Welsh v Digilin Pty Ltd

Submissions of the Applicant 5 The applicant's submissions can be summarised as follows: · the nett effect of the respondents' conduct was that prior to his agreement with them the applicant had a business which paid him a decent income doing something he enjoyed and was good at doing; whereas after his involvement with them he had no business, no job, no shares, and no ability to restart his previous business · the proceeding had been on foot for approximately two and three-quarter years when the order of his Honour was made, which was not a sufficient period to indicate a delay so great that the matter should not be allowed to proceed · the applicant's failure to pay costs the subject of the order was due to his impecuniosity, which had been brought about by the conduct of the respondents · the proceedings were well advanced · difficulties with the applicant's pleading had been cured by the filing and serving of the second amended statement of claim · there was no indication that, if the proceeding were allowed to continue, the applicant would not be able to prosecute it diligently · this was not a case where the history of the matter could be attributed to poor conduct on the part of the applicant, and which fell for condemnation to the extent of making an order that a matter be stayed unless costs were paid: Gao v Zhang [2005] VR 380 · supposing the decision to be wrong, substantial injustice would flow if it were allowed to stand, in that the claim against the respondents would be at an end, and if the applicant's claim were true the respondents would have executed and benefited from a most egregious fraud.

Submissions of the Respondents 6 The respondents' submissions can be summarised as follows: · the orders made by his Honour on 14 December 2007 were entirely reasonable in the circumstances and no error in his Honour's approach or reasons had been demonstrated · it was open to his Honour to have dismissed the proceedings on 14 December 2007 because of the applicant's failure to prosecute. Prior to that date no explanation had been offered by the applicant for his failure to pay any part of the costs ordered against him on 22 December 2006. Inferences could be drawn from this failure about the applicant's ability and willingness to continue to prosecute the matter · by allowing the applicant until 29 February 2008 to pay costs (which were ordered against him on 22 December 2006) his Honour granted a final indulgence to the applicant rather than dismiss the proceeding on 14 December 2007 · no cogent reason had been advanced why the applicant would be able to obtain funding of $20,000 and not the full amounts of costs payable · no evidence had been provided in relation to whether there has been any attempt to raise or obtain funding for the full $68,609.41 assessed at taxation · the orders made on 14 December 2007 would not result in "substantial injustice" because the orders did not finally dispose of the matter. The orders merely required the applicant to pay an amount of costs to the respondent, which costs were ordered to be paid on 22 December 2006, by 29 February 2008 · even if the practical effect of the orders were to end the proceedings that would not of itself amount to substantial injustice in circumstances where his Honour could reasonably have dismissed the proceedings on 14 December 2007.

Consideration 7 In the case before me there is no dispute that the decision of his Honour is an interlocutory decision, and that leave to appeal is required pursuant to s 24(1A) Federal Court of Australia Act 1976 (Cth) and O 52 r 10 Federal Court Rules. The principles to be applied by the Court when considering whether leave to appeal should be granted in such circumstances are well settled, and can be summarised as: · whether the judgment was attended by sufficient doubt to warrant it being reconsidered, and · whether substantial injustice would result if leave were refused, supposing the decision to be wrong. (Décor Corporation v Dart Industries Inc (1991) 33 FCR 397, Telstra Corporation Ltd v AAPT Ltd (1997) 38 IPR 539)

"Sufficient doubt" to warrant reconsideration 8 Previous decisions of this Court indicate that issues that are relevant as to whether a decision is attended by sufficient doubt to warrant reconsideration include the following:

• a decision may be of "sufficient doubt" where a contrary position is reasonably arguable (Tamberlin J in Johnston v Cameron [2002] FCAFC 251 at [65]) or the view taken by the trial judge is debatable (Davidson v Fesl [2005] FCAFC 183 at [22])
• leave to appeal is not necessarily granted simply because the reviewing court does not agree with every aspect of the trial judge's reasons (Energex Limited v Alstom Australia Limited [2005] FCAFC 215 at [65]) and
• leave is more readily granted where substantive issues, rather than points of practice, are at issue (Rivera v United States of America [2004] FCAFC 154 at [13], M111 of 2003 v Minister for Immigration & Multicultural & Indigenous Affairs [2004] FCAFC 97 at [8]).

Dismissal pending payment of costs: Gao v Zhang 9 In her submissions Ms Heyworth-Smith for the applicant relied on the decision of the Victorian Court of Appeal in Gao v Zhang [2005] VR 380, a decision to which his Honour also referred in his judgment. That case concerned an interpretation of r 63.03(3) Supreme Court Rules (Vic) which provided inter alia that, where the court had made an interlocutory order for costs and the subject party failed to pay them, the court had power to stay or dismiss the proceeding or, where the party was the defendant, to strike out the defence. 10 In Gao v Zhang [2005] VR 380, the applicant sought leave to appeal against the decision of a judge upholding an order of a master that, inter alia, the proceeding be stayed pending payment of costs already awarded against him in the proceeding. Ormiston JA, delivering the decision of the Court of Appeal, observed that such orders were discretionary, and the applicant faced a heavy burden in showing that it was appropriate to grant leave to appeal. However, his Honour observed further that, although the Supreme Court had power to make an order for a stay, dismissal or striking out where orders for costs of interlocutory applications remained unpaid, it did not necessarily follow that whenever costs remained outstanding some such order should be made (at 383). Indeed his Honour considered that it was not appropriate that orders of this kind be adopted as a day-to-day means of recovering costs ordered by the court (at 394). His Honour continued (at 384): "The power to stay a proceeding, to dismiss a proceeding without trial, or to strike out a defence are each powers which, if exercised, in one way or another deny justice to the party affected and ought not to be employed unless it is the only fair way of protecting the interests of the party seeking such an order. The basal principle, frequently adopted, was stated by Dixon J in Cox v Journeaux (No 2) (1935) 52 CLR 713 at [720] when he said, in relation to a striking out application, ...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." 11 So far as relevant, additional observations of Ormiston JA included, in summary: · merely because the power to stay appears in a specific rule of Court does not diminish the importance of looking to the consequences of an order made under such a power, for in substance the exercise shuts the party out of court (at 384) · the purpose of the power to order a stay or dismissal of proceedings for non-payment of costs is intended 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 (at 385) · an order of this kind is not to be treated as an everyday occurrence because interlocutory orders for costs are frequently made, particularly in complex cases (at 385) · unless the object of the order is merely to provide a temporary stay to force a wealthy, or at least not impecunious, but recalcitrant litigant to pay awards of costs which that party is well able to pay, the power should be treated as one which will have the effect of bringing to an end litigation without the benefit of a trial to which a litigant is ordinarily entitled. The reason for making such an order must therefore be serious and essentially the only practical way to ensure justice between the parties (at 385) · impecuniosity is not irrelevant so far as the exercise of this kind of drastic power is concerned (at 385) · circumstances where substantial orders for costs are built up and unpaid may see the unsatisfied litigant financially inconvenienced to the extent that it may not be able properly to prepare its case. However in the absence of evidence, it may not necessarily be assumed that the inability to recover particular sums by way of costs will have that adverse consequence (at 386) · if an order of this kind is to be made, there must be seen to have been some conduct on the part of the party in default which falls for condemnation to the extent of making so draconian an order. Ordinarily one would assume before making an order of this kind that there would be a series of orders for costs and that they usually would be of a kind which did not involve the genuine resolution of disputes relating to interlocutory matters which have to be resolved before the matter can go to trial (at 386). His Honour noted that a party seeking an order that the matter be stayed or dismissed in default of payment of costs may be able to bring to the court's attention factors indicating a pattern of harassment of, or unfair dealing with, the opposite party, which in one way or another is exacerbated by a deliberate or regular refusal to pay the consequential costs of those applications (at 386).

Findings 12 In this case, I consider that there is sufficient doubt to warrant reconsideration of his Honour's decision. I take this view because: · although his Honour quite properly made detailed reference to Gao v Zhang [2005] VR 380 in his judgment, and clearly sought to achieve fairness between the parties with respect to his orders, the facts in the present proceedings bear few similarities to those in Gao v Zhang [2005] VR 380 where the Court considered that the conduct of the applicant justified the relevant order. There does not appear to be an element of harassment of the respondents in these proceedings or deliberate conduct by the applicant which warrants condemnation as was found to be the case in Gao v Zhang [2005] VR 380 · notwithstanding the apparent financial difficulties of the applicant, there is evidence before the Court (including this application before me) which indicates a willingness to prosecute the matter · while it appears that the applicant in this case has financial difficulties, and has had difficulty raising funds to pay the outstanding costs, the paramount principle as made plain by Dixon J in Cox v Journeaux (No 2) (1935) 52 CLR 713 is that a claim honestly made by a suitor for judicial relief must be investigated and decided in the manner appointed · as pointed out by Ormiston JA in Gao v Zhang [2005] VR 380, costs awards at interlocutory stages in proceedings are common without the continuation of the matter necessarily depending on the payment of those costs prior to trial. 13 Second, in my view the applicant would suffer substantial injustice if leave to appeal were refused, supposing his Honour's decision to be wrong. As pointed out by Ormiston JA in Gao v Zhang [2005] VR 380, impecuniosity is not irrelevant so far as the exercise of this kind of drastic power is concerned, and there is some evidence before the Court that the applicant is in significant financial straits. Although his Honour's orders were limited to payment of costs, it is clear that a failure of the applicant to pay the outstanding costs would constitute the death knell to the substantive proceedings in this case. As I have observed, historically the conduct of the applicant in this case is not in the nature of harassment as was the case in Gao v Zhang [2005] VR 380, and it is debatable whether it was so reprehensible as to warrant dismissal in lieu of payment of outstanding costs. 14 Mr Steele for the respondents submitted that his Honour's orders would not result in substantial injustice because the orders did not finally dispose of the matter, and relied on Southern Cross Exploration NL v Fire & All Risks Insurance Co Ltd (No 2) (1990) 21 NSWLR 200. I am not persuaded that this is sufficient reason for finding that substantial injustice would not occur if leave to appeal were refused. Southern Cross Exploration NL v Fire & All Risks Insurance Co Ltd (No 2) (1990) 21 NSWLR 200 is authority for the propositions that, inter alia: · an appeal from interlocutory orders of a judge, filed without leave, should be dismissed as incompetent, · whether an order is characterised as "final" or "interlocutory" depends on the legal, not the practical, effect of the order, and · a declaration that an action be dismissed with costs by operation of a self-executing order does not finally dispose of the rights of the parties in the action, and is interlocutory rather than final. 15 In these proceedings there is no dispute that the orders of his Honour were interlocutory orders, do not finally dispose of the rights of the parties, and require leave of the Court within terms of s 24(1A) Federal Court of Australia Act 1976 (Cth) and O 52 r 10 Federal Court Rules for an appeal to lie. I do not read Southern Cross Exploration NL as suggesting that there is no possibility of injustice to one party arising within the meaning of the principles articulated in Décor Corporation v Dart Industries Inc (1991) 33 FCR 397 and Telstra Corporation Ltd v AAPT Ltd (1997) 38 IPR 539, simply because the orders do not finally dispose of the rights of the parties in the action. However in any event, although the orders as made require the applicant to pay an amount of costs to the respondents by 29 February 2008, and it is only if the applicant fails to comply with that order that any further consequence will flow, the reality is that the orders of his Honour have a finalising effect on the substantive proceedings. If his Honour's decision is wrong, substantial injustice to the applicant will follow, because the applicant will have lost his right to a hearing.

Stay 16 Although as a general rule proceedings under a judgment should not be stayed pending an appeal (Shaw v Holland (1900) 2 Ch 305), it is equally clear that the Court ought to see that the appeal, if successful, is not nugatory (Wilson v Church (No 2) (1879) 12 Ch D 454). In considering whether to grant a stay, it is also important that the Court take account of the risk of prejudice resulting from a stay to the other party (The Marconi's Wireless Telegraph Company Ltd v The Commonwealth (No 3) (1913) 16 CLR 384, ACCC v BMW (Australia) Ltd (No 2) [2003] FCA 864). In this case in the absence of a stay, an appeal from his Honour's judgment would be nugatory. Further, there is no evidence before me that a stay of his Honour's orders would prejudice the respondents.

1. Leave to appeal against the judgment of his Honour in Welsh v Digilin Pty Ltd [2007] FCA 2064 be granted pursuant to section 24(1A) Federal Court of Australia Act 1976 (Cth) and Order 52 rule 10 Federal Court Rules.
2. The judgment of his Honour in Welsh v Digilin Pty Ltd [2007] FCA 2064 be stayed pursuant to Order 52 rule 17 Federal Court Rules.
3. Costs be reserved. I certify that the preceding sixteen (16) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Collier.

Associate: Dated: 18 February 2008 Counsel for the Applicant: C Heyworth-Smith