High Court Allows Appeal from VSC Concerning Stay of Proceedings: Rozenblit v Vainer [2018] HCA 23

“The appellant brought proceedings in the Supreme Court of Victoria in which he alleged that the first respondent had fraudulently and without his knowledge or consent transferred shares owned by him to the second respondent.  He applied, unsuccessfully, on two occasions for leave to amend his statement of claim and was ordered to pay the respondents' costs.  It was further ordered that the costs be taxed immediately, a course which is permitted by r 63.20.1 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) ("the Rules").  The appellant did not pay the costs.

The appellant applied a third time to amend, to add a claim which concerned the conduct of the respondents in placing the company in which the shares were held into voluntary liquidation.  The primary judge, Lansdowne AsJ, observed that the amendment sought reflected the case the appellant had wished to advance at the outset, but had not on legal advice.  Although the respondents' objections to the amendment were overruled, unconditional leave to amend was not granted.  An order was made staying the proceedings until the costs the subject of the orders were paid.  There was no issue between the parties that the appellant's financial circumstances were such that he could not pay the costs.”

"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."

“Rule 63.03(3) was considered by the Court of Appeal in Gao v Zhang [(2005) 14 VR 380].  Ormiston JA, with whom Vincent JA agreed, observed that the rule had been designed to overcome a limitation in the inherent jurisdiction of the court with respect to ordering a stay of proceedings.  It did not necessarily follow, his Honour said, that whenever costs remain outstanding an order for a stay should be made.  Merely because the power to stay appears in a specific rule cannot deny the importance of looking to the consequences of such an order for the party affected.

At the time Gao v Zhang was decided there was no rule which required an order of the court to permit immediate taxation of an order for costs.  This changed with the introduction of r 63.20.1, which provides that interlocutory costs are not taxable until the proceeding has concluded unless the court orders otherwise.  After Gao v Zhang, the Civil Procedure Act 2010 (Vic) ("the CPA") was also enacted.  Rules 63.20.1 and 63.03(3) are now required to further the "overarching purpose" of the CPA, which is to "facilitate the just, efficient, timely and cost-effective resolution of the real issues in dispute".  A court is required to further that purpose when making any order or giving any direction by having regard to matters such as the just and timely determination of the civil proceeding, the efficient conduct of the business of the court and the efficient use of judicial and administrative resources.

The Court of Appeal (Whelan and McLeish JJA, Kyrou JA concurring) confirmed what had been said in Gao v Zhang, that a stay should not be ordered simply to give effect to an interlocutory costs order that is taxable immediately.  Gao v Zhang should, however, be understood in the context of the change to the rules.  The risk that r 63.03(3) might be employed as a means of routine debt collection is now reduced by reason of r 63.20.1, which requires an order if costs are to be taxed immediately.  At the same time, the making of an order for immediate taxation under that rule indicates that the case is unusual.  It follows that the court's reasons for making the order under r 63.20.1 must be taken into account on an application for a stay.

The Court of Appeal recognised that the CPA requires that the courts give effect to its overarching purpose when exercising their power under the Rules.  It acknowledged that the grant of a stay represents the extreme case where the real issues in dispute are not to be resolved at all, pending payment of the outstanding costs.”

“It has been recognised that the manner of the conduct of proceedings might provide grounds for a stay.  Any assessment of such conduct will require consideration to be given to the matters identified as relevant to achieving the purpose of the CPA.  It is by reference to such facts that the purpose of the CPA may assume particular importance in some cases.  But in every case where a stay which may effectively terminate a proceeding is sought, consideration must be given to the general principles and to whether the nature and effect of the conduct in question provides strong grounds for the making of the order.”

“If a stay order is contemplated and its effect may be to bring the proceedings to an end it is necessary that all reasonable alternatives to such an order be investigated.  As the reasons of Keane J and of Gordon and Edelman JJ show, there was an alternative course open, to grant leave to amend conditioned on payment of the costs orders.  In the event, as seems likely, that they were not paid the respondents would be protected from the further expenses associated with the new claim, but the appellant would not be denied a determination on his existing claims.  But in our view this point was not reached.  There was no sufficient basis to consider the making of a stay order.”