Tuesday, May 9, 2017

Stay for non-payment of interlocutory costs order - Rozenblit v Vainer [2017] VSCA 52

Although many interlocutory decisions result in orders for payment of costs that are to be taxed and paid at the conclusion of the proceedings (see R 63.20.1), every now and then there is an interlocutory decision made where costs are fixed and are payable forthwith (see R 63.03(2.1)). Whenever such a cost order is made, there is a chance that the party responsible for paying those costs will not pay, and there is a question about how to deal with compliance. 

The primary option appears to be an application, under R 63.03(3), to stay or dismiss the proceeding (if the defaulting party is the plaintiff) or to strike out the defence (if the defaulting party is the defendant). Like R 63.20.1  this is a recent amendment to the Supreme Court Rules. The rule provides as follows:
[63.03](3) Where the Court makes an interlocutory order for costs, the Court may then or thereafter order that if the party liable to pay the costs fails to do so—
(a) if that party is the plaintiff, the proceeding shall be stayed or dismissed;
(b) if that party is a defendant, the defendant's defence shall be struck out.
However, the power is discretionary and it appears that the courts take a conservative approach to granting orders under this rule.

The matter of Rozenblit v Vainer [2017] VSCA 52 contains a neat summary, by Whelan and McLeish JJA, of the principles when a court will stay a proceeding for failure to pay a costs order made on an interlocutory decision, at [67]:
(a) a stay for failure to satisfy an order for costs in an interlocutory matter may only be ordered if it is the only fair and practical way of facilitating the just, efficient, timely and cost-effective resolution of the proceeding;
(b) justice between the parties requires regard to be had to the interests of the party in whose favour the costs were ordered to be paid;
(c) the parties’ conduct of the proceeding to date, and in particular the reasons for which costs were ordered to be taxed immediately, are relevant to the exercise of the power;
(d) a stay should not be ordered unless the conduct of the party in default warrants the condemnation inherent in such an order;
(e) the power is not to be used simply as a means of enforcing payment of the costs in question unless there are grounds for concluding that the party in default is recalcitrant and is capable of remedying the default.
The principles arose out of the case of Gao v Zhang [2005] VSCA 200, discussed by the Court of Appeal in Rozenblit v Vainer at [57]:
57 In Gao v Zhang, this Court upheld an order staying a proceeding pending payment of a series of costs orders. The plaintiff had harassed the defendant persistently with interlocutory applications over minor procedural matters, which were of progressively less merit over time.[51] In the course of his reasons, Ormiston JA (with whom Vincent JA agreed), said that it was necessary to ‘sound a word of warning lest it be thought that orders of this kind can be adopted as a dayto-day means of recovering costs ordered by the court’.[52] The power to stay the proceeding ‘ought not to be employed unless it is the only fair way of protecting the interests of the party seeking such an order’.[53] It was in that context that he described what was said by Dixon J in Cox v Journeaux [No 2] as the ‘basal principle’.[54]
Gao v Zhang was decided at a time when costs were able to be taxed immediately, and therefore a party could incur a substantial debt before the conclusion of the proceeding. As such, the Court of Appeal in Rozenblit v Vainer discussed whether the principles in Gao v Zhang still have application where, because of R 63.20.1, there are fewer circumstances where costs orders will be payable before the conclusion of a proceeding:
61 At the same time, the change in the Rules means that the power in r 63.03(3) now arises for exercise only in cases where the Court has already decided that something in the conduct of the proceeding has warranted the making of an order that costs ordered against a party in an interlocutory matter be taxed immediately. That factor cannot be overlooked. The fact that the Court has required that the costs in question be paid before the proceeding concludes indicates that the case is unusual. The Court’s reasons for imposing that requirement must therefore be taken into account.[60] But it remains the case that a stay should not be ordered simply to give effect to an interlocutory costs order that is taxable immediately. Such an order, after all, will give rise to a debt that may be able to be pursued by other means of enforcement. 
62 The above analysis is consistent with the other relevant development since Gao v Zhang was decided: the enactment of the CPA. As is well-known, the Court is required, when exercising its powers under the Rules, to seek to give effect to the overarching purpose of the CPA, being ‘to facilitate the just, efficient, timely and cost-effective resolution of the real issues in dispute’.[61]The grant of a stay represents the extreme case where the dispute is not to be resolved at all pending the meeting of a costs order. Consistently with the approach in Gao v Zhang, that circumstance can only arise when there is no other fair and practical way of ensuring justice between the parties.
That is, the approach remains the same because of the overarching purpose in section 7 of the Civil Procedure Act 2010 to facilitate the just, efficient, timely and cost-effective resolution of the real issues in dispute.