New South Wales Supreme Court CITATION : Duncan-Strelec v Tate [2008] NSWSC 1145 HEARING DATE(S) : 24/10/08 JURISDICTION : Equity Division JUDGMENT OF : Young CJ in Eq EX TEMPORE JUDGMENT DATE : 24 October 2008 DECISION : Plaintiffs are entitled to a declaration that the third defendant was in contempt of court. CATCHWORDS : PROCEDURE [693]- Contempt- Disobedience of court orders- Consent orders signed by counsel were made in court in the absence of officers of third defendant company- Nothing in the third defendant's solicitors' correspondence that suggests a lack of its awareness- No explanation proffered by third defendant- Court must infer given the seriousness of the making of an injunction over significant assets of the third defendant that orders must be known to all in control of the company. LEGISLATION CITED : Uniform Civil Procedure Rules 2005, Pt 40 r 7 Alexander v Crawford [2003] NSWSC 426 Anderson v Hassett [2007] NSWSC 1310 CASES CITED : Beach Petroleum NL v Johnson (1993) 11 ACSR 103 Kirkpatraick v Kotis (2004) 62 NSWLR 567 Leung v Good Friend Development Pty Ltd [2008] NSWSC 142 Spokes v Banbury Board of Health (1865) LR 1 Eq 42 Amanda Duncan-Strelec (P1) David Strelec (P2) PARTIES : Dunlec Pty Ltd (P3) Thomas Richard Tate (D1) Ruth Tate (D2) Wamego Pty Ltd (D3) FILE NUMBER(S) : SC 6428/06 COUNSEL : A P Coleman (P) T A Alexis SC (D3) SOLICITORS : Kemp Strang (P) PMF Legal (D3) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION YOUNG CJ in EQ Friday 24 October 2008 6428/06 – DUNCAN-STRELEC v TATE JUDGMENT 1 HIS HONOUR: The present proceedings were commenced on 21 December 2006 out of what was alleged to be a failed joint venture involving land in the Albury area. The third plaintiff was a company which was a trustee of a "family trust" on the plaintiffs' side of the record and the third defendant at the time the suit was commenced appears to have been a trustee either for the Tate family or, as the plaintiffs alleged, as to half for the Tate family and half for the plaintiffs. 2 On 23 January 2007 there were interlocutory proceedings before McDougall J. Counsel appeared on both sides. Consent orders were made as follows: "By consent and upon the Plaintiffs by their counsel giving to the Court the usual undertaking as to damages: 1. Subject to order 3, order that until further order of the Court, the Third Defendant by itself, its servants and agents be restrained from selling, mortgaging, alienating, or otherwise dealing with or disposing of the land the subject of Lots 355, 356, 357 in DP 753326 ... otherwise than with the written consent of the First Plaintiff and the Second plaintiff. 2. Subject to order 3, that until further order of the Court, [the First and Second Defendants be restrained from dealing with the issued capital of the Third Defendant]. 3. Notwithstanding orders 1 and 2, the First and Second Defendants shall be at liberty to complete the share sale agreement dated 30 November 2006 ('Agreement') with Francis Kovacevic and upon the completion of that agreement: (a) the First and Second Defendants shall pay $247,000 from the proceeds of the sale into an interest bearing account to be opened by the solicitors for the parties and to be held by them in trust for the parties pending further order of the Court or the written direction of all the parties; (b) the First and Second Defendants shall ensure that six 'Forestry Bonds' as defined in the Agreement be held by the solicitor for the Defendants upon receipt in trust for the parties pending further order of the Court or the written direction of all the parties; (c) otherwise, the Defendants are entitled to deal with the proceeds of sale at their discretion. 4 … 5. Liberty to the Defendants to make application to discharge orders 1 & 2 upon compliance with order 3." 3 There were three other orders which do not matter for present purposes. 4 It is common ground that the matters set out in order 3 have been complied with and that there has been no application to discharge orders 1 and 2. 5 There is no doubt that on 30 November 2007 the share sale agreement was completed, as a result of which Mr Tate ceased to be a director of the third defendant (he was previously sole shareholder and director) and Mr Kovacevic took his place. On the same day the third defendant by its now sole director and secretary, Mr Kovacevic, granted a mortgage to the Bank of Queensland over the land and also granted to the Bank of Queensland a fixed and floating charge over the property and undertaking of the third defendant. Further on 13 February 2008, the third defendant granted a mortgage over the land to Titan Project Developments Pty Ltd ("Titan") which mortgage became duly registered and on the same day granted a fixed and floating charge to Titan. None of those four mortgages or charges was with the written consent of the first or second plaintiffs. 6 The plaintiffs charge the third defendant with contempt in that the mortgages which it effected were contrary to order 1 of the consent orders of 23 January 2007. 7 Directions were made for evidence. The judge making those directions bore in mind that these proceedings could be classed as criminal proceedings and accordingly did not require the third defendant to file any material prior to the completion of the plaintiffs' case. 8 The matter came on before me this morning. Mr A P Coleman appeared for the plaintiffs and Mr T A Alexis SC appeared for the third defendant. 9 Mr Coleman raised five points and I will briefly deal with these. 10 1. Mr Coleman was prepared to make submissions on whether the present proceedings were a civil contempt or a criminal contempt. However, as it appeared to be common ground that the proceedings would be treated as a case that had to be proved beyond reasonable doubt, there was no purpose in continuing this academic debate and we moved on. 11 2. Part 40 rule 7 of the Uniform Civil Procedure Rules 2005 provide that a judgment is not enforceable by sequestration unless a sealed copy is served personally on the person bound by the judgment. No sealed copy of the consent orders was served and, of course, there was no sealed copy bearing the prescribed notice under Part 40 rule 7(3). 12 Mr Coleman put that in the circumstances that was not necessary or, that if it was, then the court should exercise its dispensing power under Part 40 rule 7(5). 13 To a great extent this matter hinges on whether the responsible officer of the third defendant at the time was aware of the consent orders. That would seem to be Mr Tate. 14 In Leung v Good Friend Development Pty Ltd [2008] NSWSC 142, Barrett J dealt with this sort of problem. He said commencing at [6]: "[T]he order concerned was a consent order and the first defendant was a party to the consent. It may therefore be inferred that the first defendant was aware of the terms of the order actually made. … [8] As to service of the order disobedience of which is alleged, the plaintiff contends, and the first defendant does not seek to deny, that because the order is a consent order, rule 40.7(4) of the Uniform Civil Procedure Rules makes inapplicable the precondition concerning service of the order that would otherwise arise under the earlier part of rule 40.7." 15 It will be remembered that Part 40 rule 7(4) says that if a person has notice of a judgment by being present when it is directed to be entered or being notified of the terms of the judgment whether by telephone, telegram or otherwise, then that person is liable to sequestration. 16 There is no doubt that the present order was a consent order and that counsel representing the third defendant was present when the order was made. Is that sufficient to show that the third defendant had knowledge of the order? 17 Mr Coleman cited to me the decision of Bryson J in Alexander v Crawford [2003] NSWSC 426 at [32] and following where his Honour took the view that when counsel gives an undertaking to the court, the court does not go beyond that fact and make the plaintiff in contempt proceedings establish that counsel actually had instructions and that the person who is charged with the contempt knew of those instructions. Mr Coleman says that by analogy one should apply the same rule when counsel consents to the making of an order. 18 I think that is so, however, in the instant case when finding whether there was knowledge of the consent order, the evidence goes a little further. Although there is no obligation on a person charged with contempt until he, she or it is told the full extent of the case against them to give evidence in court, there is no prohibition on them saying anything in reaction to the charge. 19 In the instant case, the solicitors for the plaintiffs put to the Gold Coast solicitors then acting for the defendants their contention that there was a contempt of court, that the third defendant was well aware of the consent order and asked for an explanation. There was a letter written by the plaintiffs' solicitors on 8 July 2008 which is page 123 of exhibit PX01. There were non-committal responses from the Gold Coast solicitors for some time. 20 However, the third defendant then approached Brisbane solicitors, Lillas and Loel Lawyers, and they replied on 31 July 2008. Their assertive reply was that the third defendant considered the alleged contempt to be totally misconceived. They alleged that order 1 was ineffective after the completion of the share sale agreement in accordance with order 3 and that, although there was liberty under order 5 to discharge order 1, that was really completely unnecessary. The spirit of the orders was that with $247,000 being provided as security under order 3, order 1 was essentially spent. 21 It is significant that there is not one word in that letter that the third defendant was unaware of the order when it mortgaged and charged the land. There was no obligation to reply. However solicitors who are learned in the law did reply. The natural reaction of a person who has not received notification of a letter or order of which non receipt is a complete defence to contempt would state that fact. A fortiori I would expect solicitors to do so. This letter does not state it, but rather states some other ground. Thus, I can infer, and I do infer, that that other ground was just not available. Accordingly, this reinforces the view that having been a consent order by counsel for the third defendant, the third defendant had knowledge of the order and so Part 40 rule 7(4) applies. If it did not then I would be of the view that I should give dispensation under Part 40 rule 7(5). 22 3. Mr Coleman then took me through the material to show that the third defendant must have known of the orders which I have already reviewed. 23 4. In dealing with the question of ambiguity, Mr Coleman submitted that on the clear meaning of the orders there could be no ambiguity. I will deal with this point more fully when I deal with Mr Alexis' reply. 24 5. Mr Coleman reminded me that, as is demonstrated by the authorities, most recently in Anderson v Hassett [2007] NSWSC 1310, there is no requirement to show any intention to disobey. 25 Mr Alexis did not call any evidence, however, he did tender a couple of documents to show that on 30 November 2007, Mr Tate ceased to be a shareholder and director and that Mr Kovacevic took his place. 26 Mr Alexis made three main points. 27 A. That simply by tendering the short minutes of order and showing that counsel signed them on behalf of the third defendant was insufficient to show knowledge of the company. I have already indicated why I must reject that proposition. 28 B. This point is central to the defence, the relevant question is whether at the time of the transaction, the company by its director or agents had knowledge of the orders. I was referred to what von Doussa J said in Beach Petroleum NL v Johnson (1993) 11 ACSR 103, particularly at 109 and 117. There is abundant authority for the proposition that when one is looking to see what is the knowledge of a company one looks to see what is the knowledge of its directors and controlling officers. The problem here is that when the consent orders were made, the controlling mind of the company was Mr Tate whereas at the time of the alleged contempt it was Mr Kovacevic. However, as von Doussa J and others have analysed, once the company has knowledge of a serious matter by a director, then it is not likely to be inferred that that knowledge has somehow become lost or forgotten. 29 In the instant case, the making of an injunction over what must be significant assets of the third defendant was a very serious matter and one which, without some form of denial, the court must infer was known to all the persons who were involved in the running of the company. The subject matter of the litigation in this court was, in the words of von Doussa J at [22.36] very important to the financial wellbeing of the company and not likely to have been forgotten. 30 I realise that it is a quasi-criminal matter and that the prosecution must prove its case, but where the prosecution's case is finished and there is no evidence put at all as to an innocent explanation then the court is more ready to infer that the important information obtained by Mr Tate was retained at the time of the alleged breach. 31 C. It is put that the order is ambiguous. It is put that, as the Brisbane solicitors' letter says, the dispute was over a joint venture and what assets were held for the plaintiffs out of the sale proceeds. It is also put that $247,000 was put aside to satisfy the plaintiffs so that for all commercial purposes on the settlement of the sale of the shares in the third defendant, the spirit of the injunction was maintained. 32 Unfortunately for the third defendant, that is not really the test. As has been said for centuries, a court makes an order and unless that order is exactly obeyed then a person is in contempt of it. As Sir W Page Wood VC said in Spokes v Banbury Board of Health (1865) LR 1 Eq 42 at 48: "[A]n order must be obeyed, and ... those who wish to get rid of that order must do so by the proper course, an appeal. So long as it exists, the order must be obeyed, and obeyed to the letter; and any one who does not obey it to the letter is guilty of committing a wilful breach of it," 33 However, his Lordship then continued: "unless there be some misapprehension which all mankind are subject to, and which may mislead him upon the plain reading of the order." 34 Those words were picked up by Campbell J in Kirkpatrick v Kotis (2004) 62 NSWLR 567 at 578 where his Honour said: "[I]f an order is really not clear, it is unjust for someone to be punished for not obeying it. As well, though, the court approaches the question of whether the order is ambiguous on the basis that the recipient is expected to try to understand and obey it. If a person taking that approach to the order could be in real doubt about what it meant, in a respect which is relevant to the particular charge of contempt which is brought, the charge will fail." 35 Mr Alexis put emphasis on the word which I have italicised and, again, that reflects what the Brisbane solicitors' letter had put, that is, that the order could well be misinterpreted. However, two short points can be made in reply. First, that no-one has ever said that they did in fact entertain any real doubt and, secondly, that in my capacity as a tribunal of fact I just cannot see how there could be any real doubt. The plain reading of the order is that the mortgaging of this land was forbidden, however, the share sale transaction could go ahead on certain conditions (which were fulfilled) and if they did, there could be an application to the court to discharge order 1. Order 5 allowing liberty to apply was not just an optional extra. Because of what Sir W Page Wood VC said in Spokes, it was actually necessary to get rid of it if it was to be outflanked or if the security of the $247,000 was to be the end of the matter. Accordingly, in my view, this is not a case where the exception referred to by Campbell J can be called in aid. 36 It follows from all this that the plaintiffs are entitled to a declaration that by doing what it did on 30 November 2007 and again on 13 February 2008 in mortgaging and charging the land, the third defendant was in contempt of court in that there was a flouting of order 1 made on 23 January 2007. The parties have agreed that any question of penalty shall await another day and so that is where I will curtail the matter for the moment. 37 Counsel have now conferred as to what should happen to this case and, while they have been doing that, I have had some thoughts which really should be incorporated in the judgment. 38 First, if it is not clear from what I have already said, I should make it clear that I have applied the criminal standard of proof, that is, that the ultimate fact needs to be established beyond all reasonable doubt. 39 Secondly, I should make it clear that although in the instant case Part 40 rule 7 is not a barrier, I would not like it to become the culture of solicitors in Sydney that they do not properly serve a formal order with the prescribed note because that is the standard way of doing things, it is the fair way of doing things and it avoids complications. 40 The parties have now agreed on a timetable which will be the subject of short minutes and the matter will stand over for mention before me on 2 December 2008 at 9.30am. ****************************** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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