LUX GULABRAI v CARL HAMER-MATHEW SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL MEAGHER, BEAZLEY and STEIN JJA 18 April 1997, 26 June 1997 [1997] NSWCA 131 torts — collateral abuse of process — arising from defence FACTS The respondent, an art dealer, instituted proceedings against the appellant seeking declaratory and mandatory relief and damages in respect of certain art works which it alleged were lent to the appellant. The proceedings were heard in the Supreme Court and the respondent was successful in obtaining the return of the art works. The respondent also argued that the appellant had committed the tort of abuse of process in the manner it had conducted its defence. Again, the respondent was successful and was awarded general compensatory damages and exemplary damages in respect of that tort. The appellant appealed on the issue of the tort of abuse of process. HELD 1. There is no reason in principle, or as a matter of policy, why a defendant cannot commit the tort of abuse of process in the conduct of its defence. 2. In the case of the tort being committed by a defendant, the tort arises when the process used by the defendant is being used for the dominant purpose of effecting an object not within the proper scope of the litigation. 3. It is not necessary for the plaintiff to show that the defendant, in these circumstances, did not have an honest belief in its defence. 4. For the defendant to have committed the tort in conducting its defence it is not sufficient that it merely put forward an indefensible case which it knew not to be defensible. 5. A plaintiff can seek redress in respect of the defendant's tort (when the tort arises as a result of the conduct of the defence) during the proceedings in which the tort is said to have been committed without due process having been filed, provided the parties are adequately heard. Meagher JA This appeal is made from the decisions of Brownie J of the Supreme Court delivered on 22 August 1994 and 6 September 1994 and from the decision of Master McLaughlin of 7 April 1995. Proceedings were instituted in the Supreme Court by summons filed by the respondent on 2 August 1994, seeking declaratory and mandatory relief and damages and costs in respect of two lithographs, a Picasso and a Chagall, said to have been lent to the appellant. Those proceedings came before Brownie J on 18 August 1994. The Appellant's defence was that the Chagall had been given to him and the Picasso sold to him. On 22 August 1994, the appellant sought leave to withdraw his entire defence. The respondent argued, first for orders for the return of the lithographs and that damages and indemnity costs be granted. The applicant consented to a term that special damages be awarded against him in the sum of $2000, representing the estimated cost of repairing the frame and mounting of the Picasso. Secondly, the respondent claimed damages for loss of reputation and for hurt and distress arising from the applicant's conduct of his defence. 2 UNREPORTED JUDGMENTS His Honour delivered judgment on the application on 22 August 1994, making the following findings of fact concerning the dispute: the respondent sold to the appellant nine Chagall lithographs (not the subject of these proceedings) on 20 January 1994; Mr Freedman, the true owner of the Picasso, delivered the Picasso lithograph to the respondent's gallery on 2 February 1994; and, at some time after that date, the respondent lent to the appellant the Picasso and the Chagall lithographs, the subject of the proceedings. The respondent argued that the appellant had improperly defended the proceedings and had used the proceedings as a vehicle for accusing the plaintiff of trickery, forgery, selling fakes, significant wrongdoing, committing a crime and with commencing the proceedings with the purpose of thwarting the respondent from suing the appellant in respect of a supposed sale of forgeries, apparently unrelated to the specific lithographs concerned in these proceedings. Various newspaper articles were drawn to his Honour's attention, all of which his Honour accepted as fair reports of the litigation. One such article reported that the appellant denied the respondent's allegation that the lithographs had been lent to the appellant and described that allegation as a "complete fabrication". His Honour was also "troubled as to how any honest person in the position of the defendant [the appellant in the proceedings before this court] could have made the statements he makes in the affidavits as to the circumstances of the purchase of the nine Chagall lithographs and the Picasso lithograph". It was argued for the respondent that a defendant might be liable in damages for improperly defending an action which he ought not defend or for defending it for a dominant purpose which is wrong. His Honour did not decide the point on that day, but ordered that the appellant deliver the lithographs to the respondent and granted leave for the appellant to withdraw his defence. His Honour awarded indemnity costs and adjourned the matter. Judgment on the outstanding issue was handed down on 6 September 1994. His Honour accepted that the tort of abuse of process is not limited to the conduct of a plaintiff or cross-claimant, but that, in the case of defendants, it requires more than the mere putting forward of an indefensible case, not believed to be defensible. This is clearly correct. His Honour found that the appellant could not have had an honest belief in his defence, at least on or after 18 August 1994, being the day the hearing commenced. More importantly, his Honour found that the appellant's purpose was improper; the line of accusations made by him being part of a plan to try to harm the respondent by obtaining publicity for the allegations and for the dominant purpose of putting pressure on the respondent to settle a different dispute with the appellant's brother. His Honour held that the appellant had committed the tort of abuse of process, subject to loss being proved and made orders referring the matter to a Master for inquiry as to whether the respondent had suffered any damage in consequence of the appellant's abuse of the process of the court. Costs were awarded on an indemnity basis. The matter came before Master McLaughlin, who delivered reasons on 7 April 1995. The Master ordered general compensatory damages in the sum of $50,000, exemplary damages in the sum of $50,000 and special damages in the sum of $1,613.00, a total of $101,613. The appellant appeals to this court from the decisions of Brownie J and Master McLaughlin. The appellant sought leave to adduce further evidence and later withdrew that application. URJ LUX GULABRAI v CARL HAMER-MATHEW (Meagher JA) 3 The appellant argued that, as a matter of the rules of the Supreme Court, leave was not required to withdraw his defence and leave could not be given on terms. However, learned counsel for the appellant in the proceedings before Brownie J sought leave to withdraw his defence and, further, accepted that leave could be given on terms. It is not open for the appellant to appeal on procedural matters consented to by him. It is not necessary to consider whether the appellant's interpretation of the rules is correct, but I think it is not. The appellant argued that Brownie J erred in holding that a defendant could commit the tort of abuse of process in the course of his defence. The tort of abuse of process arises more frequently from the conduct of a plaintiff or a cross-claimant, but there is no reason as a matter of principle or policy that the tort cannot also be committed by a defendant. The appellant further argues that Brownie J erred in holding that the appellant's conduct was such as to constitute the tort. This argument has two prongs: that Brownie J was wrong in finding that the appellant could not have had an honest belief in his defence on or after 18 August 1994 and that Brownie J erred in finding that the defendant's conduct was improper in the sense that it was conducted for a dominant purpose which was improper. The tort of abuse of process, when it arises in the case of a defendant's conduct of his defence, is committed when the process is being used by the defendant for the dominant purpose of effecting an object not within the proper scope of the proceedings. Thus, a defendant can have an honest belief in his defence, yet conduct the defence in such a manner as to commit the tort. It is unnecessary to consider whether Brownie J erred in holding that the defendant could not have had an honest belief in his defence and it is not an error that Brownie J held the defendant's conduct of its case constituted an abuse of process even after finding that the defendant may not have known that what he said was untrue. There was ample evidence before his Honour to enable him to conclude that the defence was conducted in the fashion that it was for the dominant and improper purpose of pressuring the respondent to settle a dispute then existing between the appellant and the respondent's brother. The appellant's cross-examination of the respondent's witnesses clearly went beyond testing their credit. The appellant argues that it was an error to allow the respondent to make the claim of abuse of process without due process being filed. The tort is an unusual one in that it always arises, in the case of defendants, during proceedings. Provided the parties are adequately heard on the matter, it is clearly within the court's jurisdiction to consider the claim without due process being filed. The same can be said for the application for damages. Superior courts have power to control their processes and have the power to make orders in respect of abuses of process whether or not they constitute the tort of abuse of process. The appellant argues that Brownie J and the Master erred in awarding indemnity costs. The award of costs is a discretionary matter. The award of indemnity costs in a matter such as the present was clearly within a proper exercise of discretion. Brownie J held that the tort of abuse of process had been committed subject to it being shown that the respondent had suffered damage. The appellant's Notice of Appeal argues that the Master erred in finding that the respondent had suffered damage and, further, that the award of damages made was excessive. It was argued that an error was made in awarding exemplary damages. 4 UNREPORTED JUDGMENTS It is also stated that the Master erred in considering the media reports on one side and the absence of media reports supporting the other side and that he erred in considering all the evidence before Brownie J as well as that before himself. All of that evidence is directly relevant to the issue of damage that the Master was to decide. He made no error of law in considering that material. It was argued that the Master erred in finding that the effect of the withdrawal of a defence amounted to an admission that the allegations made by the appellant were without foundation. I am not convinced that the Master made that finding. The relevant paragraph reads as follows: "Tt can not be emphasised too strongly that no attempt was made by the defendant to support the allegations which were made against the plaintiff in cross-examination. Indeed, by seeking, and obtaining, the leave of the Court to withdraw his defence, the defendant in effect admitted that those allegations were without substance." In what is otherwise a very clear and concise judgment the second sentence of that paragraph is perhaps poorly worded. It seems that the Master was simply trying to stress that there was no evidence or conduct on the part of the appellant which indicated or lent to the inference that the allegations levelled at the respondent had any substance. There are further, but largely hopeless grounds of appeal. The appellant argues that the Master erred in finding that Brownie J held that the defence was totally without foundation. Brownie J certainly held that the defence was substantially, if not totally, without foundation. The appellant then argues that the Master erred in finding that Brownie J found that the lack of foundation was known by the defence. It was open to the Master to make that finding from the judgments, even if the better interpretation was that Brownie J found that the defendant did not have an honest belief in his defence. Lastly, the Notice of Appeal claims the Master erred in finding that Brownie J "found that the tort was intended by the defendant to effect (sic) other pieces of litigation'. I interpret Brownie J to have held that the defendant conducted his defence for the dominant purpose of affecting other existing or potential litigation. There was evidence before the Master supporting both the finding of special damages and compensatory damages. The sum awarded for the latter was a sum within the discretion of the Master. It is settled that exemplary damages are awardable in respect of torts of a sufficiently reprehensible kind. The amount awarded by the Master was well within his jurisdiction and discretion All grounds of appeal fail. I propose the appeal be dismissed with costs (including all reserved costs). Beazley I agree with Meagher JA. Stein JA I agree with Meagher JA. Appeal dismissed with costs. Counsel for appellant: W Hodgekiss/K Andrews Counsel for respondent: C Evatt Solicitors for appellant: N G Cassim & Company Solicitors for respondent: Carters