The High Court has allowed an appeal from the Victorian Court of Appeal with regard to an order for costs arising from litigation between former business partners about a transfer of shares in a tyre recycling company, VR Tek Global Pty Ltd. The case concerned a stay of proceedings where the appellant was impecunious and his action would effectively be terminated by a stay.

Mr Rozenblit brought proceedings in the Supreme Court of Victoria in which he alleged that the first respondent, Michael Vainer, had fraudulently, and without his knowledge or consent, transferred shares owned by him to the second respondent, Alexander Vainer (the first respondent’s father) and that the now-liquidated company’s assets were subject to a trust in his favour. After pleadings had closed, Mr Rozenblit sought leave to amend his statement of claim in three separate summonses. While leave to amend pursuant to the third summons was granted, the judge stayed Mr Rozenblit’s claim pursuant to r 63.03(3) of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) until the interlocutory costs orders with regard to the first and second (unsuccessful) summonses were paid. Rule 63.03(3) provided:

“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.”

Mr Rozenblit was unable to meet these costs orders because he had no money. Mr and Mrs Rozenblit lived in government housing, had no appreciable assets and their sole income was social security payments from Centrelink and a small pension from Russia. The primary judge, Lansdowne AsJ, found that Mr Rozenblit’s attempts to amend his statement of claim were genuine. Moreover, the stay of proceedings effectively terminated the appellant’s claim, whereas the respondents were not seriously financially prejudiced by the refusal of a stay. Nonetheless she granted the stay. Mr Rozenblit appealed unsuccessfully to a single judge of the VSC (Cameron J) and then to the VSCA. The VSCA upheld the stay, despite an earlier case, Gao v Zhang, barring the use of such rulings as a form of debt collection. This was because subsequent to Gao v Zhang, r 63.20.1 was added to provide that interlocutory costs are not taxable until the proceeding has concluded unless the court orders otherwise, and this reduced the risk that r 63.03(3) might be used as a means of debt collection. The Rules also had to be read in light of the Civil Procedure Act 2010 (Vic) which was intended to facilitate the just, efficient, timely and cost‑effective resolution of the real issues in dispute.

The High Court unanimously allowed the appeal in three separate judgments (Kiefel CJ and Bell J, Keane J and Gordon and Edelman JJ). It was held that a litigant should be entitled to a determination unless the proceedings would amount to an abuse of process or would inflict injustice on the party seeking the stay. Moreover, in Gao v Zhang, Ormiston JA had said that the conduct of the defaulting party must be conduct which “falls for condemnation” in order for a stay to be warranted. Mr Rozenblit had not engaged in persistent serious harassment, unlike Mr Gao in Gao v Zhang; rather at the time of the third summons, Mr Rozenblit had a genuine claim, properly pleaded. Thus, the appellant’s conduct did not fall for condemnation (at [29] per Kiefel CJ and Bell J, [112] – [113] per Gordon and Edelman JJ). Moreover, the serious consequences of making an order under r 63.03(3) against an impecunious plaintiff meant that a stay should be granted only where it was the only practical way to ensure justice between the parties ([29] – [30] per Kiefel CJ and Bell J, [44] per Keane J, [53], [71] – [72] per Gordon and Edelman JJ). Alternative means of ensuring justice between the parties had not been adequately exhausted ([34] per Kiefel CJ and Bell J, [47] per Keane J, [113] per Gordon and Edelman JJ). Consequently leave to appeal was granted, and the respondents were ordered to pay the appellant’s costs.