FEDERAL COURT OF AUSTRALIA Thunder Studios Inc (California) v Kazal (No 3) [2017] FCA 1170 File number: NSD 850 of 2014 Judge: RARES J Date of judgment: 18 August 2017 Catchwords: CONTEMPT OF COURT – where respondent in contempt of court in proceedings in which he sought to file a defence out of time – where respondent had not purged contempt or shown any contrition or acknowledgement of Court's authority – principle that party in contempt of Court ordinarily will not be heard in proceedings in relation to which contempt exists – Hadkinson v Hadkinson [1952] P 285 – consideration of appropriate test for hearing party who is in contempt in proceedings PRACTICE AND PROCEDURE – application by respondent for leave to file a defence out of time – where time to file a defence had expired over two years earlier – where respondent provided no explanation for delay – where defence raised plea of justification without providing any particulars – whether exercise of Court's discretion under r 1.39 of Federal Court Rules 2011 to grant respondent leave would relieve against injustice Legislation: Federal Court of Australia Act 1976 (Cth) Pt VB, s 37M Federal Court Rules 2011 rr 1.39, 5.22, 5.23, 16.07, 16.32 Cases cited: Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175 Celestino v Celestino [1990] FCA 449 FAI General Insurance Company Ltd v Southern Cross Exploration NL (1988) 165 CLR 268 Foster v Australian Competition and Consumer Commission (2014) 219 FCR 563 Hadkinson v Hadkinson [1952] P 285 Jackamarra v Krakouer (1998) 195 CLR 516 Kazal v Thunder Studios Inc (California) [2017] FCAFC 111 Permewan Wright Consolidated Pty Ltd v Attorney-General of the State of New South Wales; on the relation of Franklins' Stores Pty Ltd (1978) 35 NSWLR 365 Short v Short (1973) 7 SASR 1 Sydney Equine Coaches Pty Ltd v Gorst [2017] FCAFC 34 Tamaya Resources Ltd v Deloitte Touche Tohmatsu (2016) 332 ALR 199 Thunder Studios Inc (California) v Kazal (No 2) [2017] FCA 202 Thunder Studios Inc (California) v Kazal [2016] FCA 1598 X Ltd v Morgan-Grampian (Publishers) Ltd [1991] 1 AC 1 Date of hearing: 18 August 2017 Registry: New South Wales Division: General Division National Practice Area: Other Federal Jurisdiction Category: Catchwords Number of paragraphs: 28 Counsel for the Applicants: Mr M Polden Solicitor for the Applicants: Aitken Lawyers Counsel for the Second Respondent: Mr W Calokerinos Solicitor for the Second Respondent: Saab Law Group ORDERS NSD 850 of 2014 BETWEEN: THUNDER STUDIOS INC (CALIFORNIA) First Applicant RODRIC MARC DAVID Second Applicant AND: CHARIF KAZAL First Respondent ADAM KAZAL Second Respondent JUDGE: RARES J DATE OF ORDER: 18 AUGUST 2017 THE COURT ORDERS THAT: 1. The interlocutory applications filed by the second respondent on 16 June 2017 and 28 July 2017 be dismissed. 2. The second respondent pay the applicants' costs. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT (REVISED FROM THE TRANSCRIPT) RARES J: 1 On 31 July 2017, the Full Court quashed two of the six convictions for contempt that I had found against the second respondent, Adam Kazal, and resentenced him on the remaining four convictions to a total of 15 months imprisonment to conclude on 26 May 2018: Kazal v Thunder Studios Inc (California) [2017] FCAFC 111. I had given ex tempore reasons for finding Adam guilty of those six counts on 21 December 2016: Thunder Studios Inc (California) v Kazal [2016] FCA 1598, and on 27 February 2017, I convicted and sentenced him on those counts and acquitted him on a number of others: Thunder Studios Inc (California) v Kazal (No 2) [2017] FCA 202. 2 Adam has applied in interlocutory applications filed on 16 June 2017 and 28 July 2017, first, to be granted leave to file a defence out of time under r 1.39 of the Federal Court Rules 2011 (being well over two years after the time for him to do so had expired) and, secondly, to set aside four subpoenas that the applicants had served on third persons. The applicants opposed the grant of that relief, principally on the grounds that, first, Adam should not be heard because he is in contempt of Court, secondly, he has given no explanation for his seeking to file a defence now and, thirdly, the proposed defence raises a plea of justification of defamatory imputations for which Adam has not provided any particulars. 3 Relevantly, r 1.39 provides: The Court may extend or shorten a time fixed by these Rules or by order of the Court; (a) before or after the time expires; and (b) whether or not an application for extension is made before the time expires. The nature of the contempt as found by the Full Court 4 In resentencing Adam, Besanko, Wigney and Bromwich JJ described the seriousness and nature of the circumstances supporting the convictions for contempt that they had upheld and the penalties that they imposed, finding, among other matters ([2007] FCAFC 111): In all the circumstances, the course of conduct that the appellant engaged in entailed a high risk strategy. ([162]) … The appellant decided to alter in form, but not in substance, what can fairly be described as a vendetta. This vendetta was not confined to Mr Singh, in relation to whom he was not constrained by a court order or by extant litigation, but also against Mr David in relation to whom both restraints existed. The live question as to whether the change in form in the execution of this vendetta was sufficient to evade the operation of order 3 has been answered adversely to the appellant. ([163]) … the appellant thought he had found a way to get around the orders, or at least their meaningful enforcement, and did so deliberately and defiantly. Of course, it is not to the point that the appellant may have thought he had found a way to get around the orders or their enforcement. It is not a defence to a criminal contempt in this Court, any more than to a criminal charge, that a party believes their actions were not prohibited or satisfied legal requirements, including those imposed by a court order; such a belief is a mistake of law and is no defence and seldom a mitigation. ([165]) … A conspicuous aspect of the appellant's conduct is that it was carefully planned – especially the signwriting on the four vans which must have taken planning, time and expense – and executed over a number of days. There was ample opportunity for the appellant to evaluate and to desist, especially once the 11 November 2016 consent orders were made, rather than persist and escalate. The need for specific and general deterrence was, and now is, a substantial consideration. ([168]) … A further feature of the appellant's particular contempt offences is that which pertains to acting in combination with others and the potential to act in combination with others, especially in defiance of orders of the Court and the Court's authority. In this case that involved the appellant's deployment of four vans with drivers and the appellant's use of Twitter to reach his some 25,000 followers, which so readily facilitates reaching a much wider audience, much more quickly. ([173]) … the need for specific deterrence looms large, especially when there remains no indication that the appellant personally sees anything wrong with what he has done. General deterrence is just as significant and important. This is a very serious example of contempt in relation to orders made by the Court in terms of the extreme nature of the conduct, even though a direct statement of deliberate defiance was absent. ([178]-[179]) (emphasis added) 5 The Full Court then explained its reasons for sentence on charges 8 and 9, saying (Kazal [2017] FCAFC 111 at [183]-[189]): 183 The 28 October 2016 and 31 October 2016 emails sent by the appellant to Mr David and to his solicitor, Mr MacCallum, were of themselves conduct to be deplored, and plainly, by the words used, were intended to harass and threaten. A substantial sum of money was demanded to be paid by the respondents, in circumstances in which the natural person second respondent, Mr David, is unavoidably going to be a witness in, as well as a party to, the substantive proceedings. Tweeting those emails the same day that they were sent and thereby making them immediately available to the public, being the real core and gravamen of the conduct, took the original content of the emails to an entirely new level, bringing much greater pressure to bear on the respondents and Mr David in particular. 184 The comments made in the emails were extreme and were, on their face, expressly intended, or at least inevitably and unavoidably had the effect of, affecting and adversely influencing the respondents. In context, a vitally important aspect of that effect and influence unavoidably concerned the substantive proceedings. It is not to the point that a judge would stand above that behaviour and not be influenced in the manner that a jury might. If left unchecked, such conduct would be in danger of becoming prevalent, rather than rare. Trial by internet and social media is a vice at least equal to, and in these circumstances going beyond that, of trial by media, especially as there is no media proprietor to restrain, to encourage the assessment of consequences or to be made subject to direct remedies. 185 The only saving grace for the appellant in respect of sentence is that the respondents charged for the limited period between 31 October 2016, the date that the second email was sent and tweeted, until the date of the 11 November 2016 consent orders. This was still shocking and unacceptable behaviour. It was as serious as the seven tweets of the emails to the SMH journalist because, although each was a single tweet, it went beyond inducing the reading of the proscribed material to the next level of serious threats and personal vilification. However, it remained less serious than the vans. Once again, the facts and circumstances demanded a substantial custodial sentence. The appropriate sentence is 6 months imprisonment, reduced from 12 months. The question of whether this sentence should be served concurrently with the other sentences is dealt with below in the context of charge 9. … 186 Charge 9 is undoubtedly the most serious. The comments made above in relation to charge 8 also apply to this charge, and more besides. It entails several different aspects, being publishing, after the 11 November 2016 consent orders were made and as relevant to the substantive proceedings rather than those orders per se: (1) the website posts via the seven tweets (of the emails the appellant sent to the SMH journalist); (2) publishing the website posts via the four vans driven around the Sydney CBD; and (3) the tweeted emails sent to Mr David and to Mr MacCallum on 28 October 2016 and 31 October 2016. 187 In relation to the October emails, it was a continuation of the conduct upon which charge 8 was based past the date of the consent orders. The appellant was squarely on notice as to how seriously the respondents and the Court took his behaviour. Yet he not only persisted but escalated the conduct. 188 In relation to the publishing of the website posts via the seven tweets of the emails to the SMH journalist and via the four vans, the conduct goes beyond defiance of the Court's express orders and reflects a deliberate attempt to bring grossly improper influence to bear on the substantive proceedings. This charge is important because it is not confined by the 11 November 2016 consent orders and is protective of the Court's jurisdiction and authority. The form of the charge was not confined to the appellant as a litigant, insofar as other individuals making similar public statements to those particularised may also be charged with an identical offence. A failure to take such conduct extremely seriously, and to impose a sanction proportionate to the vice sought to be addressed would be to condone or at least downplay the conduct, rather than to condemn it. It would tend to encourage or at least fail to discourage, rather than to actively deter both the appellant and others. 189 This is also a very serious example of contempt in the aspect pertaining to the administration of justice. Again, doubtless worse conduct can be envisaged, for which even more severe sentences may one day be required. The sentence will only deter the appellant and others minded to emulate him if it is a clarion call that such behaviour will not be tolerated. In all the circumstances it is more serious than charge 3 involving the vans. It warrants a 12 month term of imprisonment … (emphasis added) 6 Their Honours also left undisturbed my order that Adam pay the costs of the contempt proceedings on a complete indemnity basis and made a similar order in the appeal. Mr MacCallum has estimated that those costs are in the order of hundreds of thousands of dollars. 7 In the meantime, on 1 August 2017 Adam obtained an annulment of his bankruptcy. His statement of affairs, that he belatedly made, revealed that he had, effectively, no assets. Yet as I, and the Full Court, observed, there was no evidence of how he supported himself or his means, assets or liabilities (Kazal [2017] FCAFC 111 at [147]). He has managed to engage several senior and junior counsel in the contempt proceedings and appeal and several firms of solicitors to instruct counsel through the course of them, and now has engaged a new firm of solicitors and junior counsel on his present interlocutory applications. Consideration 8 The circumstances give rise to two independent discretionary considerations as to the exercise of the Court's power whether to grant Adam's interlocutory applications. First, there is a principle that a party in contempt of Court ordinarily will not be heard in the proceedings in relation to which the contempt exists. Secondly, the exercise of a discretionary power of the kind conferred by r 1.39 is to relieve against injustice: FAI General Insurance Company Ltd v Southern Cross Exploration NL (1988) 165 CLR 268 at 283-284 per Wilson J, see esp at 283, with whom Brennan, Deane and Dawson JJ agreed, see too at 291 per Gaudron J, and Sydney Equine Coaches Pty Ltd v Gorst [2017] FCAFC 34 at [17]-[19] per Rares, Flick and Bromwich JJ. 9 What is signal about each of the present applications is the absence of any evidence, first, about why it is being made and, secondly, of any expression of contrition or acknowledgment of the Court's authority by Adam himself. 10 The Full Court said in Kazal [2017] FCAFC 111 at [148]-[149]: 148 it was submitted on behalf of the respondents that there was no evidence to support the assertion that the appellant's conduct was in some way benign. It was pointed out that the appellant has never made an apology or expressed any remorse for his conduct. In those circumstances, it was submitted on behalf of the respondents that the observations of the primary judge: (1) at [27] of the sentence judgment that the regret expressed was as to being found guilty, rather than an apology or any sort of contrition; and (2) at [50] of the sentence judgment that the appellant had shown no respect for the orders of the Court and no remorse for his conduct and further no respect for the right of the respondents to litigate their dispute with him and his brother on the merits, were fairly open to his Honour. 149 The respondents' submissions should be accepted. The appellant's anger at perceived injustice and his consequent lack of self-control in the face of both the substantive proceedings and direct orders to desist not only deny the benign characterisation he asserted, but heighten the need for specific and general deterrence. Actions such as this may be driven by anger, self-justification and even vigilante sentiments. This cannot be tolerated if the rule of law, and the role of the courts, is to have a meaningful part to play in maintaining civil society. There was no error on the part of the primary judge on this topic. (emphasis added) 11 Even now, nearly six months after he was convicted, silence about his conduct remains Adam's position. 12 The proceedings commenced in 2014 and Adam was served on 16 January 2015. Rule 16.32 required Adam to file and serve a defence within 28 days of service of the statement of claim, but Adam never served a defence in the proceedings and first sought to file one when he made his interlocutory application on 16 June 2017, shortly before the Full Court handed down its reserved decision. The terms of that defence, as finally settled by counsel, asserted that the imputations on which the applicants rely and the contextual imputations which Adam pleaded were true, but that "[f]urther particulars may be provided after discovery and interrogatories" without there being any content to the basis upon which the plea of truth was sought to be advanced. He also alleged that his publications occurred on occasions of qualified privilege and that they did not involve any misleading or deceptive conduct on his part. 13 The consequence of Adam not filing a defence in accordance with the Rules or, as occurred, at all, is that provided in r 16.07(2), namely that the allegations, made in the statement of claim that were not specifically denied, are taken to be admitted. Moreover, under r 5.22(a) and (b), Adam was in default because he had failed, first, to do an act required to be done by the Rules, namely to file a defence and, secondly, to comply with an order of the Court being the subject of two of his convictions for contempt. Under r 5.23(2), where a respondent is in default, an applicant can apply for certain relief, including an order giving judgment against that respondent for damages to be assessed or any other order. That has not happened in these proceedings to date. 14 What Adam is seeking to do is to participate as an active party in the proceedings in circumstances where, first, he remains in contempt and, secondly, he is seeking to withdraw admissions and obtain a discretionary remedy for an extension of time of nearly two and a half years in which to file his defence. 15 In Celestino v Celestino [1990] FCA 449, Spender, Miles and von Doussa JJ said at 8-9: … where leave to withdraw an admission is sought, a court will require an explanation for the making of the admission. The explanation must be a sensible one based on evidence of a solid and substantial character: Langdale v. Danby [[1982] 1 WLR 1123] at 1134; Hollis v. Burton [1892] 3 Ch. 226; and Cumper v. Pothecary [1941] 2 K.B. 58 at 70. … Even where sufficient explanation for the erroneous or mistaken making of an admission is provided, the admission may only be withdrawn where no injustice will be occasioned thereby to the other party. (emphasis added) 16 Of course, since then, the concept of costs being ordinarily a salve sufficient to assuage any injustice or prejudice no longer applies, as a result of the decision in Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175, esp at 214-215 [100]-[103] per Gummow, Hayne, Crennan, Kiefel and Bell JJ. They went on to point out that provisions, such as are now found in Pt VB, especially s 37M, of the Federal Court of Australia Act 1976 (Cth), require that the extent of delay and costs associated with it, together with prejudice which might reasonably be assumed to follow and which was shown, are now to be weighed against the grant of permission to a party to alter its case. They added that the nature and importance to the party applying for the amendment also could not be overlooked. They said (239 CLR at 214-215 [102]-[103]): Much may depend upon the point the litigation has reached relative to a trial when the application to amend is made. There may be cases where it may properly be concluded that a party has had sufficient opportunity to plead their case and that it is too late for a further amendment, having regard to the other party and other litigants awaiting trial dates. [Section 37M] makes it plain that the extent and the effect of delay and costs are to be regarded as important considerations in the exercise of the court's discretion. Invariably the exercise of that discretion will require an explanation to be given where there is delay in applying for amendment. … Generally speaking, where a discretion is sought to be exercised in favour of one party, and to the disadvantage of another, an explanation will be called for. The importance attached by [s 37M] to the factor of delay will require that, in most cases where it is present, a party should explain it. Not only will they need to show that their application is brought in good faith, but they will also need to bring the circumstances giving rise to the amendment to the court's attention, so that they may be weighed against the effects of any delay and the objectives of the Rules. (emphasis added) 17 Likewise, in Tamaya Resources Ltd v Deloitte Touche Tohmatsu (2016) 332 ALR 199 at 226 [153]-[156], Gilmour, Perram and Beach JJ discussed the need for an explanation and the manner in which it is given in such circumstances (and see also Jackamarra v Krakouer (1998) 195 CLR 516 at 520 [4] per Brennan CJ and McHugh JJ). They noted that: It must be borne in mind that the explanation required is that of the moving party, not merely their solicitor or counsel. The client may very well know of matters relevant to the explanation for delay which are not known by the lawyers. (emphasis added) 18 Counsel for Adam conceded that there is an absence of any explanation by or on behalf of his client. He acknowledged that ordinarily a party in contempt in proceedings, in which that party seeks to be heard, will not be heard before the contempt is purged or cured, except in special cases. 19 There exists a variety of decisions of superior courts in England and Australia as to the precise way in which that principle operates. 20 Lord Bridge of Harwich (with whom Lords Templeman, Griffiths, Oliver of Aylmerton and Lowry agreed) said in X Ltd v Morgan-Grampian (Publishers) Ltd [1991] 1 AC 1 at 46G-H that the flexible approach of Denning LJ in Hadkinson v Hadkinson [1952] P 285 at 298 should be applied, namely that: the fact that a party to a cause has disobeyed an order of the court is not of itself a bar to his being heard, but if his disobedience is such that, so long as it continues, it impedes the course of justice in the cause, by making it more difficult for the court to ascertain the truth or to enforce the orders which it may make, then the court may in its discretion refuse to hear him until the impediment is removed or good reason is shown why it should not be removed. (emphasis added) 21 A similar approach was taken by Bray CJ, with whom Mitchell and Jacobs JJ agreed, in Short v Short (1973) 7 SASR 1 at 11. In contrast, in the Court of Appeal of the Supreme Court of New South Wales in Permewan Wright Consolidated Pty Ltd v Attorney-General of the State of New South Wales; on the relation of Franklins' Stores Pty Ltd (1978) 35 NSWLR 365 at 369C-E, Hutley JA followed the approach of Romer LJ, with whom Somervell LJ agreed, in Hadkinson [1952] P at 288, namely that, "no application to the court by [a person in contempt of an order] will be entertained until he has purged himself of his contempt". 22 There is no decision of the Full Court of this Court binding me in the approach to be taken, as Dowsett J recognised in Foster v Australian Competition and Consumer Commission (2014) 219 FCR 563 at 578 [39]-[40]. 23 Adam has given no explanation for, first, wanting to withdraw his admissions and, secondly, his conduct in relation to his failure to file a defence and why he now wishes to do so. That position, of itself, demonstrates that he is unwilling to explain his behaviour to the Court in seeking its indulgence, nearly two and a half years after he initially elected not to file a defence. The result of that election was to treat these proceedings as ones he was content to have decided against him with all the consequences that that may involve. 24 The significance of Adam's silence on why he is seeking a favourable exercise of the Court's discretion is compounded when coupled with the contempts of which he has been found guilty and for which he continues to serve his sentence of imprisonment. At no point in the process has Adam accepted or acknowledged the authority of the Court. He consented to two orders, which he contravened, that became the subject of two of his convictions. His other two convictions that the Full Court upheld, involved his serious and deliberate interferences in the administration of justice. 25 In those circumstances, there is an absence of any explanation for his conduct and a complete failure of Adam to recognise that what he has done was, not only wrong, but, very seriously wrong, as is his failure to seek to purge his contempt. His attitude demonstrates that, whatever the appropriate test for hearing a party who is in contempt in the proceedings, he should not be heard because of his contempt. I infer that he has no respect for the orders or authority of the Court, even after the experience he has been through of his convictions and substantially unsuccessful appeal, and having served nearly six months in prison as a result. 26 For Adam to come to the Court today, by his lawyers, without even seeking to give any form of explanation of his conduct or acceptance and recognition of the Court's authority or to express contrition for his behaviour is a demonstration that to allow him to participate him in the proceedings would be to invite further defiance of the Court's authority. It is not appropriate to allow Adam to use the Court's process as and when he chooses while being free, in his own mind, to defy its authority and process likewise as and when he chooses. This is not a case in which it is in the interests of justice to permit a person, such as he, to be heard. He has been found guilty of four very serious contempts. He has given no explanation for his delay or his reason for wishing to change his course by filing a defence after deliberately allowing a long period of time to pass in these proceedings. 27 He is not now entitled to have the benefit of a favourable exercise of the Court's discretion to allow him now to participate in the proceedings or to defend himself. Far less is it appropriate to permit him, as a contemnor, to engage further in this litigation and subject his adversaries, the applicants, to further expense in circumstances where it is apparent that he has carefully structured his affairs so that, although very well resourced to afford legal representation and a comfortable lifestyle for himself and his family, he has no apparent assets that he has been willing to disclose to his trustee in bankruptcy in his statement of affairs or to reveal where or how he will find the money to pay the already outstanding significant costs orders. He has demonstrated no respect for the orders of the Court or its authority. Conclusion 28 For these reasons, I am of opinion that the interlocutory applications must be dismissed with costs. I certify that the preceding twenty-eight (28) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Rares. Associate: Dated: 28 September 2017