New South Wales Supreme Court CITATION : NORTH SOUTH CONSTRUCTION SERVICES P/L v CONSTRUCTION PACIFIC MANAGEMENT P/L [2002] NSWSC 286 CURRENT JURISDICTION: EQUITY FILE NUMBER(S) : SC 3793/01 HEARING DATE(S) : 05/04/2002 JUDGMENT DATE : 5 April 2002 PARTIES : North South Construction Services Pty Ltd - Plaintiff Construction Pacific Management Pty Ltd - Defendant JUDGMENT OF : Bryson J at 1 COUNSEL : R.K. Newton S. Epstein SC SOLICITORS : The Law Partnership - Plaintiff Baron and Associates - Defendant CATCHWORDS : COSTS - non-party - plaintiff's proceedings were dismissed with costs - defendant applied for order for payment of costs by Director who was principal figure in the commpany and the litigation and produced in evidence bogus documents in support of plaintiff's case held that an order could be made against the Director under SCR Pt 52A r4(2) and (5)(d) as there was an abuse of process. CASES CITED : Knight & Anor v. FP Special Assets Ltd (1992) 174 CLR 178 DECISION : Order for costs against non-party. IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION BRYSON J. FRIDAY 5 APRIL 2002 3793/01 NORTH SOUTH CONSTRUCTION v. CONSTRUCTION PACIFIC JUDGMENT 1 HIS HONOUR: The defendant's counsel has applied orally for an order that Mr Serafino Bianco known as Phil Bianco pay to the defendant the costs of the proceedings. In my order of 6 March 2002 I gave judgment for the defendant with costs, carrying an entitlement to recover costs against the plaintiff. The order sought would extend that liability to Mr Bianco, without of course relieving the plaintiff. 2 The Court's general power to order costs is created by section 76 of the Supreme Court Act 1970, which provides to the effect, in paragraph (1)(b), "The Court shall have full power to determine by whom and to what extent costs are to be paid...". 3 The subsection also provides in paragraph (a), "Costs shall be in the discretion of the Court". 4 Part 52A r.4, provides for the powers of the Court generally with respect to costs and Subr.(2) limits the power of the Court to make an order for costs against a person who is not a party to the cases stated in subr.(5). 5 The only relevant case in Subr.(5) relates to the power of the Court to make an order "(d) for payment by a person who has committed contempt of court, or an abuse of process of the Court, of the whole or any part of the costs of a party to proceedings occasioned by the contempt or abuse of process;". 6 In Knight & Anor v FP Special Assets Limited (1992) 174 CLR 178 the High Court dealt with the power of the Supreme Court of Queensland under legislation of Queensland to make an order for costs against a person who was not a party to the proceedings. 7 The legislation of Queensland and the provisions of the rules of court dealing with that subject were not in the same terms as the provisions in force in New South Wales but the statutory power does not appear to me to differ in a manner adverse to the application. It is even more clear on the terms of section 76 than it was in relation to the legislation of Queensland that the power extends to a person who is not a party. 8 The approach taken by the High Court in Knight's case gives no real guidance to discretionary considerations affecting the award of costs, as the High Court's attention was directed to the existence of the power in relation to the person against whom the power may be exercised. 9 In a judgment with which Gaudron J agreed, thus forming a majority of the High Court, Mason CJ and Deane J said at page 192.3, "For our part, we consider it appropriate to recognise a general category of case in which an order for costs should be made against a non-party and which would encompass the case of a receiver of a company who is not a party to the litigation. That category of case consists of circumstances where the party to the litigation is an insolvent person or man of straw, where the non-party has played an active part in the conduct of the litigation and where the non-party, or some person on whose behalf he or she is acting or by whom he or she has been appointed, has an interest in the subject of the litigation. Where the circumstances of a case fall within that category, an order for costs should be made against the non-party if the interests of justice require that it be made." 10 The category of case to which their Honours referred extends in my view to a director who is the only principal, or one of the principals, of a company and takes the leading part in the conduct of the litigation. Their Honours referred at page 192, text at note 77, to a Canadian case which in fact did involve a director and principal shareholder. 11 In literal terms Mr Bianco is a party to this litigation in that he is a cross-defendant to a cross-claim which has not yet been heard and which was not the subject of my order of 6 March 2002. In the relevant respects however he is in my view a non-party; he was not a party to the claims in the summons. 12 Evidence at earlier stages in these proceedings relating to security for costs showed that Mr Bianco is and was at relevant times one of two directors and shareholders the other being his wife, and there were equal shareholdings, each of one $1 share. 13 The manner in which the hearing was conducted and the burden of evidence demonstrate clearly that Mr Bianco took the principal part in the conduct of the litigation. 14 The claim for an order for costs against him is a claim for a discretionary order which can only be made if it is found that Mr Bianco falls within paragraph (d) of Part 52A rule 4(5) and that the costs claimed were occasioned by an abuse of process. The claim relates to the whole of the costs ordered to be paid by the plaintiff. 15 The abuse of process put forward for consideration is reliance on some documents tendered in evidence which manifestly were, and which I found to be, bogus documents. 16 In the course of interlocutory preparation for the hearing I heard and determined an application for security for costs and refused to make an order requiring the plaintiff to give security for costs, notwithstanding that it was clear that the plaintiff was unlikely to be able to satisfy an order for costs should it not succeed, because I took the view that the plaintiff was essentially in the posture of a defendant, in that the defendant had retained and refused to deliver up property to which the plaintiff then appeared to have a good arguable claim. 17 It cannot have been unknown to Mr Bianco, and by the time of the hearing it was well-known to all concerned in the litigation, that the plaintiff was in this impecunious position and that the defendant was without effective protection in respect of any costs which might be awarded to it. To my mind, this is a very important factor in the discretionary element of the claim made by the defendant for an order for costs against Mr Bianco. 18 I refer generally to the reasons I published on 6 March 2002 for references to the support of the plaintiff's case with bogus documents in the nature of invoices purporting to record the acquisition of goods. In paragraph 20 I said to the effect that it was clear "...to a very high degree of probability that the plaintiff did attempt to support his claim with documents which were not genuine but, in all probability, were brought into existence only for the purpose of supporting the claim." 19 There were further findings on this subject elsewhere in the judgment and I refer particularly to paragraph 30 where, after referring to the support of the plaintiff's case with bogus documents, I said, "Plainly, the plaintiff is not in a position to produce documents corroborating, in a significant way, the claim that there was a practice of transferring ownership to the plaintiff and the evidence of Mr Bianco himself about what he intended and about measures he took to bring it about does not show in any clear way that any such practice was followed." 20 That is to say, I saw the production of the bogus documents as an endeavour to garland with apparent support a case which, in truth, was bare of documentary support in very important respects. 21 In paragraph 31 I referred to the adverse influence of an endeavour to support the plaintiff's case with bogus documents on acceptance of the case generally in respect of credit. 22 During the course of the hearing the high probability that the documents were false became evident enough from consideration of material internal to them, and their references to times and circumstances. Internal material showed that it was very improbable that they were actually produced on the dates they bore. Mr Bianco embarked on an endeavour to explain the circumstances in his evidence. Of course, it became impossible for counsel to support the plaintiff's case with the documents, and counsel indicated before the evidence closed that the plaintiff no longer relied on them. 23 Mr Bianco gave in evidence an explanation for their existence in terms of their being brought into existence to conceal some cash transaction for the benefit of his workers. His explanation, which is shadowed by the same difficulty of acceptance as everything else he said, would if true reveal a clear understanding at the beginning of the hearing and earlier that the documents were indeed bogus and should not be relied on. 24 As the case was first presented the documents constituted a very important part of the material put forward to gain acceptance of the plaintiff's case and to accord credibility to the case. This was done with the knowledge of their falsity that Mr Bianco's later evidence shows he had at all times. 25 The concept of an abuse of process cannot, of course, be fully and clearly defined but, as in this instance, an abuse of process can usually be recognised in a clear way when observed. I have no doubt that presentation of this evidence, originally on affidavit by Mr Bianco, was an abuse of process. The bogus documents played such a prominent part in the presentation of the plaintiff's case, at least as first presented, that it should be understood that the hearing itself and the costs of the hearing were occasioned by that abuse of process. This finding on causation should no less be made because the costs were occasioned also by the presentation of other evidence which was not found acceptable. 26 In my finding then, the Court has power to make an order for costs against Mr Bianco, notwithstanding Part 52A r.4(2) because the application falls within the exception in Subr.(5)(d). 27 There are very strong discretionary considerations in favour of making an order against Mr Bianco, particularly having regard to the interlocutory proceedings in which security for costs was successfully resisted and the proceedings were brought on for trial in circumstances in which it could not really be doubted that the plaintiff would, if unsuccessful, be unable to satisfy a costs order. 28 At the centre of the whole series of events is conduct, or I should say misconduct, of Mr Bianco directly related to the conduct of the litigation and the presentation of the case at trial, which was severely reprehensible, and if anything became even more reprehensible when his explanation was put forward in a manner which revealed misconduct directed to a different objective. 29 There has been a reprehensible exploitation of the protection from liability available in respect of a company with limited liability, in this case with a capital no greater than $2, the affairs of which were entirely in the hands of Mr Bianco, to such a degree that the company operated as little more than an emanation of his own personality. 30 Returning to the injunction application, I do not wish to make the order until I have carefully reviewed notes of what I earlier said and settled the undertaking and so forth, which I would like to have transcribed for the purpose. 31 I will now order an injunction in terms of claim 1 in the summons with effect until further order, but within the next few days I will set that aside and make an order in the fuller terms I earlier indicated. 32 I intend to keep proceedings 1985/02 and the cross-claim in proceedings 3793/01 before me for directions, with a view to their being heard together. They will not necessarily be heard in the Expedition List. I will keep that subject under consideration. 33 Within two weeks the conduct in response to my decision on the interlocutory injunction will have become clear and I should look at the matter again then. 34 In both cases proceedings will be before me for directions on 19 April. 35 My view is that, although the order for costs affecting the parties to proceedings 3793/01 should be left for enforcement until proceedings are concluded, the order for costs against Mr Bianco is quite discrete from any matter remaining to be adjudicated in the cross-claim and there is no occasion to delay its enforcement. 36 The usual reasons for delaying enforcement until resolution of all issues is that there may be other costs order to set off, and that reason does not apply in the circumstances in which he was ordered to pay costs. 37 Orders: (1) I order that Serafino Bianco, known as Phil Bianco, pay to the defendant the costs of the defendant of the proceedings upon the plaintiff's summons. (2) I further order that Serafino Bianco pay to the defendant the costs of the application of 5 April 2002 for costs. (3) I direct that the order for costs against Serafino Bianco, also known as Phil Bianco, be enforceable forthwith. -o0o- Last Modified: 04/12/2002 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.