ready to proceed to trial. Legal costs, no doubt, were directed to that end.
The plaintiff’s actions have not only caused substantial delay (in circumstances where he sought an expedited trial due to his age), but also considerable additional expense. In my view, the plaintiff’s conduct has been a source of injustice between the parties.
In my opinion, the attitude the plaintiff displayed when the defendants attempted to enforce their first costs order is highly relevant and is properly a matter for consideration by her Honour in the exercise of the power under r 63.03(3). In my view, public confidence in the judiciary in enforcing its own orders is essential. The plaintiff’s attitude towards the attempt of the defendants to enforce the first costs order after the plaintiff’s total disregard of the order made by this court and, I emphasise, the plaintiff consented to, has the capacity to undermine public confidence in the courts. Such an attitude is unacceptable and does fall for condemnation to a high degree.
Ground 7
I deal with the three alleged errors in relation to finding of facts in turn.
The first allegation was that her Honour erred in finding that the plaintiff may be able to call on financial resources to meet his obligations to the defendants, where in fact the plaintiff is unable to call on financial resources to do so.
I accept the defendants’ submissions and reject this allegation. Firstly, her Honour’s finding that the plaintiff may have some financial resources to call upon was not stated in a definitive way. Secondly, her Honour’s finding was properly made, in my opinion, based on the following evidence. Firstly, the plaintiff chose not to disclose the financial resources on which he has called to fund necessary disbursements to date. Secondly, the plaintiff failed to disclose the source of funds to fund future disbursements in relation to expert evidence and possible other expenses that he may incur as a result of the amended statement of claim.[55]
[55]Ibid [109]-[110].
The second allegation is that her Honour erred in finding that the plaintiff did not say that the defendant caused him to become poor, and did not make a claim that the impecuniosity that prevented payment was due to the defendants’ actions.
This finding was made in the context of the analogy between the power under r 63.03(3) and security for costs. In any event, as I have said, the analogy in relation to security for costs is correctly rejected in this case. Whether or not impecuniosity is, in fact, caused by the defendant does not alter the outcome of the case.
The third allegation is in relation to the finding that the plaintiff had indignantly asserted his own rights with cavalier disregard for the rights of the defendants.
In making this finding, her Honour was referring to the plaintiff’s repeated failure to pay cost orders against him. As I have outlined above, the plaintiff consented to both the due date and the amount in the first costs order, and to the amount in the second costs order. Yet, having failed to comply with orders properly made by this court, the plaintiff not only failed to express any regret or apology, but continued to bring a further interlocutory application.
Her Honour properly, in my opinion, had regard to the attitude displayed by the plaintiff in relation to steps taken against him to enforce cost orders.
I do not consider that the plaintiff’s attitude to the court, compliance with its orders or his response to possible enforcement action in relation to any such orders is irrelevant in the balancing of interests in this matter. Her Honour gave reasonable and measured consideration of these matters.
Decision
It is critical to the proper administration of justice, and confidence in the court system, that orders of the court be observed, abided by and respected.
In this case, the plaintiff has conducted himself in a manner which is inconsistent with his obligations under the CPA and indeed which has the capacity to undermine public confidence in the judicial system.[56]
[56]CPA ss 19, 20, 24, 25.
The fact of the plaintiff’s impecuniosity (as deposed to) weighs heavily upon the court. Her Honour clearly turned her mind to this state of affairs, giving it her ‘anxious consideration’. As do I on consideration of this appeal.
The amendments proposed by the plaintiff reasonably suggest that expert evidence is required, as are a number of other steps in the proceeding.
Whilst it remains unclear what precise arrangements exist between the plaintiff and his legal advisers, a reasonable inference may be drawn by the court that the plaintiff has some access to the necessary resources to employ the services of such experts that may be required to agitate his claims.
However, despite these observations, the court’s jurisdiction to entertain an appeal in this matter rests on a determination of whether her Honour fell into error in reaching her decision.
Her Honour was comprehensive in her reasons by addressing both factors tending towards the exercise of the power under r 63.03(3) and factors tending against it:
105In 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.
106The 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.
107A 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.
108These 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.
109First, 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.
110Secondly, 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.[57]
[57]Rozenblit v Vainer and anor (No 3) [2015] VSC 731, [105]-[110].
The final factor her Honour relied on in making the decision to exercise the power under r 63.03(3) is the attitude of the plaintiff:
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.[58]
[58]Ibid [113] (citations omitted).
In my opinion, her Honour’s reasons were considered, just and soundly made, based on the authorities. I do not consider that her Honour’s orders were punitive in effect, which was held by French CJ in Aon to be inappropriate,[59] nor, according to her Honour’s reasons, were intended to be so.
[59]Aon 239 CLR 175, 195 [35] (French CJ).
I consider that, given the conduct of the litigation by the plaintiff, her Honour’s orders are the only practical way to ensure justice between the parties.
I further conclude, based on the evidence, that the plaintiff’s conduct of this litigation has caused undue delay and indeed has the capacity to put the defendants to significant additional costs in the future. This, in my opinion, is solely of the plaintiff’s making.
I accept that there is a reasonable inference, based on the evidence, that the proposed amendments will necessitate further expenditure and, in all likelihood, expert evidence. For that reason, given the plaintiff’s agitation of these amended claims, I do not accept that it was not open to her Honour to conclude that the plaintiff has recourse to alternative funding sources.
Finally, it must be noted that the payment of these costs orders are the only obstacle standing in the way of this matter proceeding.
Conditional leave has been given in relation to the proposed amendments. That is, ultimately the pleading did survive the objections to which it was subject.
This is a serious matter for consideration.
However, for the reasons I have stated, I do not consider that the fact that the form of the pleading has now effectively been settled ought stand in the way of a proper enforcement of the court’s orders.
It follows that I find that her Honour was not in error and, accordingly, the appellate jurisdiction is not enlivened and the appeal is dismissed.
I make this decision fully cognisant of the potential consequences of her Honour’s decision and my dismissal of the appeal from that decision, that is that this could effectively terminate the proceeding permanently.
However, the interests of justice ought serve all parties; not just those who may seek to agitate claims in the serious situation of lack of funds.
Orders such as her Honour’s ought not be a vehicle to cut out litigants who may face financial hurdles preventing them from agitating their claims. Equally, a more prosperous defendant ought not be regarded as a surrogate funder or insurer to assist an impecunious plaintiff.
As I have observed, serious interests need to be balanced, as does the public confidence in the court enforcing, properly, its own orders, where those orders are not infected by any legal, factual or discretionary error.
As I have said, I find her Honour did not fall into error in this case.
Finally I note that the plaintiff appeals orders relating to the further conduct of this matter, essentially of a timetabling nature. Given my decision, I refer the matter back to an Associate Judge of this court for the making of further orders.
Costs
I will hear the parties on the question of costs and the form of orders.
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