Salmon v Albarran

Judgment - EX TEMPORE Revised from transcript; issued 24 September 2021

This judgment is the sequel to an earlier interlocutory judgment I delivered on 5 March 2021: Salmon v Albarran (No 2) [2021] NSWSC 186. That judgment arose out of an application by the plaintiffs to amend their statement of claim. I decided in principle to permit the amendment but ordered the plaintiffs to pay some of the defendants' costs of the application. In this judgment I am concerned with further consequential orders sought by the defendants before leave to amend is formally granted.
In my March judgment (at [2]-[32]) I set out the background and procedural history which I will not repeat. This judgment uses the same abbreviations as I used in my March judgment, references to which are denoted J2.
Three notices of motion are before the Court: the plaintiffs' notice of motion of 6 October 2020 (as amended) to amend the statement of claim; a notice of motion filed on 19 April this year for the third defendant, Mr Brown; and a notice of motion filed on 20 April this year for the first, second, and fourth to eighth defendants (the Hall Chadwick partners).
As I described in my March judgment the amendment process has been tortuous. It began with orders I made on 17 April last year striking out parts of the then statement of claim, which had been filed in May 2017 (J2 [30]; other parts of the statement of claim were struck out later: J2 [34]). The plaintiffs produced a proposed amended statement of claim and applied for leave to amend in accordance with that document by notice of motion filed 3 August 2020. I dismissed the motion following a hearing on 17 August. The plaintiffs then filed a further notice of motion on 6 October which is the motion to which I have already referred. That notice of motion was amended on 1 December.
It is fair to say that the amendments were much more extensive than I had first expected. They introduced new causes of action and heads of damage and abandoned others. The plaintiffs also took the opportunity to rework large swathes of the previous pleading.
As noted, the amendments in the end were largely uncontroversial. At the hearing of the plaintiffs' motion in February the parties debated the remaining controversy about the form of the proposed pleading and the costs of the August and October motions for amendment. I decided to permit the amendment in the final form presented by the plaintiffs, but I ordered the plaintiffs to pay the defendants' costs of the August motion. I also ordered the plaintiffs to pay Mr Brown's costs of the October motion up to 1 December and the Hall Chadwick partners' costs of that motion up until 5 March.
In essence, the defendants, by their April motions, seek three things before the plaintiffs are formally permitted to make their amendments: first, an order for payment of fixed sums on account of the costs liabilities of the plaintiffs under the orders I made in my March judgment; second, that the grant of leave to amend should be conditional on the plaintiffs satisfying those payment orders; and third, that the proceedings generally be stayed until the payment orders are satisfied.
I indicated in my March judgment that, should the amendments be permitted, an order that the plaintiffs pay the defendants' costs thrown away by reason of the amendments would inevitably follow. In their April motions the defendants also sought fixed sum payment orders for those costs. But no such orders can be made unless the plaintiffs do actually amend their statement of claim. As will be seen, based on the plaintiffs' position at today's hearing, there is at least a doubt as to whether, if I make fixed sum payment orders and make the grant of leave to amend conditional on the satisfaction of those orders, the plaintiffs will proceed to making the amendment. In these circumstances I think it is premature to deal with the questions which arise concerning the costs thrown away and I will reserve those issues for later consideration.
There was evidence before me at today's hearing from the solicitors for Mr Brown and for the Hall Chadwick partners estimating the costs to which their clients are entitled under the costs orders I made in March. For the Hall Chadwick partners, the actual costs incurred are about $48,200. Discounted by 30% to reflect likely party/party recovery, they are about $33,800. Counsel for the Hall Chadwick partners sought a payment order in the rounded down sum of $30,000. Mr Brown's actual costs are about $40,800. With a 30% discount to reflect party/party recovery, this yields about $28,600. In submissions, counsel for Mr Brown accepted a rounded-down figure of $25,000.
In response to the defendants' applications, Mr Salmon filed two lengthy affidavits covering the procedural history, the background to the proceedings and more. As mentioned in J2 [2], the plaintiffs sue as assignees of a company formally controlled by Mr Salmon, TCBS. That company is in liquidation. Mr Salmon himself was made bankrupt soon afterwards, although he has subsequently been discharged.
The plaintiffs purchased the right to pursue the claim from the liquidator of TCBS for the sum of $10,000, with a further $40,000 to be paid if the claim is successful. The $10,000 was provided by Mr Salmon.
One of the topics which Mr Salmon addressed in his affidavit was the state of his finances at the time of the events which have given rise to the claim. Mr Salmon asserted that he was receiving a good income from TCBS and that the defendants' conduct which is the subject of the proceedings (described in more detail at J2 [8]-[21]) has, in effect, deprived him of his livelihood. Mr Salmon recited at length the course of the proceedings since they were commenced in 2016. He asserted that his attempts to pursue the proceedings have been blocked and delayed at every turn by the defendants.
Mr Salmon also referred to his current financial circumstances. For part of the proceedings Mr Salmon has acted for himself and has been permitted, it seems, to represent the interests of his corporate co-plaintiff. At other points he has retained a number of firms of solicitors and counsel. Mr Salmon stated that all of the lawyers who have been involved with the case have been acting on a speculative basis, although he did not put the terms of those lawyers' retainer in evidence, and it is unclear whether his current lawyers have an obligation to continue to act until the end of the proceedings or whether it would be open to them to withdraw if their fees remain unpaid.
Mr Salmon stated that he is now dependent on Centrelink benefits and has funded the disbursements in the proceedings (together, presumably, with the $10,000 paid to the liquidator of TCBS) with loans from family and friends. He stated that this has caused friction and no further funds are available. He stated that he has no money to pay the costs which may be awarded in the defendants' favour and asserted that, if the Court makes orders of the type sought by the defendants, the proceedings will be, or are likely to be, stultified, because he will be unable to pursue them.
In his affidavit Mr Salmon also commented on the costs estimates provided by the defendants' solicitors for the purposes of the application before me. He identified various items of cost as being questionable. This provoked responses from the defendants' solicitors disputing the validity of Mr Salmon's comments.
Much of Mr Salmon's evidence was in inadmissible form. Nevertheless, counsel for the defendants did not object to it and the affidavit was admitted into evidence. No application was made by counsel for the defendants to cross-examine Mr Salmon on his affidavit. There was also no objection to the defendants' solicitors' affidavits and no application to cross-examine the deponents.
In the forefront of the plaintiffs' response to the defendants' applications, counsel for the plaintiffs put the High Court decision in Rozenblit v Vainer (2018) 262 CLR 478. In that case Mr Rozenblit brought a commercial claim in the Supreme Court of Victoria. He made two unsuccessful applications for leave to amend his statement of claim which resulted in costs orders being made against him. The Court also ordered that the costs be payable forthwith. Mr Rozenblit, however, did not pay. Instead he brought a third application for leave to amend. This application was successful, but the primary judge ordered that the proceedings be stayed until the unpaid costs orders were satisfied. This order was made pursuant to a rule of court which permitted the making of a stay order in a case where an immediately enforceable interlocutory costs order was not paid.
On appeal the High Court held that a court's power to grant a stay under the rule of court in question was to be exercised according to the same principles as apply to the court's inherent power to stay proceedings on the ground of abuse of process. The Court cited the well-known decision in Cox v Journeaux (1935) 52 CLR 713 to the effect that a stay on the grounds of abuse of process should not be granted unless the pursuit of proceedings would work an injustice on the defendant. In a case where abuse of process is said to lie in bringing a claim which is unlikely to succeed, the court must be satisfied that there is no realistic prospect of success. In other cases a stay should be a last resort, to be used only if no other order will adequately protect the defendants from oppression or injustice.
The High Court found on the facts that Mr Rozenblit was unable to meet the costs order. The primary judge had been distracted by the possibility which she perceived that Mr Rozenblit had not frankly or fully disclosed his financial circumstances to the Court. The Court considered that in the circumstances a stay of the proceedings was not warranted.
All members of the Court noted that a less drastic remedy would have been available, namely, to make the grant of leave to amend conditional on payment of the costs of the amendment applications. This would mean that if, as appeared likely, Mr Rozenblit would be unable to meet those costs orders, he could still pursue the claim in the form in which he had initially commenced it. Evidently the High Court considered that the stay went too far, in that it prevented Mr Rozenblit from pursuing his claim in its original form, even though that, of itself, would not, in the Court's view, have been oppressive to the defendants.
Counsel argued that the plaintiffs' position in the present case was relevantly the same. Counsel submitted that it was clear that to accede to the defendants' application would result in the proceedings being stultified and that the applications had to be refused on that ground.
I turn first to the application for an order for payment on account. As I indicated at J2 [56] I have, in other cases where I have made an interlocutory costs order and I considered that it would be appropriate to order under the Uniform Civil Procedure Rules 2005 (NSW) r 42.7 that the liability under that order be assessed and paid forthwith, instead ordered that a fixed sum of money be paid on account of that liability. The reason for doing this was to avoid the cost and distraction of a separate costs assessment which might not in the end prove necessary.
I did not understand counsel for the plaintiffs to dispute that if I considered that this were a proper case for the costs awarded in the March judgment to be assessable and payable forthwith, I could instead make an order for payment of a fixed sum on account. Nor, in the end, did counsel dispute the figures claimed by the defendants. The question came down to whether the circumstances were such as to justify an order for immediate payment of the costs awarded in the March judgment.
I have already referred to the very extensive nature of the amendments being made by the plaintiffs. In my view this is the key point in favour of the defendants on this part of the application. In effect, the proceedings will be starting again with a fresh statement of claim and all that will follow from that. With the best will in the world, it is likely that there will be extensive further case management required and it will be some time yet before the case can be fixed for hearing. In my view, these are considerations which strongly support the defendants being reimbursed now for the costs inflicted upon them by the plaintiffs' amendment application.
Furthermore, as counsel for the defendants pointed out, the course of the amendment applications was unsatisfactory. It was marked by months of delay as the plaintiffs produced at least three different versions of the proposed amendments. After I rejected the first version in August last year, I found it necessary to direct that any further proposed amendment be settled by senior counsel. In his affidavit Mr Salmon quibbled about responsibility for some of the delays which had taken place between April last year and now, but I think it is clear that the delay and cost in pursuing the amendment applications were overwhelmingly the responsibility of the plaintiffs.
Mr Salmon also asserted that the defendants had been responsible for other delays earlier in the proceedings. He referred, in particular, to the earlier application to strike out the statement of claim which came before Slattery J: see J2 [27]. This application was made by the Hall Chadwick partners on limitation grounds and was unsuccessful. Mr Brown did not participate in the application and it was only later that he sought to challenge the viability of some of the claims pleaded against him. Part of that challenge involved reliance on a bankruptcy point which was unsuccessful: see J2 [25].
I am not satisfied that Mr Salmon's complaints are well-founded. Certainly I do not accept the wild assertions in his affidavit of some sort of conspiracy on the part of the defendants to prevent him from pursuing these proceedings. The evidence in his affidavit, if one can call it evidence, is too flimsy to support such a serious allegation.
The defendants have been unsuccessful on some of their procedural challenges and on some points they have taken, but I see nothing to suggest that they took points which were hopeless or that they have otherwise been guilty of any improper conduct in conducting their defences to the proceedings.
The main point raised in opposition to the application for a fixed sum payment was the Rozenblit decision. Counsel contended that if I made the payment order, the plaintiffs would be unable to meet it and the proceedings would be stultified. Counsel submitted that the Rozenblit decision showed that that outcome would be unacceptable.
The making of an order that interlocutory costs be paid forthwith was not in issue in Rozenblit. Indeed, it seems that Mr Rozenblit never challenged the order that he pay the costs of his failed amendment applications forthwith. The High Court was concerned with the exercise of a separate power to stay the proceedings. Counsel was unable to refer me to any authority in which the court had refused to make an order for immediate payment of interlocutory costs on the ground that such an order would or might stultify the claim or defence in question.
I think it is important to remember that such an order, or an order for payment of a fixed amount of interlocutory costs on account, is not itself a stay. The making of such an order would have no direct effect on the plaintiffs' ability to prosecute these proceedings. If they are ultimately unable to meet the payment, the plaintiffs may be placed in liquidation or bankruptcy. If that happens, it will be up to the liquidator or trustee in bankruptcy to decide whether the pursuit of the proceedings is worthwhile in the interests of the creditors. In my view, it is too simple to say that the making of an order for payment of a fixed sum in costs will inevitably stultify the proceedings.
A further consideration in the present case which I think is of significance is that the plaintiffs sue as assignees. From his affidavit, it is clear that Mr Salmon sees the claims which are pleaded in these proceedings as being his own claims, designed to restore his financial position. But the legal reality is that the claims originally were claims of TCBS, and on the liquidation of TCBS the benefit of those claims belonged to its creditors (or its shareholders once its creditors had been paid out). To the extent that some of this benefit would have passed to Mr Salmon as a result of his bankruptcy the benefit became that of his creditors.
It is true that neither the liquidator of TCBS nor the trustee in bankruptcy of Mr Salmon has made any attempt to pursue the claims, but the fact remains that if the plaintiffs succeed and recover (say) a million dollars in damages, they will, after payment of the remaining $40,000 to the liquidator of TCBS and payment of the irrecoverable costs of the proceedings, make a huge profit on their $10,000 investment. In my view, whether Mr Salmon recognises it or not, that is the real interest that the plaintiffs are pursuing in this case.
It is one thing to say that the power to stay proceedings which are viable should only be exercised as a last resort and to avoid oppression of the defendants which would otherwise not be avoidable. It is quite another to say that the plaintiffs have an absolute right to pursue their claims, irrespective of the costs inflicted on the defendants, and that the usual costs consequences from failed interlocutory applications must give way if they would intrude on that supposed right. Especially is that so when the conduct of the proceedings is essentially a commercial proposition.
In written submissions, counsel for the plaintiffs contended that prima facie, the plaintiffs' case is a strong one. Even if that is so for liability, there are real questions about what damages the plaintiffs, if successful, could ultimately recover.
In my view, the Court should not be dissuaded from requiring payment of a fixed sum on account of the costs orders it has already made (which have not been the subject of any application for leave to appeal) on the ground that the proceedings might ultimately not be pursued as a result. I propose to make orders for the payment of the fixed sums to which I have referred.
Next, I must consider whether to make the grant of leave to amend conditional upon the plaintiffs first satisfying these payment orders. For essentially the same reasons as I consider that immediate payment should be required, I think that I should do so.
Counsel submitted that this, too, would be contrary to the approach of the High Court in Rozenblit, but I cannot accept that submission. As I have already mentioned, all of the members of the High Court expressly contemplated that an order could be made which would require the plaintiffs to pay the costs of the amendment applications as a condition of being able to advance the amended claim.
In the present case there is a complication. As I have mentioned, I have already struck out large parts of the plaintiffs' claim. If the plaintiffs do not pay the lump sum which I propose to order, and therefore the amendments are not made, they will be left in the position of advancing a case by reference to a pleading which has been largely struck out. However, it seems to me that if matters develop in that direction, it will be open to the Court to consider whether to reverse the strike-out so as to allow the plaintiffs to continue with the claims articulated before the most recent round of amendments. I should say immediately that that will only be permissible to the extent that those claims are truly viable. I got the impression from counsel for the plaintiffs that he accepted that the striking out which had taken place was justified, but it is not necessary to deal with that on this occasion and the issue can be considered, if it arises, in the future.
Finally, I turn to the application for a stay of the proceedings generally. I am far from satisfied that the Rozenblit decision mandates a refusal of the stay application, but it seems to me that once I have decided to make the amendment conditional on the satisfaction of the fixed sum order, the making of a general stay order is of little, if any, significance. In deference to the controversy generated by the plaintiffs' reliance on Rozenblit, I do not propose to make a general stay order, at least at this point.

Orders

The orders of the Court on the first and second plaintiffs' motion filed on 6 October 2020 and amended on 2 December 2020 are: 1. Grant leave to the applicants (plaintiffs) to amend their statement of claim in accordance with their Proposed Second Further Amended Statement of Claim in the Court Book at Vol 1 Tab 3 as against the first, second and fourth to eighth respondents (first, second, fourth to eighth defendants) upon condition that the applicants first satisfy their liability under order (1) made today in the respondents' notice of motion filed 20 April 2021. 2. Grant leave to the applicants (plaintiffs) to amend their statement of claim in accordance with their Proposed Second Further Amended Statement of Claim in the Court Book at Vol 1 Tab 3 as against the third respondent (third defendant) upon condition that the applicants first satisfy their liability under order (1) made today in the respondent's notice of motion filed 19 April 2021. 3. Adjourn the motion for further directions on 22 November 2021 at 9.15am. 4. Reserve the costs of the motion not the subject of the Court's order of 5 March 2021, and any costs thrown away by reason of the amendments if made.
The orders of the Court on the third defendant's notice of motion filed 19 April 2021 are: 1. Order that the respondents (plaintiffs) pay to the applicant (third defendant) the sum of $25,000 on account of their costs liability to the applicant under: 1. order (1) made on 5 March 2021 in the respondents' notice of motion filed 3 August 2020; 2. order (2) made on 5 March 2021 in the respondents' notice of motion filed 6 October 2020. 1. Adjourn the motion for further directions on 22 November 2021 at 9.15am.
The orders of the Court on the first defendant's notice of motion filed 20 April 2021 are: 1. Order that the respondents (plaintiffs) pay to the applicants (first, second and fourth to eighth defendants) the sum of $30,000 on account of their costs liability to the applicants under: 1. order (1) made on 5 March 2021 in the respondents' notice of motion filed 3 August 2020; 2. order (1) made on 5 March 2021 in the respondents' notice of motion filed 6 October 2020. 1. Adjourn the motion for further directions on 22 November 2021 at 9.15am.

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Judgment (8 paragraphs)

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