Valimi Pty Ltd v Maniotis [2001] VSC 157

Supreme Court of Victoria|2001-05-24|Before: Bongiorno J

Practice and procedure - unpaid interlocutory costs - stay of proceedings - Rules of Civil Procedure 1996, Rules 63.03(2) and (3)

On 5 February 2001 Master Wheeler made orders on two summonses in this matter as follows:-

2. On a summons issued by the first and second defendants dated 15 January 2001 seeking that the plaintiffs' action be dismissed pursuant to Rule 63.03(3)(b) Supreme Court (General Civil Procedure) Rules 1996 on the ground that such interlocutory costs had not been paid, the Master dismissed the application.

The Master ordered that each party bear its or his own costs of each of the applications.

The interlocutory costs orders in respect of which each of the applications was brought related to contested interlocutory proceedings between the parties going back to 1996 and totalled (after a set off of some $5,600 in the plaintiffs' favour) the sum of approximately $28,000.

By Notices of Appeal dated 9 February 2001 the first and second defendants have appealed each of Master Wheeler's orders.

Rule 77.05 provides an appeal procedure in respect of judgments and orders made by a Master. Although, in general, the right of appeal conferred by Rule 77.05(1) is applicable to all orders made by a Master, Rule 77.05(2) provides (inter alia) that no order of a Master as to costs only shall be the subject of an appeal except by leave of a Judge or of the Master who made the order.

Mr. Gillespie-Jones for the plaintiffs in this case submitted that the orders of Master Wheeler were orders "as to costs only" and accordingly could not be the subject of appeal as of right. He contended that the first and second defendants would require leave to bring an appeal and that no grounds for such leave existed.

Mr Berglund QC for the first and second defendants contended that his clients did not need leave to prosecute their appeals against Master Wheeler's orders but that, if they did, such leave should be granted on the ground that the subject matter of each of the appeals is of sufficient importance to warrant a grant of leave having regard to the consequences for the first and second defendants should the Master's orders remain in their present form.

In Etna v Arif [1999] 2VR 342 Batt JA (with whom Charles and Callaway JJA agreed) at 376 discussed the provision found in s. 17A (1)(b) Supreme Court Act 1986 which placed a limitation upon a disappointed litigant's right to appeal to the Court of Appeal from an order made by the Trial Division constituted by a Judge where that order is "as to costs which are in the discretion of the Trial Division". As His Honour points out the provision he was construing did not relate to orders "as to costs only" as had earlier versions of the Supreme Court Act, and as does Rule 77.05(2).

In Etna the Court was concerned with the question as to whether the requirement for leave contained in s. 17A(1)(b) applied where the order for costs was contained in a single paragraph of a larger document containing other orders. In holding that the expression there under consideration was apt to refer to the contents of such a single paragraph, Batt JA construed the words "an order . . .as to costs" as meaning "a curial command that relates to costs". I infer that His Honour meant by that phrase an order which imposed a liability for costs, fixed their quantum or ordered their assessment in a particular manner. There may be other examples. Their common feature is not only that they relate to costs but also that they involve the making of an order concerning costs; perhaps as to who will bear them or how they might be assessed. There is a nexus between the command and the costs.

In the instant case the curial commands which the first and the second defendants seek to appeal should not be characterised as curial commands with respect to costs at all. The first is an order which stays execution in respect of a judgment for an already quantified money sum and the second is the dismissal of an application to dismiss or stay an action. In the first case it is not to the point that the money sum in respect of which the Master stayed execution was derived from the taxation of bills of costs consequential upon interlocutory orders for the payment of those costs. What the Master was doing was, in effect, staying the execution of a judgment of the Court. That this is so is clear from an examination of the rules applicable to an order for costs which have been taxed and the power of the Court to stay execution of its judgments. See Rules 63.56, 66.02 and 66.16.

The question is somewhat simpler in respect of the dismissal of the first and second defendants application in the second summons. It was the dismissal of an application made in reliance upon Rule 63.03(3)(a). Such a dismissal is not a curial command relating to costs even though the ground upon which the application was based was the failure of the plaintiff to pay certain costs already ordered. Indeed it is not even a curial command - merely a refusal to exercise a discretion in an applicant's favour.

It follows that the first and second defendants did not need leave to bring this appeal before a Judge of the Trial Division pursuant to Rule 77.05.

In the event that I am wrong in my interpretation of Rule 77.05(2) I turn to consider the question of whether the first and second defendant should be given leave to bring their appeals.

The issue which the first and second defendants wish to agitate on this appeal is as to whether the plaintiffs should be permitted to proceed with their action notwithstanding that they are in default to the extent of about $28,000 in the payment of interlocutory costs. The issue is a serious one from the first and second defendant's point of view. The plaintiffs have been ordered to pay these interlocutory costs by reason of their having been unsuccessful on a number of occasions in pre-trial applications, largely related to their pleadings. Insofar as it is appropriate to speak in terms of "fault" in such circumstances it was always the plaintiffs' fault that such orders were made (or at least the final balance of "fault" was in the defendants' favour). Although orders for costs are not, of course, punitive but are merely compensatory, the Court, on each occasion that it made an order for costs against the plaintiffs, determined that the justice of the case demanded such an order. As it is undisputed that the costs orders have not been paid and no attempt has been made to challenge their validity, a refusal to permit the first and second defendants to appeal the Master's orders in this case would have the effect of depriving them of the fruits of orders already made in their favour at least until the proceeding is resolved and perhaps permanently. Further, my conclusion that the Master was wrong in his determination of the application before him renders it even more appropriate that the first and second defendants be able to challenge the orders now sought to be appealed.

Accordingly, if leave was required to bring these appeals or either of them from the Master to a Judge of the Trial Division of this court pursuant to Rule 77.05(1) then I would grant such leave in respect of each appeal.

Rule 77.05(7) provides that an appeal from a Master to a Judge of the Trial Division of a Court shall be by way of rehearing de novo of the application to the Master. It permits the parties to rely upon any affidavit used before the Master and upon any evidence given orally before him. It permits reliance upon any further affidavit or oral evidence only by special leave of the Judge.

In this case Mr. Gillespie-Jones, for the plaintiffs, has sought special leave to rely upon a further affidavit of Con Thyssen sworn 16 February 2001 exhibiting a number of documents. In effect the affidavit deposes to the plaintiffs' impecuniosity and seeks to explain it as being the result of the misfeasance of the defendants in respect of which the proceeding has been brought. He seeks to rely upon that affidavit in addition to an earlier affidavit of Mr Thyssen and those of George Con Thyssen and Gene Alex Volovich relied upon before the Master. Mr Berglund Q.C. opposes leave being granted.

Having read the affidavit upon which Mr Gillespie-Jones seeks to rely and the exhibits to that affidavit I am of the opinion that it makes no material difference to the questions now before me upon the de novo hearing of the applications originally before Master Wheeler. Accordingly, I need consider no further the question as to whether the plaintiffs should be granted the special leave contemplated by Rule 77(7)(b) to rely upon Mr Thyssen's affidavit which was not before the Master.

I formally refuse the application for special leave.

I shall deal with each of the applications in the order in which they were made to the Master.

The first application was made by summons filed 15 January 2001 by the first and second defendants seeking an order that the plaintiffs' action be dismissed pursuant to Rule 63.03(3)(a). Despite the fact that the summons sought, in terms, a dismissal of the plaintiffs' action the Master's reasons for decision reveal that the matter was argued before him as an application to stay the proceeding until the plaintiffs paid the outstanding interlocutory costs rather than to dismiss it. Certainly that was the way Mr. Berglund QC argued the matter before me. He did not seek to shut the plaintiffs out from prosecuting their case; merely that they be entitled to do so only after they had met existing liquidated obligations to the first and second defendants.

As the Rule quoted in the first and second defendants' application namely Rule 63.03(3)(a) contemplates either the dismissal of a proceeding or its being stayed whether permanently or temporarily pending the payment of the outstanding interlocutory costs, nothing turns on the discrepancy between the application and the argument. Clearly, Master Wheeler was entitled to act as if the application had been framed in terms seeking an order to stay the proceeding temporarily rather than to dismiss them.

In Exell v Exell [1984] VicRp 1; [1984] VR 1 the Full Court held that there was no power conferred by any of the rules of court as they then stood to dismiss an action for want of prosecution on the ground that the plaintiff had failed to comply with an order for payment of costs. As the Court pointed out (at 8):

"Before a plaintiff's impugned conduct can lead to dismissal of an action for want of prosecution of that action the conduct must be capable of being characterised as evidence of such want of prosecution. There appears to be no rational connection between dismissing a plaintiff's action for want of prosecution on the one hand and delay in the payment by one of the parties of a civil debt to another on the other hand. It is not for the Court to act as a debt collector. Able processes exist to permit a party to proceed for the recovery of his debt. Should a debtor party be impecunious such an order is no more, in effect, than an order requiring that party to give security to costs. Yet, as the principles relating to giving security would not be taken into account when such an order is made such an order in consequence must plainly be considered to have been incorrectly made. As we have sought to explain, a failure to pay costs is just simply not an act constituting a want of prosecution of the action. How then can an action be dismissed for such alleged want of prosecution if there is no more than a non payment of costs? Even if non payment of costs should be thought to require the imposition of a sanction it should in the case of a plaintiff's default ordinarily be confined to an order that proceedings be stayed till the order for payment is obeyed."

The Court went on to illustrate the inappropriateness of characterising the failure to meet an order for interlocutory costs as a "want of prosecution" by reference to the position of a defendant who is similarly in default. The only sanction which could be applied to him would be the striking out of his defence and his being placed in the same position as he would have been in had he not defended the action at all. The Court points out that such a result would be "Draconian" (sic).

At the time Exell's case was decided there was no equivalent in the rules to Rule 63.03(2) or Rule 63.03(3). Rule 63.03(2) means that a party to whom costs are awarded on an interlocutory application has the right to be paid those costs forthwith unless the Court otherwise orders. When read in conjunction with Rules 63.07(1), 63.10(a) and 63.56(1) this means that the practice of the Court is now that a party who obtains an order for costs on an interlocutory application is entitled to immediately tax those costs and, upon their being taxed, obtain an order of the Court for their immediate payment, unless, in the exercise of the discretion conferred by Rule 63.03(2), the Court otherwise orders.

Rule 63.02(2) and (3) were introduced with the substantial revision of the Rules of Court effected following the enactment of the Supreme Court Act 1986. At the same time as the new Rules clarified the right of a person in whose favour an order for interlocutory costs is made to have those costs paid forthwith, they conferred a discretion upon the Court to impose the "Draconian" sanction which Exell's case had declared did not hitherto exist. Thus, on the face of the rules themselves Exell's case is distinguishable and probably serves now as little more than a point of contrast with the present law on the subject. That this is so emerges from a consideration of a number of decisions of single Judges of this Court who have had to consider Rule 63.03(3).

In Australia and New Zealand Banking Group Ltd v Kevin William Parker (unreported 7 March 1997) Coldrey J considered that the approach of the Full Court in Exell's case was no longer necessarily applicable to a case brought under the new Rule. On the other hand, although Chernov J in Christopher Rees Tawie and Woodbury Croft Pty Ltd v Medi 7 Australia Pty Ltd (unreported 4 June 1997) considered that ". . . the power should be exercised sparingly and only in exceptional circumstances", a detailed examination of His Honour's judgment suggests that he was really speaking about the extreme use of the power to dismiss a claim or order a permanent stay. At least Beach J in Peter Thomson v Ronstan International Pty Ltd [2000] VSC 47 considered Chernov J to be reserving the requirement of exceptional circumstances for those cases in which an applicant for relief under the Rule is seeking to put an end to his opponent's case rather than simply seeking to have it stayed until obligations to pay outstanding interlocutory costs are honoured. I respectfully agree with Beach J's analysis of Woodbury Croft and of the requirements of Rule 63.03(3).

I turn then to consider the first and second defendants' application on its merits. In other words do the circumstances of this case justify the plaintiffs being required to pay the outstanding costs as a condition of continuing to prosecute their action.

The plaintiffs commenced this action by writ issued on 21 July 1995. Between December 1996 and June 2000 they were the subject of seven orders for costs made against them on interlocutory applications. At least one of those orders for costs was for costs to be taxed on a solicitor/client basis and most, if not all of them, related to attacks upon or applications to amend the plaintiffs' statement of claim. The plaintiffs' Amended Statement of Claim which I take to be the document in which the plaintiffs' claim is currently formulated is dated 29 August 2000 - a date some five years after the action was commenced. That document runs to 32 pages together with schedules and appears to particularise a very large number of disparate claims ranging from breaches of fiduciary duty to allegations of conspiracy to injure.

Mr Gillespie-Jones proffered the explanation for the number of interlocutory proceedings in respect of which his clients suffered orders for costs as being related to the fact that conspiracy is "notoriously difficult to plead". That may well be so but the plaintiffs' pleading difficulties are of no consolation to the defendants who have to continue to fund their defence of the plaintiffs' claims with an apparently increasing likelihood (perhaps approaching a certainty) that even if they are successful they will still be out of pocket for most if not all of their own costs.

Modern litigation is expensive. If plaintiffs wish to bring complex claims before the courts it is incumbent upon them and their lawyers to ensure that their formulation of those claims does not invite attack or require substantial amendment. It might be one thing to suffer one or even two orders for interlocutory costs in the course of preparing a complex matter for trial. However where the number of orders and their total value (even allowing for two orders set off in the plaintiffs' favour) are as high as they are in this case it seems to me that the sanction provided for by Rule 63.03(3) to stay the action until such costs are paid must be considered.

In a claim as complex as this no assessment can be made on the material presently available of the likelihood of either side prevailing. Mr Gillespie-Jones points out that the plaintiffs have filed an affidavit in which their claims are verified. But even if this were so (and a statement as to belief by Mr Thyssen in the truth of the plaintiffs' case hardly qualifies as sworn verification) it is clear from a perusal of the pleading that upon the trial of this action substantial questions of credit will need to be determined thus rendering it impossible to even guess the ultimate outcome. In my view such a trial (which will itself be a costly exercise for all parties) should only be permitted to proceed if the parties are at least put on a relatively even footing before it commences. That can only be done if the plaintiffs pay the amount of the outstanding costs which they presently owe. The amount of those costs and the circumstances in which they were incurred outweigh any other considerations, such as the plaintiffs' impecuniosity, the danger that the plaintiffs may not be able to prosecute their claim for some time or perhaps at all, and any other considerations which might, in other circumstances, have caused me to refuse to exercise the discretion conferred by Rule 63.03(3) in the defendants' favour.

Having regard to the conclusion I have reached as to staying the plaintiffs' claim it follows that I consider the Master was in error in staying the costs orders against the plaintiffs, and refusing the first and second defendants the relief they seek under Rule 63.03(3) that the plaintiffs' action be stayed until the balance of outstanding costs in favour of those defendants has been paid.

Accordingly there will be orders as follows:-

A. On the first and second defendants' appeal against the order of Master Wheeler of 5 February 2001 upon the plaintiffs' summons of 2 February 2001: -

(2) that the plaintiffs' summons seeking a stay of execution in respect of interlocutory costs orders made against them in favour of the first and second defendants be dismissed.

(3) that the plaintiffs pay the first and second defendants' costs of that summons and of this appeal.

(4) that the plaintiffs be granted an indemnity certificate pursuant to s 4 Appeal Costs Act 1998 in respect of this appeal.

B. On the appeal against the orders of Master Wheeler made 5 February 2001 on the summons of the first and second defendants dated 15 January 2001: -

(2) That in lieu of the order of Master Wheeler that the defendants' summons be dismissed there be an order that the plaintiffs' action be stayed pursuant to Rule 63.03(3)(b) Supreme Court (General Civil Procedure) Rules 1996 until the plaintiffs pay to the first and second defendants the costs ordered to be so paid by orders of this Court of 11 December 1996, 6 February 1998, 10 November 1998, 19 October 1999, 30 May 2000 and 28 June 2000 totalling $33,620.90 less the sum of $5,624.60 ordered to be paid by the first and second defendants to the plaintiffs by orders of this Court made 9 December 1998 and 30 June 1999 (together with, in each case, any interest accrued on the amount of each such order pursuant to s. 101 Supreme Court Act 1986) or further order.

(3) That the plaintiffs pay the first and second defendants' costs of the said summons and the costs of this appeal.

(4) That the plaintiffs be granted an indemnity certificate pursuant to s 4 Appeals Cost Act 1998 in respect of this appeal.

I shall further order that any party have general liberty to apply and that these orders be drawn up by the solicitors for the first and second defendants and signed by a Judge.

Supreme Court (General Civil Procedure) Rules 1996

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