ATS | LIMITED CIRCULATION ONLY NOT APPROPRIATE FOR REPORTING CATCHWORDS Practice and Procedure - application for adjournment of contempt proceedings - breach of order that respondent provide security - leave to appeal granted but no stay of order allowed - effect of pending criminal proceedings - question arising as to continuing effect of order after consent judgment entered. STEPLING INDUSTRIES LTD. V. NIM SERVICES PTY. LTD. & ORS. No. G281 of 1984 COPAM: Woodward J. DATE: 22 May 1986 PLACE: Sydney IN THE FEDERAL COURT OF AUSTRALIA ) NEW SOUTH WALES DISTRICT REGISTRY ) No. G281 of 1984 GENERAL DIVISION ) BETWEEN : STERLING INDUSTRIES LIMITED Applicant AND: NIM SERVICES PTY. LIMITED AND ORS Respondents MINUTES OF ORDER COURT 3 Woodward J. DATE : 22 May 1986 PLACE : Sydney THE COURT ORDERS THAT: Ll. The notices of motion filed on 9 May 1986 be adjourned until the determination of the appeal against orders of Sheppard J. made on 23 April 1986. ty Liberty to apply be reserved. Lea) Costs be reserved. (NOTE: Settlement and entry of orders is dealt with in 0.36 of the Federal Court Rules.) IN THE FEDERAL COURT OF AUSTRALIA ) NEW SOUTH WALES DISTRICT REGISTRY ) No. G281 of 1984 GENERAL DIVISION ) BETWEEN : STERLING INDUSTRIES LIMITED Applicant NIM SERVICES PTY. LIMITED AND ORS Respondents DATE: 22 May 1986 REASONS FOR JUDGMENT WOODWARD J. This 1s an application for an adjournment of the hearing of two notices of motion, filed on 9 May 1986, which arise from orders made by Sheppard J. on 23 April 1986. The central orders made by his Honour on that occasion were directed to the second respondent, John William Jackson, and were in the following terms: "lL. The Second Respondent provide security in the sum of $2,000,000 in such manner and form as the parties may agree or, in default of agreement, the Court or its Registrar may approve, pew eee 10. In the event that Order 1 be not complied with, the Second Respondent file and serve on the Applicant's solicitors at or before 10:00 a.m. on 9th May, 1986 an affidavit deposing to his present assets and liabilities, whether such assets are owned by himself alone or jointly with any company trust or individual, and whether such liabilities are his alone or for which he is jointly and severally liable. This order is made without prejudice to or effect on the Applicant''s right to take such proceedings for the enforcement of Order 1 as 1t may be advised." The notices of motion before me seek orders that the second respondent be committed for contempt for failing to comply with Order 1 and be required to submit to cross-examination on his affidavit filed 9 May 1986 in purported compliance with Order 10. (I have been informed that Order 1 has since been varied, in a way not material to the present motion, to clarify how security might be given.) There are two substantial grounds upon which the application for adjournment is based. The first is that a Full Court has given leave to appeal against those orders of Sheppard J. and certain subsidiary orders. The second is that the second respondent is facing criminal proceedings in Queensland, arising from the same circumstances which led Sheppard J. to make his orders, and to force him to comply with the first order would amount to compelling him to admit possession of a large sum of money, and thus to confess his guilt, while cross-examination on his affidavit would require him either to refuse to answer questions on the ground of self-incrimination or to enter upon his defence to the criminal charge, for which he is not yet prepared. The underlying facts in this case are fully set out in the judgment of Sheppard ©. and I shall only summarize the key points here. The applicant brought proceedings against the first respondent and others, under s.52 of the Trade Practices Act 1974, pars arising out of allegedly false representations made in connexion with the sale of two taverns by the first respondent to the applicant. The second respondent was a director, and effectively in control, of the first respondent. The applicant had a strong case for recovery of damages in the order of $3m. It came to the notice of the applicant that the first and second respondents appeared to he divesting themselves of assets so that they would be unable to meet any judgment against them. Accordingly, on 12 November 1985, on the applicant's instigation, undertakings were given to the Court by counsel for the respondents associated with Mr Jackson ("the Jackson interests") that they would not further dispose of assets pending the hearing of the application. Later information concerning cash amounting to $4.3m (see below) suggested a breach of these undertakings. It was in these circumstances that Sheppard J. was, in :D ffect, asked to make orders to protect the position of the applicant. Having heard the evidence of the applicant, and in the absence of any contradictory evidence from the respondents, his Honour was satisfied, first, that the applicants had "good prospects of obtaining a judgment against the first and second respondents ... in a sum of approximately $3m". His Honour further found that, after receiving advice from solicitors and accountants "there began a wholesale divestiture of assets owned by the Jackson interests", and that this divestiture was still continuing, "but had to a large degree apparently been accomplished" by the time the undertakings were given to the Court. The next fact found by his Honour was that, in November 1985, some $4.3m was borrowed, apparently by a company called Jackson Holdings Ltd., from two finance companies. There is no evidence as to what securities were provided in order to obtain these loans. In February 1986, after the money had apparently passed through other hands, it came into the possession of Mr Jackson in the form of cash and was placed in three safe deposit boxes at a bank. Later, his Honour found, Mr Jackson removed ali this money from the safe deposit boxes and took it to his home. He subsequently informed the police that he had been swindled out of this money by a confidence trickster. After investigating the matter, the police apparently did not believe the story, and Mr Jackson was charged with the following offence: "That between 20th February 1986 and 29th March 1986 at Brisbane in the State of Queensland, dohn William Jackson dishonestly applied to his own use and the use of another person property, namely moneys totalling $4.3 million belonging to Jackson Holdings Pty. Limited. " It was against this background that Sheppard J. made his orders. He said that, in the absence of evidence to the contrary, it should be inferred that Mr Jackson still has control of, or access to, the $4.3m which he previously held as cash. For the sate r purposes of these proceedings, his Honour rejected the story of the swindle. In deciding that he had power to make the orders sought, Sheppard J. referred to a number of authorities. It is*clear that he recognized that, in extending the principle underlying the Mareva injunction to cover such orders he was, to some extent, breaking new ground, and that such orders should be reserved for the most extreme circumstances. His Honour considered carefully the question whether he should exercise his discretion in favour of making the orders sought. In doing so, he considered at length the question of self-incrimination in light of the charge laid, and determined that provision of security in the sum of $3m, as by way of a bank guarantee, would not provide any evidence of the source of the moneys concerned - which could well come from other assets over which Mr Jackson had control. There was some evidence before his Honour to suggest that Mr Jackson had access to assets exceeding $lim in value. In determining to exercise his discretion in favour of the applicant, Sheppard J. was conscious of the fact that imprisonment for contempt might result. His Honour said: "The only sanction for breach of the order sought will be punishment for contempt. It would today be only in very exceptional c1rcumstances that a court would visit a failure to pay money or provide security with imprisonment. The law does not authorize the imprisonment of debtors. That was long ago abolished. If the applicant now had judgment, the court would not imprison Mr. Jackson for non-payment of the judgment debt. Why, it may be asked, should it take the course of exposing him to the risk of imprisonment before judgment has been recovered. The answer given by the applicant, whose counsel acknowledges the drastic nature of the order sought, 1s that no other relief which the Court can provide will be likely to safeguard assets that ought in conscience be available for the satisfaction of the judgment the applicant expects to recover. It is the very extraordinary and unusual circumstances of the case and the systematically and blatently fraudulent conduct of Mr. Jackson which the applicant submits call for an order of the extreme kind here claimed." He went on to say that he was satisfied the applicant's fears were well founded and that "to refuse the order is to stand by and see the Court''s processes frustrated by fraudulent conduct". I think I have said enough to indicate, in summary forn, why Sheppard J. thought it necessary to make the two orders which I am asked, in effect, to enforce. There was no discussion in his Honour''s reasons for judgment of the purpose behind Order 10, but it is clear enough that it was designed to give the second respondent an opportunity to explain why he could not comply with Order 1 (if he failed to co so), and a corresponding opportunity for the applicant to test that explanation and, perhaps, seek alternative orders. Two things have happened since 23 April, when his Honour made his order, which require me to exercise my own discretion as to whether I should grant the adjournment sought. The first is, as I have stated, that a Full Court has given the second respondent leave to appeal against the relevant orders. A notice of appeal was filed on 14 May, and I am informed that an appointment has been made to settle the appeal book contents on 2 June. The second event is that the original action has been settled and, on 1 May, judgment by consent in the sum of $3.25m and costs was entered in favour of the applicant against the first and second respondents, as well as two other respondents - Mrs Jackson and an employee of the first respondent. A cross-claim against Jackson and others by other respondents also resulted in judgment by consent in the sum of §0.25m and costs. Mr Jackson asserts that by reason of these and other debts he 1s now insolvent. He has sought to file a debtor's petition in bankruptcy - one of the admitted reasons for this action being to escape the effects of Sheppard J.'s orders, since he obviously could not comply with Order 1 if his estate were in the hands of a trustee. This attempt to achieve bankruptcy has been resisted by the applicant, which alleges that 1t 1S an abuse of process because of Sheppard J.''s order, and further alleges that Mr Jackson 1s not in fact insolvent because he has hidden assets. A decision on this matter is currently reserved by Burchett J. The applicant has also succeeded in deterring other possible petitioning creditors from lodging their petitions. The first matter I must decide is whether the applicant's notices of motion should be adjourned until*after the second respondent's appeal to the Full Court has been heard and determined. I have decided that they should. A Full Court having given leave to appeal, I must assume that it is possible that the appeal could be upheld - either because the orders made were beyond power or because there was a miscarriage of the exercise of discretion. A further question which the Full Court may wish to consider is whether the orders continued in effect after the entry of judgment in the action. Apparently because of the terms of settlement, counsel for the second respondent does not wish to raise this question, but the Full Court which granted leave to appeal nevertheless took the view that the appeal book should include documents necessary to enable the issue to be determined. In these circumstances, there are obvious and strong arguments against embarking upon a course which is quite likely to lead to the second respondent's imprisonment for failure to comply with the first order now appealed against. Similar considerations apply to any attempt to compel useful answers to cross-examination of Mr Jackson about his current assets. Senior counsel for the applicant argued strongly against such an adjournment. The chief ground he relied upon was that the Full Court, in granting leave to appeal on 2 May, refused to stay Sheppard J.'s order. He said, in effect, that this amounted to an implied approval of the course which the applicant was now taking of seeking the second respondent's committal for contempt of court, The Full Court gave no reasons for refusing a stay but, having studied the transcript of the short hearing before it, I think it would be quite unsafe to assume that it had considered the possibility of the present course being taken and approved it. One member of the Court, at an early stage of the hearing, in asking senior counsel for Mr Jackson why he needed a stay, referred to ".., the contempt proceedings, which no doubt would not be determined before the appeal". Counsel replied "I hope not" and went on to argue the other possible drawbacks from his client's point of view if a stay were not granted. Counsel for the applicant were not called upon, and thus had no opportunity to foreshadow the present application. The refusal to grant a stay meant that, for the first time, the second respondent was obliged to comply with the relevant orders of Sheppard J. which, until then, had had their times for compliance extenced by separate orders. The Full Court could not be sure that either Order 1 or Order 10 (with which there was a purported compliance on May 9th) would not be observed in some proper way. It was this possibility which was left open by the refusal to grant the stay and no intention beyond this should be attributed to the Court. 10. In these circumstances I believe I must treat the Full Court's refusal of a stay as being, at best, neutral from the applicant's point of view. All the applicant's counsel could urge on me, by way of discretionary factors, was that the longer the « contempt proceedings were delayed the weaker would be the presumption that the $4.3m was still available to the second respondent, and the colder would be the trail of that money. Three months have already passed since it was known to be in Mr Jackson's possession. These are valid and important considerations, but they could be alleviated if a speedy hearing of the appeal can be arranged. In any event there is no doubt in my mind that the proposed attempt to enforce Sheppard J.'s_ orders must at least await the outcome of the appeal. I note in passing that, in the passage from his judgment quoted above, Sheppard J. himself said: "If the applicant now had judgment, the court would not imprison Mr. Jackson for non-payment of the judgment debt. Why, it may be asked, should it take the course of exposing him to the risk of imprisonment before judgment has been recovered?" His Honour's answer to that guestion, in the passage cited, leaves open, in my mind, the further question as to whether he intended that his Orders 1 and 10 should be enforceable after judgment, when other more traditional (though probably less effective) methods of achieving the same results would become available. il. The next question which I have to consider is whether I should adjourn the notices of motion even further, until after criminal proceedings against Mr Jackson have been finalized. I have decided that I should not do so because, in obtaining leave to appeal, senior counsel for Mr Jackson made clear that one of his chief arguments on appeal would be that Sheppard J.'''s exercise of discretion miscarried in that he departed from the principle against self-incrimination illustrated by cases such as Rank Film Distributors Ltd. v. Video Information Centre £19823 A.C. 380. The notice of appeal now confirms that approach. In these circumstances I think it would be inappropriate for a single judge to embark upon a consideration of matters fully dealt with by Sheppard J. and about to be reviewed by a Full Court. I could not exercise a discretion in the matter without going over those questions of principle in order to determine how they should be applied to the present situation. The order which I propose to make is that the notices of motion filed 9 May 1986 be adjourned until after the appeal for which leave was granted on 2 May 1986 has been determined. I shall reserve liberty to apply and, since the adjournment of the notices of motion amounts to an indulgence of the second respondent, I shall reserve costs. 12. I certify that the eleven (11) preceding pages are a true and accurate copy of the Reasons for Judgment herein of the Hon. Mr Justice Woodward. Cu Vpn Associate Dated: 22 May 1986 Date of hearing: 20 May 1986 Counsel for the applicant: Mr L. Gruzman QC, Mr P. Stone and Mr P.J. Lanigan Solicitors: Watson Davey Counsel for the respondent Jackson: Mr G.P. Segal Solicitors: Gilshenan & Luton