FEDERAL COURT OF AUSTRALIA Corporations Law s 471B Emanuele v Australian Securities Commission (1997) 23 ACSR 664 considered Hospital Products Ltd v Ballabil Holdings Pty Ltd [1984] 2 NSWLR 662 considered MICHAEL HUMPHRIS (IN HIS CAPACITY AS LIQUIDATOR OF MIDCHARM PTY LTD) (IN LIQUIDATION) & MIDCHARM PTY LTD v MAX SAMUEL JENSHOL & JUSTICE TELECOMMUNICATIONS PTY LTD VG 3185 of 1997 GOLDBERG J MELBOURNE 5 NOVEMBER 1997 IN THE FEDERAL COURT OF AUSTRALIA ) ) VICTORIA DISTRICT REGISTRY ) VG 3185 of 1997 ) GENERAL DIVISION ) BETWEEN: MICHAEL HUMPHRIS (IN HIS CAPACITY AS LIQUIDATOR OF MIDCHARM PTY LTD) (IN LIQUIDATION) (ACN 063 784 083) First Applicant and MIDCHARM PTY LTD (IN LIQUIDATION) (ACN 063 784 083) Second Applicant AND: MAX SAMUEL JENSHOL First Respondent and JUSTICE TELECOMMUNICATIONS PTY LTD (ACN 075 748 186) Second Respondent JUDGE: GOLDBERG J PLACE: MELBOURNE DATE: 5 NOVEMBER 1997 THE COURT ORDERS THAT: 1. Leave is granted to the applicants nunc pro tunc to continue with this proceeding against the second respondent but such leave is not to extend to enforcing against the second respondent any order for the payment of any sum pursuant to the orders made by this order or consequent upon the inquiry and account ordered by this order without the further leave of the Court. THE COURT DECLARES THAT: 2. The documents, books, records or property of Midcharm Pty Ltd (In Liquidation) ("the company") in the possession of the respondents are the property of the company. 3. The (a) right to receive monies from the retail customers of Emerson Telecommunications LLC ("Emerson") in Australia under agreements dated 14 February 1996 and 6 February 1997 between the company and Emerson and all documents associated with it ("the Emerson business"); (b) right to receive monies from retail customers of Avirnex Communications Australia Pty Ltd ("Avirnex") in Australia under an agreement dated 4 March 1997 between Avirnex and the second respondent ("the Avirnex business") and the benefit of that contract; (c) right to receive payment from customers of the company in relation to its Telstra Corporation Ltd ("Telstra") re‑selling business; (d) cash, cheques or barter points including paid or payable to the respondents from customers in relation to the business of the company of Telstra; (e) current balances in the accounts in the name of Justice Telecommunications and Justice Telecommunications Pty Ltd with the relevant barter agencies to the extent that such balances reflect barter points paid or made available by customers of Telstra, Emerson or Avirnex, were and are the property of the company and to the extent to which they were or are received by the first respondent or the second respondent declare that they are held on constructive trust for the company. THE COURT ORDERS THAT: 4. The property referred to in paragraph 3 vest in the first applicant. 5. The respondents and each of them be restrained until further order whether by themselves, their servants or agents, or otherwise from transferring, dealing with, charging, diminishing, mortgaging, assigning or disposing of any of their assets including without limiting the generality thereof any real property, shares, choses in action or money standing to the credit of any bank account save and except that the first respondent may make use of the sum of $600.00 per week in respect of his ordinary living expenses. 6. The respondents and each of them be restrained until further order whether by themselves, their servants or agents or otherwise from: (a) transferring, dealing with or otherwise disposing of any monies standing to the credit of any barter scheme or arrangement or any bank account of them or either of them or under their control; (b) taking any steps to transfer the business of the customers of the former Emerson or the current Avirnex business, which customers are more particularly described in the lists annexed hereto as Schedules A and B; (c) communicating in any way with any former customer of the Emerson business or the Avirnex business being the persons in the list annexed hereto as Schedule A with respect to any telecommunications business. 7. The first respondent within twenty‑one days file and serve on the applicants' solicitors, Mallesons Stephen Jaques, Rialto, 28th Floor, North Tower, 525 Collins Street, Melbourne, an affidavit sworn or affirmed by him: (a) setting out the name and address of any bank, building society or other financial institution at which there is an account in the name, or under the control, of the first and second respondents, or either of them, together with the number of such account and the balance therein at the date of service of this order upon them or either of them; (b) setting out the name and address of any person or persons indebted to the first and second respondent, or either of them, and the amount of the debt or debts owed by such person or persons; (c) setting out an itemised inventory of any business assets owned by the first and second respondent, or either of them; (d) setting out an itemised inventory of any other property, whether real or personal, owned by the first and second respondent, or either of them or in respect of which the first and second respondents, or either of them have or has an interest; (e) in respect of any of the property referred to in subparagraph (d), stating whether it has been given as security of any debt, and if so, the nature of the security and the debt so secured; (f) listing and describing all barter arrangements or schemes with which he has any involvement; (g) describing all dealings he has had with Avirnex and including a list of all payments made by Avirnex to him or to the second respondent; (h) stating and describing when hard copy Emerson bills were delivered to the respondents from Emerson, when they were re‑billed and what funds in respect of payments of those bills have been received and what has happened to those funds; (i) in respect of the period from 23 May 1997 to the date of the making the affidavit, stating and describing the source of the funds used to pay each deposit in or to the Narit Nominees Pty Ltd Commonwealth Bank account and in respect of what liability of the payer of the funds that deposit relates and as to any debits or withdrawals in relation to such account stating and describing each cheque drawn and naming the payee thereof; (j) in respect of the period from 18 July 1997 to the date of the making the affidavit, stating and describing all payments received by the first and second respondents including the source of the payments and the liability in respect of which each such payment was made. 8. The first respondent deliver up to the applicants' solicitors within seven days: (a) any customer lists in his possession, custody or control relating to the Emerson call back business or the Telstra re‑billing business; (b) any cheques in his possession, custody or control relating to the Emerson call back business or the Telstra re‑billing business. 9. Any property referred to in paragraph 3 of this order held by either of the respondents be delivered to the applicants within seven days of the date of this order. 10. Judgment be entered for the applicants for an account of the profits made by the respondents as a result of their wrongful acts referred to in the reasons for judgment delivered on 15 October 1997 and that there be an inquiry as to such profits and a taking of any accounts. 11. The inquiry as to such profits and the taking of any accounts be held by a Registrar of the Court and that the proceeding be referred to a Register of the Court for the giving of directions concerning the manner of the taking of such account and the making of such inquiry. 12. The cross‑claim of the respondents be dismissed. 13. Liberty is reserved to any party to apply for such further directions and orders arising out of this order as it or he may be advised. 14. The respondents pay the applicants' costs of the proceeding including any reserved costs. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA ) ) VICTORIA DISTRICT REGISTRY ) VG 3185 of 1997 ) GENERAL DIVISION ) BETWEEN: MICHAEL HUMPHRIS (IN HIS CAPACITY AS LIQUIDATOR OF MIDCHARM PTY LTD) (IN LIQUIDATION) (ACN 063 784 083) First Applicant and MIDCHARM PTY LTD (IN LIQUIDATION) (ACN 063 784 083) Second Applicant AND: MAX SAMUEL JENSHOL First Respondent and JUSTICE TELECOMMUNICATIONS PTY LTD (ACN 075 748 186) Second Respondent JUDGE: GOLDBERG J PLACE: MELBOURNE DATE: 5 NOVEMBER 1997 REASONS FOR JUDGMENT (No 2) On 15 October 1997 I published my reasons for judgment in this proceeding in which I concluded that the applicants were entitled substantially to the relief which they seek subject to two matters. The first matter is the appointment of a provisional liquidator of the second respondent on 7 August 1997 and the second matter is the necessity for the applicants to make an election between the remedies of an account of profits and damages/equitable compensation. Mr Cawthorn, who appeared for the applicants, has informed the Court that the applicants elect for an account of profits rather than damages or equitable compensation. The applicants also seek the leave of the Court pursuant to s 471B of the Corporations Law to proceed with the proceeding against the second respondent to the extent of making inquiries and the taking of accounts in relation to the property of Midcharm Pty Ltd received by the second respondent and held by it on constructive trust for Midcharm Pty Ltd in accordance with my earlier reasons for judgment. My reasons for judgment were handed down after the appointment of the provisional liquidator and to the extent to which that constituted the applicants proceeding with this proceeding against the second respondent, I am able to make an order under s 471B of the Corporations Law nunc pro tunc which will enable the applicants to continue with the proceeding to the extent of obtaining relief in the nature of an inquiry and the taking of accounts against the second respondent: Emanuele v Australian Securities Commission (1997) 23 ACSR 664. However, having regard to the fact that the future position of the second respondent in relation to its assets and its liquidation is not clear, such leave should not at this stage extend beyond an inquiry and the taking of accounts. Such leave does not extend to the enforcement of the judgment and the orders made in this proceeding without the further leave of the Court. The provisional liquidator did not oppose that order but rather raised issues as to the validity of his appointment on the basis that it did not appear that the second respondent had authorised the application filed by it for a winding up order and the appointment of the provisional liquidator. There is material before the Court which shows that the first respondent who was in de facto control of the second respondent at the relevant times authorised the issue of the application, there being no appointed directors of the second respondent. However, I do not consider that these are matters which can be agitated on a consideration of the orders to be made in this proceeding. If the provisional liquidator has any concerns about his appointment or about the application to wind up the second respondent those matters should be raised, on proper material, in the winding up proceeding. The provisional liquidator also submitted that it was inappropriate to restrain him, as an officer of the Court, from the conduct of his statutory duties, that any injunctions presently applying to the second respondent should be vacated and that any further injunctions should be limited so as to not to interfere with the provisional liquidator's duties. However, there is on the Court file a letter from the provisional liquidator addressed to the solicitor for the first respondent and second respondent dated 7 August 1997 in which he says: "If I am appointed Provisional Liquidator or Liquidator of the abovenamed company (Justice Telecommunications Pty Ltd), I undertake not to distribute monies or assets realised until further order of the Court." Even if this undertaking had not been written I consider it appropriate that the Mareva injunction continue against the second respondent, notwithstanding that it is under the control of a provisional liquidator in order to preserve the applicants' position as a result of my reasons for judgment. However, as I indicated in the course of argument, I will reserve liberty to all parties to apply to the Court on forty‑eight hours written notice for any variation of the orders which I propose to make in relation to the continuation of the Mareva injunction. The only substantial matter in controversy between the applicants and the first respondent is the order which the applicants seek in relation to the filing of an affidavit by the first respondent setting out the various details noted on pages 41 ‑ 43 of my reasons for judgment. Mr Cawthorn submitted that such form of affidavit was necessary in aid of the Mareva injunction which I am disposed to continue and is supported by authority and the practice of the Court: Hospital Products Ltd v Ballabil Holdings Pty Ltd [1984] 2 NSWLR 662, 669. Mr Rice, who appeared for the first respondent, said that the first respondent had already sworn an affidavit relating to these matters and that he is unable, due to lack of funds, to obtain legal assistance in the preparation of any further affidavit. However, the only affidavit which the first respondent made as to the information sought by the applicants was on 4 July 1997 which referred to two bank accounts. At that time the proceeding was still in its early stages and it is only as a result of the trial of the proceeding that the full facts have emerged. I am satisfied that it is necessary, in order to carry into effect my reasons for judgment, that the affidavit sought by the applicants be made by the first respondent. It is apparent from my reasons for judgment that there has been an intermingling of assets and that the first respondent has not been candid and forthcoming about Midcharm Pty Ltd's assets, the second respondent's assets and his assets. In any event, it will be necessary on the making of the inquiries and the taking of the accounts required to carry into effect the applicants' election for an account of profits that there be full disclosure by the first respondent of his financial position. Accordingly such an affidavit should be provided by the first respondent. Although he may not be able to obtain the benefit of legal advice, the subject matter of the affidavit can be identified with clarity and I am prepared to give him twenty‑one days within which to make and file the affidavit. I therefore propose to make the following orders: 1. Leave is granted to the applicants nunc pro tunc to continue with this proceeding against the second respondent but such leave is not to extend to enforcing against the second respondent any order for the payment of any sum pursuant to the orders made by this order or consequent upon the inquiry and account ordered by this order without the further leave of the Court. 2. Declare that the documents, books, records or property of Midcharm Pty Ltd (In Liquidation) ("the company") in the possession of the respondents are the property of the company. 3. Declare that: (a) the right to receive monies from the retail customers of Emerson Telecommunications LLC ("Emerson") in Australia under agreements dated 14 February 1996 and 6 February 1997 between the company and Emerson and all documents associated with it ("the Emerson business"); (b) the right to receive monies from retail customers of Avirnex Communications Australia Pty Ltd ("Avirnex") in Australia under an agreement dated 4 March 1997 between Avirnex and the second respondent ("the Avirnex business") and the benefit of that contract; (c) the right to receive payment from customers of the company in relation to its Telstra Corporation Ltd ("Telstra") re‑selling business; (d) cash, cheques or barter points including paid or payable to the respondents from customers in relation to the business of the company of Telstra; (e) the current balances in the accounts in the name of Justice Telecommunications and Justice Telecommunications Pty Ltd with the relevant barter agencies to the extent that such balances reflect barter points paid or made available by customers of Telstra, Emerson or Avirnex, were and are the property of the company and to the extent to which they were or are received by the first respondent or the second respondent declare that they are held on constructive trust for the company. 4. Order that the property referred to in paragraph 3 vest in the first applicant. 5. Order that the respondents and each of them be restrained until further order whether by themselves, their servants or agents, or otherwise from transferring, dealing with, charging, diminishing, mortgaging, assigning or disposing of any of their assets including without limiting the generality thereof any real property, shares, choses in action or money standing to the credit of any bank account save and except that the first respondent may make use of the sum of $600.00 per week in respect of his ordinary living expenses. 6. Order that the respondents and each of them be restrained until further order whether by themselves, their servants or agents or otherwise from: (a) transferring, dealing with or otherwise disposing of any monies standing to the credit of any barter scheme or arrangement or any bank account of them or either of them or under their control; (b) taking any steps to transfer the business of the customers of the former Emerson or the current Avirnex business, which customers are more particularly described in the lists annexed hereto as Schedules A and B; (c) communicating in any way with any former customer of the Emerson business or the Avirnex business being the persons in the list annexed hereto as Schedule A with respect to any telecommunications business. 7. Order that the first respondent within twenty‑one days file and serve on the applicants' solicitors, Mallesons Stephen Jaques, Rialto, 28th Floor, North Tower, 525 Collins Street, Melbourne, an affidavit sworn or affirmed by him: (a) setting out the name and address of any bank, building society or other financial institution at which there is an account in the name, or under the control, of the first and second respondents, or either of them, together with the number of such account and the balance therein at the date of service of this order upon them or either of them; (b) setting out the name and address of any person or persons indebted to the first and second respondent, or either of them, and the amount of the debt or debts owed by such person or persons; (c) setting out an itemised inventory of any business assets owned by the first and second respondent, or either of them; (d) setting out an itemised inventory of any other property, whether real or personal, owned by the first and second respondent, or either of them or in respect of which the first and second respondents, or either of them have or has an interest; (e) in respect of any of the property referred to in subparagraph (d), stating whether it has been given as security of any debt, and if so, the nature of the security and the debt so secured; (f) listing and describing all barter arrangements or schemes with which he has any involvement; (g) describing all dealings he has had with Avirnex and including a list of all payments made by Avirnex to him or to the second respondent; (h) stating and describing when hard copy Emerson bills were delivered to the respondents from Emerson, when they were re‑billed and what funds in respect of payments of those bills have been received and what has happened to those funds; (i) in respect of the period from 23 May 1997 to the date of the making the affidavit, stating and describing the source of the funds used to pay each deposit in or to the Narit Nominees Pty Ltd Commonwealth Bank account and in respect of what liability of the payer of the funds that deposit relates and as to any debits or withdrawals in relation to such account stating and describing each cheque drawn and naming the payee thereof; (j) in respect of the period from 18 July 1997 to the date of the making the affidavit, stating and describing all payments received by the first and second respondents including the source of the payments and the liability in respect of which each such payment was made. 8. Order that the first respondent deliver up to the applicants' solicitors within seven days: (a) any customer lists in his possession, custody or control relating to the Emerson call back business or the Telstra re‑billing business; (b) any cheques in his possession, custody or control relating to the Emerson call back business or the Telstra re‑billing business. 9. Order that any property referred to in paragraph 3 of this order held by either of the respondents be delivered to the applicants within seven days of the date of this order. 10. Judgment be entered for the applicants for an account of the profits made by the respondents as a result of their wrongful acts referred to in the reasons for judgment delivered on 15 October 1997 and that there be an inquiry as to such profits and a taking of any accounts. 11. Order that the inquiry as to such profits and the taking of any accounts be held by a Registrar of the Court and that the proceeding be referred to a Register of the Court for the giving of directions concerning the manner of the taking of such account and the making of such inquiry. 12. Order that the cross‑claim of the respondents be dismissed. 13. Order that liberty be reserved to any party to apply for such further directions and orders arising out of this order as it or he may be advised. 14. Order that the respondents pay the applicants' costs of the proceeding including any reserved costs. I certify that this and the preceding eight (8) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Goldberg Associate: Dated: 5 November 1997 Counsel for the Applicant: Mr P Cawthorn Solicitor for the Applicant: Mallesons Stephen Jaques Counsel for the Respondent: Mr G Rice Solicitor for the Respondent: Efrons Solicitors Counsel for the provisional liquidator of Justice Telecommunications Mr A Galvin Solicitor for the provisional liquidator of Justice Telecommunications J M Smith & Emmerton Date of Hearing: 22 October 1997 Date of Judgment: 5 November 1997