Plaintiff v Defendant

Whether allegations of forgery or procurement of forgery were a calculable proportion of the hearing time - Whether forgery or procurement of forgery can be separated out from suite of improper conduct claimed - Jeans v Bruce [2004] NSWSC 758.

1 On 26 August 2019, I published my reasons for judgment in this matter.[1] I found for the defendant. The defendant now seeks an order that his costs in this proceeding, including all reserved costs, be taxed on an indemnity basis.

2 Section 24 of the Supreme Court Act 1986 accords the Court broad discretion to award costs. Rule 63.31 of the Supreme Court (General Civil Procedure) Rules 2015 confirms that the standard basis of taxation is the usual basis of taxation. The bases of taxation provided for at rule 63.28 include the taxation of costs on "the indemnity basis".

3 Justice Harper in Ugly Tribe Co Pty Ltd v Sikola[2] relevantly summarised grounds that would justify a departure from ordering costs other than on the standard basis:[3]

1. In seeking costs on an indemnity basis, the first defendant is asking the Court to depart from its usual course: Spencer v Dowling.[4] Special circumstances must be present to justify such a departure: Australian Electoral Commission v Towney (No. 2).[5] These include:

(i) The making of an allegation, known to be false, that the opposite party is guilty of fraud: Fountain Selected Meats (Sales) Pty. Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397.

...

1. The categories of special circumstances are not closed: Tetijo Holdings.[6] The cases must not, therefore, be read "in an endeavour to establish a set of inflexible guidelines which should thereafter be determinative of the manner in which the Court's discretion is to be exercised [for this] would be to fetter the Court's discretion": National Australia Bank v. Petit-Breuilh.[7]
2. At the same time, the courts should, I think, be astute to avoid a wilderness of single instances. ...

4 The Court is also empowered to impose sanctions under Part 2.4 of the Civil Procedure Act 2010 ("the CPA") where there has been a breach of the overarching obligations, which can entail an order for payment of costs.[8] Recourse to the CPA has been said to provide "a further separate and independent basis for awarding indemnity costs",[9] including where the Court of Appeal has directed that "judicial officers must actively hold the parties to account" for contraventions of the overarching obligations.[10]

5 As Dal Pont, in Law of Costs, relevantly notes:[11]

Special costs orders have been ordered in cases where a litigant makes and persists with allegations of fraud, or other allegations of improper conduct seriously prejudicial to the character or reputation of a party, which ultimately prove unfounded. This is almost an invariable outcome where the litigant knew or should have known that the allegations were false or unsupportable. It reflects the notion that a person should not allege fraud or other improper conduct without a proper evidentiary foundation, as such an allegation may be recounted in the community and through the media, and harm a litigant's reputation before evidence has been offered and submitted to the scrutiny of cross-examination or rebuttal. The court aims to deter unsupported allegations of this kind by, inter alia, costs orders, whether special orders against a litigant or a costs order against his or her lawyer.

[Citations omitted]

6 Allegations of fraud and improper conduct seriously prejudicial to the reputation of the defendant characterised all claims made by the plaintiff against the defendant in this proceeding. All claims were unfounded.

7 The plaintiff pleaded two categories of "impugned conduct". With reference to what the plaintiff called the "2010 Impugned Conduct",[12] I described and found:

1. The plaintiff's pleaded case is that the defendant engaged in certain conduct without the plaintiff's 'knowledge or informed consent', namely:

(a) procuring a loan from NAB for $580,000 (being the First King Street Loan);

(b) procuring the plaintiff to sign a guarantee and indemnity (apparently the 2010 Guarantee) and mortgage 'without Hua [the plaintiff] receiving independent legal advice'; and

(c) procuring the transfer of $716,000 from a bank account in the plaintiff's name to a bank account in the defendant's name.[13]

Contrary to the pleaded allegation of lack of knowledge on the part of the plaintiff, I accept the defendant's submissions that the plaintiff was aware of each of the above matters.

With reference to what the plaintiff called the "2013 Impugned Conduct",[14] I described and found:

1. The plaintiff asserts that the signatures appearing on the 2013 Guarantees were 'forged' by or with the defendant's knowledge.[15] The defendant's denial that he had any knowledge of, or involvement in, the execution of the 2013 Guarantees should, in my view, be accepted. There is, as the defendant submits, simply no evidence to suggest otherwise. Indeed, having regard to the minimal benefit to the defendant arising from the financial restructuring of which the 2013 Guarantee was a part - and the risk to him in requiring the 2013 Guarantee in terms of exposing matters with respect to the 2010 Guarantee if the plaintiff's allegations were true - the allegation of forgery with respect to the defendant is simply fanciful and implausible. Moreover, this is a very serious allegation indeed and should only be made and could only be sustained with very clear evidence in support of such an allegation to a Briginshaw v Briginshaw[16] standard of proof. The report of the plaintiff's handwriting expert, Mr Neil Holland, is inconclusive on the question of who signed the 2013 Guarantees. Mr Holland concludes, simply, that he is unable to say whether the plaintiff, the defendant or Ms Cheng signed the 2013 Guarantees. Most relevantly, Mr Holland does not conclude that the defendant wrote the signatures appearing on the 2013 Guarantees.[17]

The plaintiff also claimed unconscionable conduct on the part of the defendant due to the plaintiff's alleged special disadvantage in relation to the defendant.[18] This claim too was wholly unsuccessful.[19] I found that the plaintiff did not even satisfy the threshold requirement of such a claim by demonstrating that she suffered from any special disability or disadvantage at all.

8 In respect of the forgery claim particularly, the defendant, in his outline of opening submissions, notes that:[20]

The allegations of forgery and the defendant's knowing participation in same are serious allegations which underpin the proceeding. They have no evidentiary basis and are the product of nothing more than speculation on the part of the plaintiff. A handwriting expert retained by the plaintiff (Neil Holland) has prepared a report that is inconclusive on the question of who (other than the plaintiff) signed the 2013 Guarantees.

The allegation of forgery was the most serious of the three claim made by the plaintiff. The taint of that allegation coloured the whole of the trial and, particularly, the two other bases of improper conduct alleged by the plaintiff. The plaintiff consistently argued that the impugned and unconscionable conduct she alleged together typified the defendant's behaviour towards her in the context of their partnership:[21]

[B]y inducing Ms Li to sign the mortgage and guarantee documents to enable him to obtain the 2010 Loan, without informing her of their significance and effect, Mr So obtained a benefit that he would not otherwise have been able to obtain in the form of the 2010 Loan. Mr So's benefit was in direct conflict with Ms Li's interest in retaining an unencumbered share of the King Street Property and exposed her to personal liability in respect of his indebtedness without her knowledge. Further, and damningly, Mr So either forged or procured the forgery of Ms Li's name when obtaining the 2013 Loans.

9 In the face of a suite of damning allegations, the defendant maintained throughout the trial that the proceeding should be dismissed with indemnity costs. In the face of those submissions and despite the absence of evidence (including at trial), the plaintiff did not withdraw her forgery allegation. Rather, as I noted in my Reasons, the plaintiff, in both written and oral closing submissions,[22] argued for the inference to be drawn that the defendant had forged or procured the forgery of signatures on the 2013 bank guarantees. I not only found that that allegation could readily be rejected but also expressed my concern that such an allegation had been put, "in the absence of clear supportive evidence of the requisite standard".[23] In the submissions of the defendant, the plaintiff knew, or ought to have known, that the allegations comprising the "2013 Impugned Conduct" lacked a proper evidentiary basis.

10 I cannot accept the submissions of the plaintiff made to the contrary. The claim that the defendant forged or procured the forgery of the plaintiff's signatures on the 2013 bank guarantees did not have a proper evidentiary basis. Such a claim was not rational, coherent and fairly arguable having regard to what was known and what reasonably might transpire by way of future fact finding, from the perspective of the plaintiff ahead of trial. At trial, the plaintiff gave evidence that she did not sign the 2013 bank guarantees and relied on Mr Holland's report to the extent that the two 2013 bank guarantees were signed by different people. On the basis of that evidence it was not fairly arguable, contrary to the submissions of the plaintiff, that the defendant forged or procured the forgery of signatures on the bank guarantees. Other possibilities as to how the 2013 bank guarantees came to be signed were raised by the defendant, to which I referred in my Reasons.[24]

11 There is a distinction to be drawn between the existence of other possibilities and the establishment of a proper basis for claims brought. In my view, the very serious allegation made by the plaintiff that the defendant committed or procured the forgery of her signatures on the 2013 bank guarantees was brought without a proper basis.[25] The same is true both of the alleged of the "2010 Impugned Conduct" and the alleged unconscionable conduct. While these were not claims of fraud or forgery, they were still serious allegations made in the context of and argued alongside a very serious allegation of forgery, against which the defendant was obliged to mount a full defence and which was entirely successful.

12 In Niml Ltd v Man Financial Australia Ltd (No 2),[26] the defendant submitted that it was subjected to allegations of fraud in circumstances where the plaintiff knew them to be false. There Justice Harper relevantly said:[27]

Allegations of fraud should only be made on the basis of evidence, worthy of serious consideration, which points to dishonesty in the subject of the allegation. Loose allegations of fraud are a blot on the adversarial system, and may - where, for example, they are made in terrorem - amount to an abuse of process. It is therefore important that those inclined to make such a serious allegation on an inadequate, or no, foundation be discouraged in their purpose by the prospect of having to pay costs as between solicitor and client.

In determining not to award indemnity costs in that case, Justice Harper emphasised that the plaintiff in that case never sought to prove actual fraud on the part the defendant, and instead pitched its case at the level of the employer defendant's constructive knowledge of the conduct of an fraudulent employee. His Honour described the resolution of that dispute as a "journey through difficult and to some extent unexplored territory" and "by no means clear-cut".[28]

13 In my view, "evidence, worthy of serious consideration, which points to dishonesty"[29] by the defendant as alleged by the plaintiff was simply not adduced. This is true in respect of all three bases of breach of fiduciary duties alleged by the plaintiff.

14 The Court of Appeal has confirmed that the special circumstances that may warrant an indemnity costs order "may also include the making of an allegation of fraud which is not proved".[30] In Clarke (as trustee of the Clarke Family Trust) & Ors v Great Southern Finance Pty Ltd (Receivers and Managers Appointed) (in liquidation) & Ors,[31] the Court observed that, "indemnity costs orders might be expected to flow from some of the allegations akin to fraud which were made, but not found to be established, in the course of the proceedings".[32]

15 In Taouk v Louis (No 3)[33] the New South Wales Court of Appeal observed that it was "a significant matter to allege fraud" and ordered that the costs of the proceeding be paid on an indemnity basis where the plaintiffs' "basal allegation" of forgery of signatures was "not supported by any independent evidence, such as expert handwriting analysis".[34]

16 In Jeans v Bruce,[35] the New South Wales Supreme Court weighed the gravity of unproven allegations of forgery and conspiracy "against the lack of reliable evidence put forward to prove such allegations", determining that the pursuit of those allegations was "so deserving of criticism as to warrant an indemnity costs order...".[36]

17 The plaintiff relies on the decision of Emerton J in Candibon Pty Ltd v Minister for Planning (No 2)[37] that the Court's finding that an alleged deceitful representation had not in fact been made did not form a basis for an extraordinary costs order in circumstances where it was found that relevant conversations had taken place between the witnesses but not to the effect claimed:[38]

[A]lthough the court found that the statements giving rise to the alleged deceit were not made as alleged, the findings made by the court do not establish that Candibon made an allegation of fraud knowing it to be false. The court held, on the balance of probabilities, that the statements were not made as alleged. However, it found that on several occasions there were discussions between Mr Mondous and Mr Maclelland behind closed doors in Mr Maclelland's electorate office about the very matters upon which the claim for deceit was based, namely the future use and development of the subject land and whether or not the Minister should acquire it, either by way of compulsory acquisition or as a negotiated sale. As the Court of Appeal determined, Candibon was entitled to bring this claim. In my view, it was entitled to do so without necessarily being exposed to a special costs order.

18 The plaintiff asserts that while her claim has plainly failed in all respects, the Court's Reasons do not disclose a finding - and no basis has been advanced for suggesting - that the allegations or the proceedings generally were made for ulterior purpose or were made with knowledge of their falsity.[39] I do not accept this submission. That unfounded allegations of fraud or forgery are such a well-established basis for the order of indemnity costs exemplifies the seriousness with which the Court views claims of this nature and the function of deterrence that is fulfilled by the making of exceptional costs orders in such cases.

19 In Jeans v Bruce, to which reference has been made already, Einstein J made orders for payment of indemnity costs in relation only to that portion of the successful party's costs incurred in meeting an unfounded allegation of forgery and for payment of the balance of the successful party's costs on the standard basis:[40]

1. The discretion which the Court has as to costs is to be exercised judicially, that is to say upon proper grounds and the Court will not lightly depart from standard practice in the awarding of costs.
2. In this case the special or unusual circumstances which dictate a careful consideration to whether or not indemnity costs should be awarded against the second and third defendants concern the litigated issue concerning the alleged forgery and the matter referred to in the judgment as the conspiracy theory. In my view, the gravity of the allegations made by the second and third defendants in this regard when weighed against the lack of reliable evidence put forward to prove such allegations constitutes conduct which is, indeed, so deserving of criticism as to warrant an indemnity costs order at least in so far as that portion of the plaintiff's costs involved in litigating this issue are concerned.

1. Doing the best that I can in the circumstances to assess the extent to which the hearing was concerned with these particular issues, it seems to me that a proper estimate in that regard is that 50% of the hearing time was concerned with those issues.

20 Accordingly, the plaintiff submits, it is appropriate that any exceptional costs order made in this proceeding be confined to the costs of the particular allegation - here, the plaintiff submits, the "2013 Impugned Conduct" allegation - that is said to enliven the discretion. I do not accept that in these circumstances the best I can do is to attempt to unpick the very serious allegation of forgery from the suite claims of improper conduct levelled against the defendant in this proceeding. That most serious and damning allegation tainted the whole of the proceeding and left the defendant, as he submits and I accept, in a very invidious position. It certainly would not be appropriate to attribute a mere 15 per cent, as the plaintiff submits in the alternative, to this one of six key elements into which the plaintiff organised its arguments. The defendant was entitled to consider it necessary to defend the proceeding in its entirety. Such considerations do not readily lend themselves to an arithmetic allocation.

21 For the preceding reasons, I find that the defendant is entitled to taxation of indemnity costs for all costs in this proceeding, including all reserved costs.

[1] Li v So [2019] VSC 515 ("Reasons").

[2] [2001] VSC 189.

[3] Ugly Tribe Co Pty Ltd v Sikola [2001] VSC 189, [7]-[9]. See also Sunland Waterfront (BVI) Ltd v Prudentia Investments Pty Ltd (No 3) [2012] VSC 399, [11]-[22]; Sunland Waterfront (BVI) Ltd v Prudentia Investments Pty Ltd [2013] VSCA 237, [551]-[572].

[4] [1996] VSC 51; [1997] 2 VR 127 at 147 per Winneke P and 163 per Callaway JA

[5] (1994) 54 FCR 383 at 388.

[6] Tetijo Holdings Pty Ltd v Keeprite Australia Pty Ltd (unreported, Federal Court, French J, 3 May 1991).

[7] National Australia Bank v. Petit-Breuilh (No 2) (unreported, [1990] VSC 395, 18 October 1999).

[8] See section 29(1)(a) of the Civil Procedure Act 2010.

[9] MacFayden & Ellis v Bank of Queensland Ltd [2015] VSC 20, [17]-[19]; Yara Australia Pty Ltd v Oswal [2013] VSCA 337; (2013) 41 VR 302 at 311-2 [27], at 317 [56]; Sunland Waterfront (BVI) Ltd v Prudentia Investments Pty Ltd [2013] VSCA 237, [553]-[554].

[10] Yara Australia Pty Ltd v Oswal Apache Fertilisers Pty Ltd [2013] VSCA 337; (2013) 41 VR 302 at 311 [24], [26] affirming Sunland Waterfront (BVI) Ltd v Prudentia Investments Pty Ltd (No 3) [2012] VSC 399.

[11] G E Dal Pont, Law of Costs (Sweet & Maxwell, 4th ed, 2018) [16.63].

[12] First Amended Statement of Claim (13 December 2017), [9].

[13] First Amended Statement of Claim (13 December 2017), [9].

[14] First Amended Statement of Claim (13 December 2017), [12].

[15] First Amended Statement of Claim (13 December 2017), [12].

[16] [1938] HCA 34; (1938) 60 CLR 336 at 363.

[17] See Expert Report of Neil Holland (1 May 2017) particularly [7] of the "Summary of Results".

[18] First Amended Statement of Claim (13 December 2017), [15]-[19].

[20] Defendant's Outline of Argument (5 July 2019), [19].

[21] Plaintiff's Outline of Submissions (8 July 2019), [14].

[22] Plaintiff's Closing Submissions (29 July 2019), [40]: "[n]otwithstanding Mr So's denial of responsibility for the forgeries, the natural (and in the plaintiff's submission the only) supportable inference is that Mr So forged or directed an unknown person to forge Ms Li's signature...".

[25] Civil Procedure Act 2010, section 18(d).

[26] [2004] VSC 510.

[27] Niml Ltd v Man Financial Australia Ltd (No 2) [2004] VSC 510, [6].

[28] Niml Ltd v Man Financial Australia Ltd (No 2) [2004] VSC 510, [8].

[29] Niml Ltd v Man Financial Australia Ltd (No 2) [2004] VSC 510, [6].

[30] David Weiping Chen v Kim Man Chan [2009] VSCA 233, [10(7)].

[31] [2014] VSC 516.

[32] Clarke (as trustee of the Clarke Family Trust) & Ors v Great Southern Finance Pty Ltd (Receivers and Managers Appointed) (in liquidation)& Ors [2014] VSC 516, [144].

[33] [2014] NSWSC 1117.

[34] Taouk v Louis (No 3) [2014] NSWSC 1117, [10].

[35] [2004] NSWSC 758.

[36] Jeans v Bruce [2004] NSWSC 758, [38].

[37] [2012] VSC 424.

[38] Candibon Pty Ltd v Minister for Planning (No 2) [2012] VSC 424, [19].

[39] See Sunland Waterfront (BVI) Ltd v Prudentia Investments Pty Ltd (No 3) [2012] VSC 399, [89].

[40] Jeans v Bruce [2004] NSWSC 758, [37]-[38], [40].