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[2008] FCAFC 149
respondent. Appeal dismissed. The primary judge's order requiring payment of $68,609.41 by 29 February 2008, failing which the proceedings would stand dismissed, remained undisturbed.
The Federal Court Full Court held that the trial judge was entitled to make a conditional order requiring Welsh to pay unpaid interlocutory costs or face dismissal of his case. The order was made under a rule giving the Court a broad discretion when a party has not complied with an order. Possible financial hardship was relevant, but it did not automatically prevent the Court from acting. The Full Court considered the unpaid costs, the history of amendments and vacated trial dates, the respondents' prejudice, and the limited evidence about Welsh's finances and funding. It also explained that Gao v Zhang did not require proof of harassment or similarly condemnatory conduct before the rule's discretion could be exercised. Finding no relevant error in the primary judge's reasoning, the Court dismissed the appeal.
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In Welsh v Digilin Pty Ltd [2008] FCAFC 149, the Full Court of the Federal Court considered whether a single judge had properly made a conditional order that would bring proceedings to an end if the applicant failed to pay outstanding interlocutory costs. The Court's reasons are dated 19 August 2008. Tamberlin, Greenwood and Collier JJ dismissed the appeal.
The underlying proceedings had been commenced in 2005, although Welsh's claims concerned events dating from the mid-1990s. The matter was listed for trial in April 2006, but those dates were vacated after Welsh indicated he intended to raise new issues. It was listed again for October 2006, but the dates were again vacated after he indicated that an amendment to his statement of claim was required ([2]).
On 22 December 2006, the parties consented to orders that Welsh pay the respondents' costs, including costs thrown away by the vacated trials. The proceeding was stayed pending payment of $20,000 on account of costs, with liberty for the respondents to apply for additional stays as the costs were assessed or taxed. By December 2007, the total assessed amount was $68,609.41. The Full Court recorded that the amount was not understood to be challenged ([2]).
No costs were paid. In November 2007, the respondents applied for dismissal under O 35A r 3(1) of the Federal Court Rules. Welsh's solicitor gave evidence of financial hardship, limited assets, net income of about $728 per week, a proposed professional negligence claim against previous counsel, and an approach to a litigation funder. The primary judge considered the information about the proposed funding insufficiently detailed ([2]-[3]).
On 14 December 2007, Dowsett J amended the earlier order so that Welsh was required to pay $68,609.41 by 29 February 2008, failing which the proceedings would stand dismissed. The order also required Welsh to pay the respondents' costs of the motion and hearing ([1], [5]). Welsh appealed. The Full Court's task was to assess whether the primary judge had erred in exercising the discretion under the rule, not to decide the merits of Welsh's underlying substantive claim.
The Full Court treated O 35A r 3(1) as conferring a discretionary power. The rule allows the Court to stay or dismiss proceedings where an applicant is in default, including where proceedings are to be stayed or dismissed if the applicant does not take a court-ordered step within the time allowed. The Full Court held that the conditional payment order fitted within O 35A r 3(1)(c) ([11]-[12]).
In explaining the breadth of the discretion, the Court relied on Lenijamar Pty Ltd v AGC (Advances) Ltd. It adopted the view that the power depends on non-compliance with a direction, rather than on proof of intentional or contumelious conduct. A party's attitude to the default, willingness to progress the litigation, continuing delay, expense and prejudice may nevertheless be significant to the exercise of discretion ([12]-[14]). The Court also emphasised that there is no exhaustive list of relevant considerations: each case is assessed on its merits ([19]).
The evidence of Welsh's financial circumstances did not establish that the primary judge overlooked impecuniosity. The Full Court noted that the assertion of limited means was supported by the solicitor's affidavit, but not by documents, and that little detail was provided about the proposed litigation funding. It also noted that the proceeding had already been stayed for about twelve months because the earlier $20,000 payment had not been made ([20]). The Court did not hold that impecuniosity is irrelevant. Rather, it concluded that the primary judge had considered it and was entitled to weigh it against other circumstances.
The procedural history supported the primary judge's concerns about progress. The statement of claim had undergone three significant amendments, including changes to parties and claims. Trial dates had been vacated on three occasions during the relevant period, and the primary judge had made twelve orders before the December 2007 hearing, including costs orders for costs thrown away ([21]). The Full Court rejected the argument that the filing of a further amended statement of claim erased the earlier history. It considered the context of the amendments and adjournments relevant ([22]).
The respondents' prejudice was also material. Although costs had been ordered, Welsh had not paid them. The Full Court accepted that this failure compounded the respondents' prejudice, and that it was relevant to consider the apparent likelihood that further costs might also remain unpaid ([23], [26]). The Court further held that, given the ongoing prejudice, the prospect of the case reaching a final hearing within a reasonable time was relevant. The matter had been on foot for over two years, had been stayed for twelve months, had involved substantial non-compliance with directions, and Welsh was apparently seeking funding to prosecute it ([27]-[28]).
The Court considered Gao v Zhang, where the Victorian Court of Appeal described dismissal for non-payment of interlocutory costs as drastic and draconian, and indicated that a serious reason would be required. The Full Court accepted Gao as helpful, but rejected the suggestion that it prescribed a mandatory level of misconduct. In particular, harassment, unfair dealing or contumelious conduct was not a necessary precondition to the discretion under O 35A r 3(1) ([30]-[31]).
Finally, the Full Court applied the general principle that a claim honestly made should ordinarily be investigated and decided through the proper process. But that principle does not prevent the Court from ending proceedings where their continuation would clearly inflict unnecessary injustice on the opposing party ([32]). Weighing the possible merit of Welsh's untested claim and his apparent financial difficulties against the respondents' costs, the litigation history and the prospect of timely resolution, the Full Court found no error by the primary judge ([33]).
The judgment describes an existing framework rather than announcing a new rule in isolation. Before this decision, Lenijamar had explained that the predecessor to O 35A r 3(1) was activated by non-compliance with a court direction, and that there was no general requirement to prove intentional default, contumelious conduct, inordinate and inexcusable delay, or prejudice. Those factors could still matter when the Court decided whether to exercise its discretion ([12]-[14]).
The judgment also describes a traditional distinction in authorities about unpaid costs. If an application for particular relief is dismissed with costs, the applicant may be prevented from seeking identical or equivalent relief again without paying those costs. The authorities discussed for that proposition include Morton v Palmer, In re Payne and Thames Investment & Securities Plc v Benjamin. The Court contrasted that situation with unpaid costs awarded on an interlocutory basis in the same proceedings, referring to Hines v Birkbeck College and Phillip Morris ([29]).
Historically, the Court observed, mere non-payment of interlocutory costs was not treated as sufficient in every case to justify a stay. But the authorities also recognised that cases had to be assessed on their merits, including circumstances involving vexatious conduct ([29]). Gao added a warning about the serious consequences of ending proceedings without trial, particularly where the order is not simply a temporary means of encouraging a party able to pay to do so ([30]).
Welsh clarifies how those propositions operate together under O 35A r 3(1). Gao's caution is relevant, but it does not create a fixed precondition of harassment or unfair dealing. The rule's discretion remains broad, and a judge may consider non-payment in the context of the litigation's history and the prejudice caused to the other party. The Full Court's conclusion was that a conditional dismissal order could be upheld where the primary judge had weighed the relevant circumstances and committed no reviewable error ([31]-[34]).
The appellate framework is also important. The Court applied House v R: a party challenging a discretionary decision must establish an error in the application of principles, an irrelevant consideration, or failure to consider a relevant matter ([16]). The decision therefore does not say that every unpaid interlocutory costs order can justify dismissal. It says the order's validity depends on the proper exercise of the discretion in the particular case.
At [12], the Court said that the power under O 35A r 3(1) is discretionary and that non-compliance is the condition that makes the power available. In plain English, the rule does not require a separate finding that the party deliberately disobeyed the order before the Court can consider a response.
At [19], the Court stated: “Each case must be considered on its merits.” This means the decision-maker is not confined to a mechanical checklist. The circumstances of the default, the history of the case and the effects on both sides can all matter.
At [20], the Court explained that the financial evidence before the primary judge was limited and that, in any event, the existing stay had already prevented the proceeding from moving forward for about twelve months. The plain-English point is that evidence of financial difficulty must be considered, but it does not automatically resolve the procedural question.
At [30]-[31], the Court discussed Gao. It accepted that a dismissal order is serious, but said Gao did not impose a mandatory requirement for harassment, unfair dealing or contumelious conduct. In plain English, those kinds of conduct may be relevant in a particular case, but are not a universal gateway to the rule's use.
At [32], the Court recalled the principle that a genuine claim should ordinarily be investigated and decided. It also noted that proceedings may be brought to a close when their continuation would clearly inflict unnecessary injustice on the other party. The passage expresses the balance underlying the judgment: access to adjudication matters, but so does fairness to the opposing party.
At [33], the Court identified the factors it considered the primary judge had balanced: possible merit in Welsh's claim, financial difficulty, the respondents' substantial and unnecessary costs, the consent costs order, ongoing pleading difficulties, and the limited prospect of early resolution. The Court's conclusion was not that the claim lacked merit. It was that the primary judge's balancing disclosed no error.
The decision is most relevant where a party has failed to comply with an order requiring a step in ongoing proceedings, and the court is considering a stay or conditional dismissal under O 35A r 3(1). The specific order in Welsh required payment of quantified interlocutory costs, but the Court's discussion of the rule concerns non-compliance with court directions more generally ([11]-[14]).
The case may be particularly useful where the defaulting party relies on financial hardship. It establishes that possible impecuniosity is a consideration, not an automatic bar. The quality and detail of the evidence may matter, as may the extent to which the party has shown a realistic capacity or plan to progress the proceedings. In Welsh, the funding evidence was described as lacking detail, and there was no compelling evidence about whether Welsh could fund the case to trial ([20]).
The case also concerns circumstances where the default has consequences beyond the unpaid amount. The respondents had incurred substantial costs associated with vacated trial dates and amendments. The costs remained unpaid, and the proceeding had not advanced during the stay. The Court treated these matters as relevant prejudice and case history ([21]-[28]).
The precedent does not establish that any failure to pay interlocutory costs justifies dismissal. It confirms a discretionary assessment and endorses caution about an order that may end a case without trial ([30]-[31], [33]). The specific factors and balance in Welsh should therefore be kept distinct from any general proposition that non-payment alone is sufficient.
The supplied judgment does not describe any later judicial treatment of Welsh v Digilin. It therefore does not establish whether later courts have followed, distinguished, limited or expanded the decision. The citations to Cadbury Schweppes and Wu are references used by the Full Court when explaining the rule and Lenijamar; they are not later treatments of Welsh ([14]).
The judgment itself cites Welsh v Digilin [2007] FCA 2064, the primary judge's decision under appeal, and Welsh v Digilin [2008] FCA 78, the decision granting leave to appeal. Those are earlier stages in the same litigation, not later authorities on the Full Court's reasoning ([1], [6]). A reliable account of subsequent treatment would require later case materials not included in the supplied text.
The judgment leaves the precise weight of impecuniosity open. It confirms that financial difficulty does not automatically prevent a conditional dismissal order, but it does not set a threshold for the evidence required, explain how the rule should apply to a party who conclusively demonstrates inability to pay, or prescribe how a court should distinguish inability from unwillingness. Those questions remain dependent on the circumstances, consistent with the Court's statement that each case must be considered on its merits ([19]-[20]).
The judgment also does not provide a closed list of factors or a formula for balancing them. The Court expressly declined to identify all relevant considerations ([19]). It identifies examples relevant in this case, including default, procedural history, costs, prejudice and prospects of timely resolution, but their relative weight remains a matter for the discretion.
A further question concerns the boundary between a permissible conditional order and an order that operates in practice as an unjustified termination of a claim. The Court endorsed Gao's warning that an order of this kind is not an everyday occurrence, while rejecting a fixed requirement of condemnatory conduct ([30]-[31], [33]). The judgment leaves future courts to apply that caution to different facts.
Finally, the Court did not decide the merits of Welsh's substantive claims. It acknowledged that there might be merit in them, but that the question remained untested ([33]). The decision is about procedural discretion and appellate review, not a determination of the underlying rights or liabilities.
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THE COURT 1 This is an appeal from the decision of Dowsett J of 14 December 2007 (Welsh v Digilin Pty Ltd [2007] FCA 2064) in which his Honour ordered that: · paragraph 21 of the order made on 22 December 2006 be amended by deleting the amount of $20,000 and inserting, in lieu thereof, the amount of $68,609.41. · unless, on or before 29 February 2008, the applicant pays to the respondents the sum of $68,609.41, the proceedings are to stand dismissed. · the applicant pay the respondents' costs of the motion and the hearing of 14 December 2007.
Background 2 The proceedings the subject of this appeal have been on foot for almost three years. Relevant background facts appear in the judgments of Dowsett J (Welsh [2007] FCA 2064) and Collier J (Welsh v Digilin Pty Ltd [2008] FCA 78), and may be summarised as follows: · The substantive application in these proceedings was filed in 2005, although the claims of the appellant relate to events occurring from the mid 1990s. · The matter was set down for trial before Dowsett J in April 2006, however the trial dates were vacated after the appellant indicated that he intended to raise new issues in the proceedings. · The matter was re-listed for trial before the primary judge in October 2006, however the appellant indicated that amendment to the statement of claim would be required. The trial dates were again vacated. · On 22 December 2006 by consent of the parties the primary judge ordered the appellant to pay costs of the respondents, including costs thrown away by reason of the vacation of the trial. His Honour also ordered that, in view of the history of the matter, the proceedings be stayed pending payment by the appellant of $20,000 on account of costs, and that the respondents be at liberty to apply for additional stays as the costs orders became quantified by assessment or taxation. As his Honour explained: This may have been an inelegant way of saying that the respondents could apply to increase the amount to be paid as the costs were assessed or taxed. The bills have now been assessed. The total is, as I understand it, $68,609.41, including the costs of the figure. I do not understand there to be any challenge to that figure. (Welsh [2007] FCA 2064 at [4]) · The matter was again listed for trial in December 2007. · No costs ordered by the primary judge were paid by the appellant to the respondents. On 22 November 2007 the respondents filed a notice of motion moving for orders that the substantive application be dismissed pursuant to O 35A r 3(1) Federal Court Rules. · The appellant's solicitor, Mr Boaz Ben Yani, filed an affidavit on 13 December 2007 deposing in summary that: - the appellant had suffered financial hardship; - apart from his claim the appellant's only asset was a car worth approximately $4,000; - the appellant's net income was approximately $728 per week; - the appellant intended to lodge a claim against his previous counsel for professional negligence; and - the appellant had approached a litigation funder to assist him in payment of $20,000 towards the respondents' costs, which sum the appellant believed he would be able to obtain by the end of February 2008. 3 The primary judge observed that, in the absence of any evidence as to the nature of the cause of action against his previous counsel, the proposed claim by the appellant against counsel was of little relevance. Further, it appeared that the claim against counsel and the approach to the litigation funder had occurred only shortly before the hearing, and more detail concerning the appellant's efforts might have been expected if the appellant was genuinely trying to advance the matter (Welsh [2007] FCA 2064 at [6]). 4 In light of these facts his Honour was of the view that the appellant should not be allowed to continue to prosecute the proceedings against the respondents until such time as he paid the costs ordered as a result of his conduct in connection with the scheduled hearings in April and October 2006 (Welsh [2007] FCA 2064 at [6]). In reaching this view, his Honour took into consideration: · the fact that it will, as a general proposition, be inappropriate to prevent a party from litigating a claim to resolution simply because he or she is impecunious; and · notwithstanding this principle, fairness between the parties must be the primary consideration, and the conduct of a party may lead to an order which effectively prevents continuation of the proceedings. 5 His Honour found: [10] In this case the applicant seems to have encountered serious difficulty in formulating his claim. He has, to some extent and in very general terms, sought to blame his previous counsel for that. I am not willing to act on the basis that such difficulty was necessarily attributable to counsel. That is one possibility, but not the only one. That the applicant has experienced difficulty in formulating his claim does not encourage confidence in its merits. On the other hand it does not exclude the possibility that it is a meritorious claim. The difficulties which he has experienced have caused the respondents to incur considerable costs which ought not to have been incurred, and which they ought not to have to pay. They have, however, paid, or are liable to pay, a considerable amount of money, no doubt at least $68,000, and probably significantly more. They, or their lawyers, are out of pocket to that extent. That may not be a compelling consideration in cases where there is reason to hope that the proceedings will be quickly resolved. The history of this matter offers no cause for such optimism, even if the stay is lifted. The applicant's failure to pay the specified sum, and so lift the stay, has resulted in this matter not having progressed since December 2006, further demonstrating that the case is unlikely to be resolved quickly. This is all the more reason, in my view, for steps being taken to ensure, as far as possible, that the respondents are not out of pocket. [11] Although there is considerable merit in the respondents' application, I am minded to give the applicant one further chance to regularise the proceedings. I order that para 21 of the order made on 22 December 2006 be amended by deleting the amount of $20,000 and inserting, in lieu thereof, the amount of $68,609.41. I further order that unless, on or before 29 February 2008, the applicant pays to the respondents the sum of $68,609.41, these proceedings are to stand dismissed. The applicant is to pay the respondents' costs of the motion and the hearing today. 6 On 18 February 2008 Collier J ordered that leave to appeal be granted from the decision of his Honour (Welsh [2008] FCA 78).
Grounds of Appeal 7 The grounds of appeal before this Court are as follows: 1. The learned primary judge erred in finding that the circumstances of the case justified making an order the effect of which was to cause the application to be dismissed if the Appellant did not pay the Respondents $68,609.41 on or before 29 February 2008. 2. The learned primary judge erred in making the said order in circumstances where the evidence before him was that the Appellant was relevantly impecunious and would not be able to make the said payment on or before 29 February 2008. 3. The learned primary judge erred in finding that: a. The Appellant had difficulty in formulating his claim where the evidence before the court indicated that this was not the case; b. The history of the matter was such that there was no cause for hope that it will be quickly resolved where the evidence before the court was that: i. There had been (prior to the imposition of the stay) no periods of inactivity on the part of the Appellant; and ii. The Appellant had exhibited no difficulties in funding the prosecution of the claim (as opposed to the payment of a costs order of $68,609.41 to the Respondents) 4. The learned primary judge erred in making the said order by taking into account factors which were irrelevant to the exercise of his discretion, namely that: a. Having found that the Appellant had had difficulty in formulating his claim, that this did not encourage confidence in its merits, particularly in circumstances where: i. His Honour had given leave to the Appellant to file and serve a proposed second amended statement of claim on 1 November 2006 and this had been done on 29 November 2006 ii. The Respondents had been given the opportunity to object to the new pleading iii. The matter had been listed for a hearing on 7 December 2006 as to whether the Appellant should have leave to file and serve the proposed pleading as an 'actual' pleading iv. Further consideration was given to this point during a hearing on 18 December 2006 and v. The Respondent did not object to the filing and serving of the new pleading and leave was given (subject to the stay) 5. The learned primary judge erred in considering that a "quick resolution" of the matter was a factor to be taken into account as a promised expediency in the future of the case was not a factor which was relevant to the exercise of a discretion to dismiss for want of prosecution. 6. Having referred to the decision of Gao v Zhang (2005) 14 VR 380, particularly at [15], and, having indicated his agreement with the sentiments expressed therein, the learned primary judge erred by not applying those sentiments in that he formed the view that the circumstances of this case were sufficiently serious to justify an order the effect of which would be to dismiss the action, where those circumstances did not bear the hallmarks of the conduct of the unsuccessful litigant in Gao v Zhang. 7. The learned primary judge erred in law by failing to take into account relevant considerations, namely that: a. The Appellant was an impecunious natural person who should not be precluded from prosecuting the matter by reason of his impecuniosity b. The evidence before the court on the application for dismissal for want of prosecution was that the Respondent's conduct had given rise to the said impecuniosity c. The matter was well advanced d. The difficulties with the Appellant's pleading had been cured by the filing and serving of the proposed second amended statement of claim e. The matter had been on foot for less than two years when his Honour ordered that it be stayed f. The proceeding had been prosecuted diligently by the Appellant prior to the imposition of the stay. 8 The appellant seeks the following orders from the Court: 1. the Appeal be allowed. 2. the judgment of Dowsett J dated 14 December 2007 be set aside. 3. the motion filed by the respondents on 22 November 2007 be dismissed with costs. 4. no further stay of the proceeding should be granted pending payment of taxed costs. 5. the respondents pay the Appellant's costs of this Appeal. 6. further or other relief.
Consideration 9 The grounds of appeal raised by the appellant in these proceedings give rise to three key issues for determination by this Court. They are: · the nature of the power conferred by O 35A r 3(1) Federal Court Rules to stay or dismiss proceedings for failure to take steps previously ordered by the Court; · issues a judge may properly take into consideration in deciding whether to make an order pursuant to O 35A r 3(1); and · more specifically, whether pursuant to O 35A r 3(1) the Court may order that proceedings be stayed or dismissed in the event of non-payment of costs previously ordered in interlocutory proceedings in the same matter, where the evidence before the Court demonstrates possible impecuniosity of the party in default. 10 We shall consider each issue in turn.
Power conferred by Order 35A rule 3(1) 11 Order 35A r 3(1) provides as follows: If an applicant is in default, the Court may order that: (a) the proceeding be stayed or dismissed as to the whole or any part of the relief claimed by the applicant; or (b) a step in the proceeding be taken within the time limited in the order; or (c) the proceeding be stayed or dismissed, as to whole or any part of the relief claimed by the applicant, if the applicant does not take a step ordered by the Court in the proceeding in the time limited in the order. 12 As explained earlier in this judgment, his Honour ordered that, in default of payment by the appellant to the respondents of the sum of $68,609.41 on or before 29 February 2008, the proceedings were to stand dismissed. This order fell squarely within O 35A r 3(1)(c), and is in the nature of a "guillotine" order (Lenijamar Pty Ltd v AGC (Advances) Ltd (1990) 27 FCR 388). The power conferred by this rule is discretionary, and, as observed by Wilcox and Gummow JJ in Lenijamar in relation to a precursor to this rule: the power given by the rule is conditional on one circumstance only: the failure of a party to comply with an order of the Court directing that party to take a step in the proceeding. There is no requirement of intentional default or contumelious conduct, although the attitude of the applicant to the default and the Court's judgment as to whether or not the applicant genuinely wishes the matter to go to trial within a reasonable period will usually be important factors in weighing the proper exercise of the discretion. There is no requirement of "inordinate and inexcusable delay" on the part of the applicant or the matter. There is no requirement of prejudice to the respondent, although the existence of prejudice is also likely to be significant. (Lenijamar Pty Ltd v AGC (Advances) Ltd (1990) 27 FCR 388 at 395-396) 13 Their Honours continued: The discretion...is unconfined, except for the condition of non-compliance with a direction... (T)wo situations are obvious candidates for the exercise of the power: cases in which the history of non-compliance by an applicant is such as to indicate an inability or unwillingness to co-operate with the Court and the other party or parties in having the matter ready for trial within an acceptable period and cases - whatever the applicant's state of mind or resources - in which the non-compliance is continuing and occasioning unnecessary delay, expense or other prejudice to the respondent. (Lenijamar (1990) 27 FCR at 396) 14 In our view these comments apply with equal force to the discretion which the Court is presently required to exercise under O 35A r 3(1) (cf Cadbury Schweppes Pty Ltd v Darrell Lea Chocolate Shops Pty Ltd [2004] FCA 1718 at [23] and Wu v Avin Operations Pty Ltd [2006] FCA 36 at [48]-[51]). 15 In this case Dowsett J, who had been the docket judge throughout the history of this matter, formed the view that by 14 December 2007 the litigation was in a parlous state (Welsh [2007] FCA 2064 at [6]). His Honour ordered that the appellant have one further chance to regularise the proceedings before the proceedings would stand dismissed. The appellant was in default of an interlocutory order to pay costs to the respondents, which order had been made with the consent of the appellant. In making the order on 14 December 2007, his Honour exercised judicial discretion. His Honour took into consideration the principle that a litigant should not be denied its day in court only because of impecuniosity, but on balance considered that fairness to the parties justified the making of an order dismissing the proceedings in the event that the outstanding costs were not paid. 16 As a general proposition, to be successful on an appeal with respect to the exercise of a discretion the appellant must show error in the application of the relevant principles, the taking into account of an extraneous consideration, or the failure to take into account a relevant consideration in order to establish that there has been an error of law: House v R (1936) 55 CLR 499. 17 In summary, the appellant has submitted that the trial judge, in exercising his discretion pursuant to O 35A r 3(1) and ordering that the proceedings be dismissed in the event of non-payment of outstanding costs by the appellant: · failed to take into account the appellant's impecuniosity; · erred in finding that the appellant had had difficulty in formulating his claim, and in taking this issue into account; · erred in finding that confidence in the appellant's claim was not encouraged; · erred in finding that the respondents were prejudiced by the conduct of the appellant; · erred in finding that there was little cause for hope that the matter would be quickly resolved, and in taking this issue into account; and · erred in finding that the circumstances of the case were sufficiently serious to justify an order to dismiss the action, contrary to principles articulated in Gao (2005) 14 VR 380. 18 In view of the complexity of issues raised in relation to Gao (2005) 14 VR 380, we will consider those issues separately later in this judgment.
Issues relevant to exercise of discretion 19 It is not desirable nor necessary to attempt to identify all issues relevant to the exercise of discretion pursuant to O 35A r 3(1). Each case must be considered on its merits. 20 In these proceedings, in relation to the appellant's claims of impecuniosity, the evidence before the docket judge as to the impecuniosity of the appellant was not supported by any documentation other than the affidavit of his solicitor asserting that the appellant had limited assets (apart from his claim) and a net income of approximately $728 per week. Although the appellant's solicitor deposed that the appellant was seeking litigation funding no details were provided to his Honour, or indeed to this Court. The appellant submitted that he would suffer substantial injustice should his Honour's orders remain, however there is no compelling evidence of the appellant's impecuniosity or as to whether the appellant is or is not able to fund his own prosecution of the matter to trial. In any event, even assuming that the appellant suffers financial difficulties, the orders of Dowsett J of 14 December 2007 did not preclude the appellant from conducting the litigation, which had already been stayed for 12 months because of the non-payment of $20,000 previously ordered. 21 Second, in light of the history of this matter it was open to his Honour to find that the appellant did have difficulty in formulating his claim. While we accept the appellant's submission that amendment to pleadings is not uncommon in litigation, in this case: · the statement of claim had been through three significant amendments entailing addition of parties and both addition and abandonment of claims; · on the application of the appellant the trial dates had been vacated on three separate occasions during the previous twelve months; · the primary judge had made twelve orders in relation to this matter prior to 14 December 2007 including payment of costs to the respondents for costs thrown away; and · the assertion of the appellant that his difficulties could be laid at the feet of his previous counsel remained just that - an assertion. 22 We do not accept the appellant's submission that any basis for suggesting that the appellant had difficulty in formulating his claim disappeared when the appellant in fact formulated his claim and filed and served a fourth amended statement of claim (described as the "Second Amended Statement of Claim"). The context for this event must be considered, as it clearly was by the docket judge. 23 Third, his Honour's comments as to the difficulty the appellant had experienced in formulating his claim was a relevant consideration to take into account in deciding whether to exercise the discretion conferred by O 35A r 3(1) in light of the prejudice the respondents had already suffered. While nominally the respondents had been compensated for costs thrown away as a result of previous adjournments, the failure of the appellant to pay those costs, and the improbability of the appellant being able to pay any further costs awarded should his difficulty in formulating his claim continue, were factors relevant to his Honour's decision. 24 Fourth, it was open to his Honour to observe that, because the appellant had experienced difficulty in formulating his claim, confidence in the merits of the claim was not encouraged. However his Honour stated the position no higher than this. Indeed, his Honour continued: On the other hand it does not exclude the possibility that it is a meritorious claim. (Welsh [2007] FCA 2064 at [10]) 25 The appellant's submission that his Honour was in error in "finding" that the appellant's case lacked merit does not represent his Honour's discussion of this issue. 26 Fifth, while the appellant submitted that there was no evidence before his Honour to the effect that the respondents were prejudiced in their ability to conduct their business because of the costs they had incurred arising out of the litigation expenses, whether or not the respondents were so prejudiced was not decisive in these circumstances. The respondents had clearly suffered prejudice from the conduct of the appellant. As his Honour observed, the conduct of the appellant had caused the respondents to incur considerable costs which ought not to have been incurred, and which they ought not to have to pay. This prejudice was, in fact, compounded by the fact that the appellant had failed to pay those costs which had been ordered and, if the respondents were successful, it appeared unlikely that the appellant would be able to pay the respondents any additional costs incurred. 27 Sixth, contrary to the submissions of the appellant, there were facts before his Honour supporting a finding that there was little cause for hope that the matter would be quickly resolved. This included that: · the matter had been on foot for over two years as at December 2007; · it had been stayed for twelve months because the appellant had not satisfied a costs order against it; · a significant number of directions had been made in the matter with which there had been substantial non-compliance by the appellant; and · the appellant was apparently seeking litigation funding in order to prosecute his claim. 28 Given the ongoing prejudice to the respondents arising from the appellant's failure to pay outstanding costs, the question of whether the matter would proceed to a final hearing within a reasonable time was a relevant consideration in the circumstances of this case.
Failure to pay costs awarded in interlocutory proceedings: Gao v Zhang 29 Finally, the appellant submitted that the primary judge erred in his application of the principles in Gao (2005) 14 VR 380. In particular the appellant submitted his Honour erred in forming the view that the circumstances of this case were sufficiently serious to justify an order the effect of which would be to dismiss the action, where those circumstances did not bear the hallmarks of the conduct of the unsuccessful litigant in Gao (2005) 14 VR 380. In relation to this submission we make the following observations: · Although an order allowing the respondents to tax their costs prior to trial is relatively unusual, it was clear that the primary judge was concerned about the prejudice suffered by the respondents as a result of the appellant's conduct. We also note that the orders allowing taxation were not appealed. · Reported cases where the Court has ordered permanent stay or dismissal of proceedings in the event of failure to pay costs arising from interlocutory orders are few and far between. Gao (2005) 14 VR 380 is an example. Principles applicable to dismissal of proceedings generally for failure to pay outstanding costs (including costs awarded on an interlocutory basis) were also considered by the Victorian Court of Appeal in Phillip Morris Ltd v Attorney-General for the State of Victoria (2006) 14 VR 538. · It is clear that much of the authority which exists in relation to the issue of dismissal for non-payment of costs confirms the general principle that where an application for particular relief is dismissed with costs, the appellant is not allowed to apply again for identical or equivalent relief if it has not paid the costs of the previous application (see for example Cave J in Morton v Palmer (1882) 9 QBD 89 at 92 and In re Payne. Randle v Payne (1883) 23 Ch D 288, and more recently Thames Investment & Securities Plc v Benjamin (1984) 1 WLR 1381). The cases have traditionally differentiated between this situation and circumstances where costs awarded on an interlocutory basis earlier in the same proceedings have not been paid: Hines v Birkbeck College (No 2) [1992] 1 Ch 33 at 46, Phillip Morris (2006) 14 VR 583. · Historically the Courts considered that mere non-payment of costs awarded on an interlocutory basis was not sufficient to justify an order to stay proceedings (Graham v Sutton, Carden & Co [1897] 2 Ch 367) however they also recognised that each case must be considered on its merits. So for example where a plaintiff acted vexatiously towards a defendant in the course of the proceedings, the action could be stayed pending payment of costs ordered against the plaintiff (in re Wickham. Marony v Taylor (1887) 35 Ch D 272, Graham v Sutton, Carden & Co [1897] 2 Ch 367, cf Denning LJ in Hadkinson v Hadkinson (1952) P 285 at 297). 30 In Gao (2005) 14 VR 380 the Victorian Court of Appeal (Ormiston JA, Vincent JA agreeing) described the exercise of judicial power to dismiss proceedings in the event of failure to pay interlocutory costs as "drastic" and "draconian" (at 386). The Court continued that, unless the object of the order was 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). Their Honours also considered that there must be seen to have been some conduct on the part of the party in default which falls for condemnation, such as 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). 31 While the traditional approach of the courts to this issue is helpful, it is important not to lose sight of the fact that the judicial discretion vested by O 35A r 3(1) is unconditional. It is not the role of the appeal court to intervene in discretion properly exercised or without legal error. The analysis in Gao (2005) 14 VR 380, while both learned and helpful in considering the issues before this Court, does not in our view prescribe a standard of conduct which must be satisfied by a defaulting litigant before the primary judge can consider whether to make an order pursuant to O 35A r 3(1). There is no need for the defaulting litigant to have engaged in contumelious conduct in the nature of harassment or unfair dealing before the discretion of the judge conferred by O 35A r 3(1) is enlivened.
Conclusion 32 It is not in dispute that the paramount principle as described by Dixon J in Cox v Journeaux (No 2) (1935) 52 CLR 713 at 720 is that a claim honestly made by a suitor for judicial relief must be investigated and decided in the manner appointed. However, that principle also recognises that it may be appropriate to bring such proceedings to a close when they would amount to an abuse of jurisdiction or, more relevantly in this case, they would clearly inflict unnecessary injustice upon the opposite party (Cox (1935) 52 CLR at 720 cf Lenijamar (1990) 27 FCR 388 at 396). 33 In these proceedings there may be merit - as yet untested - in the appellant's claims; further, such evidence as exists indicates that the appellant suffers financial difficulties which may have prevented him satisfying outstanding costs orders against him. However the primary judge balanced these factors against the prejudice suffered by the respondents by the incurring of substantial and unnecessary costs, the fact that the appellant recognised this prejudice by conceding the award of costs against him, the ongoing difficulties the appellant had had in formulating a proper claim over a substantial period of time, and his Honour's view that an early resolution of the proceedings, after several years in which little advancement had been made, was not likely. While we endorse the view of the Court of Appeal in Gao (2005) 14 VR 380 that an order of this kind because of failure to pay interlocutory costs is not to be treated as an everyday occurrence (at 385), in this case the primary judge considered that the interests of justice favoured the orders made. We cannot identify any errors of the primary judge in reaching this decision. 34 In our view the appeal should be dismissed. I certify that the preceding thirty-four (34) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Tamberlin, Greenwood and Collier.
Associate: Dated: 18 August 2008 Counsel for the Appellant: Ms C Heyworth-Smith with Ms H Blattman (as pupil)
Counsel for the Respondents: Mr A Crowe SC and Mr M Ambrose
Welsh
Digilin Pty Ltd
(1935) 52 CLR 713
(2005) 14 VR 380
(1936) 55 CLR 499
(1990) 27 FCR 388
(2006) 14 VR 538
(2006) 14 VR 583
Appeal dismissed. The primary judge's order requiring payment of $68,609.41 by 29 February 2008, failing which the proceedings would stand dismissed, remained undisturbed.