New South Wales Supreme Court CITATION : ASIC v Sigalla [2010] NSWSC 606 HEARING DATE(S) : 01/06/10 JUDGMENT DATE : 2 June 2010 JURISDICTION : Equity JUDGMENT OF : White J EX TEMPORE JUDGMENT DATE : 2 June 2010 DECISION : Order that the first defendant's application that each of the charges in paragraphs 14-19, 26-42 and 55-57 of the further amended statement of charge dated 24 May 2010 and the relief sought in corresponding paragraphs of the further amended interlocutory process dated 24 May 2010 be dismissed. CATCHWORDS : CORPORATIONS – charges of contempt in respect of orders made under s 1323 of Corporations Act in the nature of Mareva orders – application to strike out charges of contempt – whether impugned charges are so clearly untenable that could not possibly succeed – construction of orders – whether person charged dealt with assets by using credit card to pay for services – no evidence of circumstances in which orders were made which may bear on construction of orders CATEGORY : Procedural and other rulings R & I Bank of Western Australia Ltd v Anchorage Investments Pty Ltd (1993) 10 WAR 59 Australian Consolidated Press Limited v Morgan (1965) 112 CLR 483 Re Richstar Enterprises Pty Ltd (ACN 099 071 968); Australian Securities and Investments Commission v Carey (No. 3) [2006] FCA 433; (2006) 57 ASCR 307 Re Card Charge Services Limited [1989] Ch 497 CASES CITED : General Steel Industries Inc v Commissioner for Railways (1964) 112 CLR 125 Kirkpatrick v Kotis [2004] NSWSC 1265; (2004) 62 NSWLR 567 Athens v Randwick City Council [2005] NSWCA 317 Wyszynski v Bill [2005] NSWSC 110 American Express International Inc v Commissioner of State Revenue [2004] VSCA 193; (2004) 10 VR 145 Prime Wheat Association Ltd (ACN 000 245 269) v Chief Commissioner of Stamp Duties (1997) 42 NSWLR 505 TEXTS CITED : A Tyree, "Payment by Credit Card" (2004) 15(3) JBFLP 221 PARTIES : Plaintiff: Australian Securities and Investments Commission Defendant: Andrew Sigalla FILE NUMBER(S) : SC 2009/290316 COUNSEL : Plaintiff: D R Stack Defendant: R J Bromwich SC with C A Botsman SOLICITORS : Plaintiff: Conrad Gray, ASIC Defendant: Kemp Strang IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST WHITE J Wednesday, 2 June 2010 2009/290316 Australian Securities and Investments Commission v Andrew Sigalla JUDGMENT 1 HIS HONOUR: The plaintiff, the Australian Securities and Investment Commission, charges the first defendant, Mr Andrew Sigalla, with 45 counts of contempt. Forty-three of the counts allege Mr Sigalla is guilty of contempt by disobeying the court's orders. Two counts charge Mr Sigalla with contempt for allegedly intending to deceive the court by swearing affidavits known to be false, or in one case also arranging for another person to swear a false affidavit. 2 At the commencement of the hearing counsel for Mr Sigalla applied for orders that the charges in each of paragraphs 14-19, 26-42 and 55-57 of the further amended statement of charge dated 24 May 2010 and the relief sought in corresponding paragraphs of the further amended interlocutory process dated 24 May 2010 be quashed upon the ground that each charge disclosed no offence. Apart from paragraph 19 of the further amended statement of charge, to which I will return in due course, each of the impugned paragraphs alleges Mr Sigalla breached orders of the court by using his credit card to pay for the provision of female models or escorts. 3 A number of orders made on separate dates are alleged to have been contravened. It is not necessary to set out the terms of each of those orders. 4 On 3 September 2009 Barrett J ordered that: " Until 5.00 pm on Wednesday, 16 September 2009, each of the First and Fourth Defendants by themselves, their officers, servants, agents or employees are restrained from: (a) removing, or causing or permitting to be removed from the State of New South Wales and from Australia all or any of their assets; and (b) from selling, charging, mortgaging or otherwise dealing with or disposing of or causing or permitting to be sold, charged, mortgaged or otherwise dealt with or disposed of, all or any of their assets whether located within Australia or outside Australia, PROVIDED that this Order: (c) shall not prevent each of the First and Fourth Defendants from paying their reasonable ordinary living and operating expenses; (d) shall not prevent each of the First and Fourth Defendants from paying legal costs reasonably incurred in these proceedings; and (e) shall not prevent any bank, building society or financial institution from exercising any right of set-off which it may have in respect of a facility afforded by it to any of the First and Fourth Defendants prior to the date of this Order. " 5 On 16 September 2009 I made the following orders: "THE COURT: A. Asset preservation orders: 1. Subject to order 3, orders that, until 5.00 pm on 19 March 2010, the First and Fourth Defendants are restrained (by themselves, their directors, officers, partners, agents, employees or others acting on their behalf or instructions) from: (a) removing, or causing or permitting to be removed from Australia all or any of their assets; and (b) from selling, charging, mortgaging or otherwise dealing with of [sic] disposing of or causing or permitting to be sold, charged, mortgaged or otherwise dealt with or disposed of, all or any of their assets whether located within Australia or outside Australia. 2. Notes that for the purpose of paragraph 1 above, 'their assets' include: (a) generally: (i) all of the assets from time to time of the First and Fourth Defendants (' Sigalla Defendants '), whether or not they are in the name of any of the Sigalla Defendants and whether they are solely or co-owned; (ii) all assets which from time to time any of the Sigalla Defendants has the power, directly or indirectly, to dispose of or deal with as if it were their own (the Sigalla Defendants are to be regarded as having such power if a third party holds or controls the asset in accordance with the direct or indirect instructions of any of the Sigalla Defendants); (b) specifically, any of the following assets, to the extent that they answer the description in (a)(i) or (ii) above: (i) each of the properties known as units 6, 12, 18 and 19 at [xx] [xx] Road, [xxxx] NSW 2565 (being the whole of the land in folio identifiers 6, 12, 18 and 19/SP [xxx] 96); (ii) the property known as lot 2 [xx] Avenue, [xxxx] SA 5073 (being the whole of the land in Certificate of Title Volume [xx] 61 Folio [xx] 9); (iii) all money in any bank account with KAS Bank NV in the Netherlands, including, but not limited to account numbers [xxxxxxx] 28 and [xxxxx] 50 and [xxxxxxxxxxxxxxxx] 01 and [xxxxx] 34 and any account in the name of Frank Hudson; (iv) all money in any bank account with National Australia Bank, including, but not limited to: o BSB [xxx-x] 79: Account no. [xxxxxxx] 99 o BSB [xxx-x] 67: Account no. [xxxxxxx] 35 o BSB (unknown): Account no. [xxxxxxx] 49 o BSB [xxx-x] 57: Account no. [xxxxxxx] 40 o BSB [xxx-x] 57: Account no. [xxxxxxx] 49 o BSB [xxx-x] 57: Account no. [xxxxxxx] 79 o BSB [xxx-x] 67: Account number [xxxxxxx] 66 (v) all money in any bank account with JP Morgan Chase, including, but not limited to the account referred to in paragraph 3(c) of the affidavit of Andrew Sigalla sworn 15 September 2009; (vi) all money in any bank account with St George Bank, including, but not limited to the accounts referred to in paragraph 3(c) of the affidavit of Andrew Sigalla sworn 15 September 2009; (vii) all shares in TZ Limited; (viii) all shares in Mawson West Limited; (ix) all shares in Kingsgate Limited; (x) all shares in Felix Resources; (xi) all shares in Photon Group; (xii) all shares in Golf Link Partners Pty Limited; (' Continuing Orders '). 3. Orders that the Continuing Orders are not to prevent the First and Fourth Defendants from: (a) withdrawing, in total, from account no. [xxxxxxxxxxxxxxx] 01 held at KAS Bank NV, Netherlands, the whole of the amount standing to the credit of that account and transferring that amount to the account held in the name of Andrew Sigalla with St George Bank in Sydney, being account number [xxxxxxxx] 99 (' Sigalla St George Account '); and (b) paying, in total, from the Sigalla St George Account whilstsoever the amount standing to the credit of the account exceeds $500,000 amounts not to exceed $500,000 in the aggregate for the purposes of paying: (i) reasonable ordinary living expenses; (ii) reasonable legal expenses incurred by any or all of the Sigalla defendants in these proceedings or the ASIC proceedings; (iii) business expenses bona fide and properly incurred; and (iv) discharging obligations bona fide and properly incurred under a contract entered into before this order was made, provided that before doing so the Sigalla defendants give the plaintiff's solicitors and ASIC's solicitors, if possible, at least two working days written notice of the particulars of the obligation, incurred in the period up to the end of 19 March 2010; and (c) paying the money presently to the credit of the Sigalla St George Account and to the credit of the account no. [xxx xxx x] 92 held by ZMS Investments Pty Ltd with St George Bank (ZMS St George A/C) to HWL Ebsworth, with instructions to pay the amount to Perpetual in its capacity as mortgagee of the properties described in order 2(b)(i) above, by 5.00 pm on 17 September 2009, proof of such payment to be provided to the plaintiff by 12 noon on 18 September 2009. 4. Notes the acknowledgement of the First and Fourth Defendants that the sum of $500,000 is their best estimate of the maximum amount they require in order to discharge expenses incurred for the purposes described in sub-paragraph 3(b) above during the period up to the end of 19 March 2010. " 6 Mr Bromwich SC who appears with Mr Botsman for Mr Sigalla, submitted that Mr Sigalla could not be said to have sold, charged, mortgaged or otherwise dealt with or disposed of his assets merely by paying for services with his credit card. Counsel submitted that if Mr Sigalla used his credit cards as alleged by ASIC he would have incurred debts to the credit card provider but, so it was submitted, he would not breach the orders merely by incurring debts. 7 The statement of charge does not allege that Mr Sigalla dealt with or disposed of his assets by paying the debts shown on his credit card statements. Such a statement of charge would have a different focus and would raise questions as to what payments were made, when they were made, whether payments were not for ordinary living expenses, and who made the payments. 8 Counsel for Mr Sigalla submitted that a credit card is not an asset in any ordinary or even extended sense of the word but is a contractual arrangement permitting the incurring of a debt on an ad hoc basis. Counsel submitted that the orders did not prohibit the incurring of liabilities. Counsel also submitted that an "asset" within the meaning of the orders was property available to meet debts, citing R & I Bank of Western Australia Ltd v Anchorage Investments Pty Ltd (1993) 10 WAR 59 at 78). Counsel submitted that a credit card is not of that description. Counsel for Mr Sigalla also submitted that the reference to assets being located within or outside Australia indicated that the assets the subject of the order were tangible property capable of having a physical situs. Counsel also submitted that if use of a credit card were intended to be prohibited, clear and unambiguous words would have needed to be used (citing Australian Consolidated Press Limited v Morgan (1965) 112 CLR 483 at 515-516). 9 I re-order the submissions advanced by Mr Stack, who appears for ASIC. Mr Stack submitted that the depletion of Mr Sigalla's net assets through the incurring of a liability was a dealing with his assets in breach of the order. He submitted that the purpose of the order was to preserve Mr Sigalla's assets against which a judgment creditor could retain recovery of a judgment debt (citing Re Richstar Enterprises Pty Ltd (ACN 099 071 968); Australian Securities and Investments Commission v Carey (No. 3) [2006] FCA 433; (2006) 57 ASCR 307 at [25]). Mr Stack submitted this purpose would be defeated if debt were allowed to be incurred, which would increase the value of claims on the defendant's property and hence diminish a return in a bankruptcy. 10 Secondly (although this was his first submission), Mr Stack submitted that a credit card is an asset. It has been described as plastic money (Re Card Charge Services Limited [1989] Ch 497 at 509). It gives the cardholder valuable contractual rights against the card provider so that the card can be used as a substitute for cash. 11 Thirdly, Mr Stack submitted that by using the credit card a cardholder directs payment by the card provider to the merchant in payment of goods or services supplied to the cardholder. He submitted that payment by the card provider is made on the cardholder's behalf and that the transaction should be properly characterised as a loan by the card provider to the cardholder, which the latter is obliged to repay. The moneys advanced by the card provider are applied on the cardholder's direction in payment of the debt incurred to the merchant. Use of borrowed moneys is thus, so it was submitted, a dealing by the plaintiff with his assets. 12 It was common ground that the application to quash particular counts of the further amended statement of charge should be approached in a similar way to an application to strike out a pleading. Evidence could be and was admitted on the application. (See Uniform Civil Procedure Rules, r 14.28(2)). On the application the question is whether the charges in the further amended statement of charge which are impugned are so clearly untenable that they could not possibly succeed. That conclusion might be reached even if it requires extensive argument (General Steel Industries Inc v Commissioner for Railways (1964) 112 CLR 125). 13 The only evidence adduced on the application was the tender of the terms regulating the use of credit cards issued by American Express and the National Australia Bank to Mr Sigalla. The statement of charge also alleges payments by Mr Sigalla using a JPMorgan credit card. Mr Stack advised that ASIC had not succeeded in obtaining the terms of use for that card. I can assume those terms will not be tendered in ASIC's case. 14 There was no evidence of the circumstances in which the various orders alleged to have been breached came to be made which might bear on the construction of the orders (see Kirkpatrick v Kotis [2004] NSWSC 1265; (2004) 62 NSWLR 567 and Athens v Randwick City Council [2005] NSWCA 317 at [29] and [137]-[140]). 15 This creates an obvious difficulty in deciding that any ambiguity in the orders should be resolved in favour of Mr Sigalla. Counsel for Mr Sigalla did not submit on the present application that if the orders were ambiguous Mr Sigalla could not be found guilty of contempt (see Kirkpatrick v Kotis at [50]-[60]). Counsel were right not to make such a submission at this stage because it could not be said that any ambiguity might not be clarified by evidence of the objective matrix of facts in which the orders were made. Thus reasons for judgment have been used to resolve ambiguities in court orders (eg Athens v Randwick City Council), as has the process pursuant to which the order was made (Wyszynski v Bill [2005] NSWSC 110 at [37] and [38]). 16 For Mr Sigalla to succeed in quashing or striking out the counts he must demonstrate that they could not possibly succeed. That requires demonstration that there is no arguable construction of the orders which might not be confirmed by extrinsic evidence that he was prohibited from using his credit card to pay for services which were not ordinary living expenses. 17 The views I express on the present application on the meaning of the orders are not concluded views. The question is not whether the orders have the meaning for which ASIC contends but whether such a construction is arguable. 18 I do not accept Mr Stack's submission that the orders against dealing with assets will be contravened merely by the incurring of liabilities. There is a clear distinction between assets and liabilities. Of course, it does not necessarily follow that there will be a change in a party's net asset position by the incurring of liabilities, as there may be a corresponding increase in assets. But in the present case there would be such a change in Mr Sigalla's net asset position if he incurred liabilities to the credit card providers for the services described in the further amended statement of charge. However, the fact that there may be such a diminution in his net assets does not, it seems to me, mean his assets would thereby have been dealt with. In my view it is not seriously arguable that, merely by incurring liabilities that increase the number of or the value of claimants to Mr Sigalla's assets on his bankruptcy and thereby diminishing a return to unsecured creditors, Mr Sigalla would thereby have dealt with his assets in breach of the orders. 19 I turn then to the second argument outlined above advanced for ASIC. The terms of use of the American Express and National Australia Bank credit cards provide that the credit card itself, considered as a chattel, is the property of the card issuer. There will be no evidence in ASIC's case that the credit card issued by JPMorgan considered as a chattel became the property of Mr Sigalla. However, I think it a plausible construction of the orders that Mr Sigalla's assets included his contractual rights against the credit card issuers whereby he could satisfy his liability to a merchant for goods or services provided by committing the card issuer to an obligation to pay the merchant. 20 The contracts between Mr Sigalla and the card issuers confer valuable rights on him whereby he is authorised by using the card to commit the card issuer to such an obligation to the merchant. The card issuer will be obliged to pay the merchant a sum which will be fixed between them referable to the goods or services supplied by the merchant to Mr Sigalla and this will discharge Mr Sigalla's debt to the merchant. It is unnecessary to decide whether such a discharge would be conditional or unconditional. (See Re Charge Card Services Limited at 513, American Express International Inc v Commissioner of State Revenue [2004] VSCA 193; (2004) 10 VR 145 at [15] and A Tyree, "Payment by Credit Card" (2004) 15(3) JBFLP 221 at 224–225). 21 By so using the card Mr Sigalla would incur a debt to the card issuer in an amount equal to the price of the goods or services. But that does not mean that the only relevance of the transaction is the incurring of a liability to the card issuer. Equally relevant is the exercise by Mr Sigalla of his contractual right to use the card to satisfy a debt to the merchant. If his contractual right so to use the card and commit the card issuer to obligations to the merchant is an asset, then the exercise of that right may, at least arguably, be considered as a dealing with the asset. 22 The orders prohibited the "selling, charging, mortgaging or otherwise dealing with ..." the assets. A sale, charge or mortgage would confer on a third party the ownership of or a security interest in the asset. Counsel for Mr Sigalla did not submit that the phrase "or otherwise dealing with" requires that a third party acquire a proprietary interest in the asset. An exercise by Mr Sigalla of his contractual right against the card issuer would undoubtedly confer a benefit on a third party who receives payment. This arguably is a dealing with his contractual right. 23 One of the dictionary definitions of "assets" is that it is a valuable thing. It is arguable - I do not say it is necessarily right - that to qualify as an asset which is subject to the orders it is not necessary that the thing be capable of assignment or transmission. In R & I Bank of Western Australia Ltd v Anchorage Investments Pty Limited, Owen J said (at 78): " Both the Concise Oxford Dictionary and the Macquarie Dictionary define 'asset' as 'property to meet debts.' There is implicit in this definition, when applied to the contact of a Mareva injunction, that an 'asset' must be a thing of value and it must be capable of application to satisfy debts. " 24 I do not understand his Honour to be stating a proposition of law governing construction of all Mareva orders. In the present case, as submitted for ASIC in the earlier submission dealt with above, it is arguable that the construction of the orders should be approached with a view that the court intended to minimise competing claims on the defendant's estate by prohibiting dealings with his "assets" that resulted in the incurring of liabilities. In any event, Mr Sigalla's rights under his contracts with credit card issuers were things of value and were capable of being applied by him to satisfy debts. Indeed, that would be the very use of the credit card, namely, to pay debts. I therefore do not think that what was said in R & I Bank of Western Australia Ltd v Anchorage Investments Pty Limited determines the question of what is meant by "assets" in the orders. 25 I do not accept the defendant's argument that the words "whether located within Australia or outside Australia" indicate that only tangible property was subject to the orders. That construction is inconsistent with the order applying, as it expressly does, to "all or any" of the first defendant's assets. Such a construction is also inconsistent with the proviso in para (e) in the first of the orders set out above which assumes that a chose in action the defendant might have against the bank could be the subject of the restraint. 26 Mr Bromwich SC and Mr Botsman also argued that the proviso (e) indicated that the defendant could use his credit card whether or not for the purposes in paragraphs (c) and (d). As I understand it, the argument was that the right of set-off preserved to a bank or financial institution was preserved for just such a purpose. But it is obvious there might be many occasions for a bank or financial institution to exercise a right of set-off otherwise than to satisfy a debt owed to it by Mr Sigalla from use of his credit card. I do not think that proviso takes the question of construction further. 27 Mr Bromwich also referred to the change of the orders on 16 September 2009 as indicating that on the proper construction of the orders Mr Sigalla was entitled to use his credit card to pay debts whether or not for the purposes of paying reasonable ordinary living expenses or legal expenses. Prior to 16 September 2009 the provisos in paras (c), (d) and (e) were provisos to the general restraint against, inter alia, Mr Sigalla's dealing with or disposing of all or any of his assets. In the orders of 16 September 2009 the general restraint was expressed to be subject to order 3. Order 2 specified with some particularity what was included in the expression "assets". This did not include the rights against a credit card provider. However, order 2 is not expressed to be comprehensive but inclusive. Order 3 contained the relevant "carve-outs." In particular, as counsel pointed out, the proviso that assets could be dealt with to pay reasonable ordinary living and operating expenses and legal costs was expressed to operate only in respect of moneys to be paid from Mr Sigalla's St George account for an amount up to $500,000. 28 It was submitted that it could not have been intended that Mr Sigalla was not able to pay reasonable ordinary living expenses using his credit card. I do not consider that that argument is clearly correct such that the construction of the orders contended for by ASIC is untenable. On the face of the orders, the provisos permitting dealing with assets to pay reasonably ordinary living expenses and reasonable legal expenses were expanded to include business expenses bona fide and properly incurred, and to permit the discharging of obligations bona fide and properly incurred under a contract entered into before the order was made on certain conditions. At the same time as the scope of the provisos was widened, the operation of the proviso was narrowed so as to apply only to payments from the St George account. I do not think it appears with any clarity as to whether or not that change to the regime indicates one way or the other whether the orders prohibit payment by credit card. 29 For these reasons I conclude that it is arguable that the orders would be infringed by the payment for services by credit card as alleged by ASIC. 30 It is not necessary to deal with the third submission referred to above advanced by Mr Stack for ASIC, namely that the use of the credit card should be characterised as a transaction of loan to Mr Sigalla and the use by him of moneys borrowed from the credit card provider which thus became part of his assets by his directing payment to the merchant. Prima facie the argument faces the difficulty that the essence of a loan is a payment and the obligation of repayment (Prime Wheat Association Ltd (ACN 000 245 269) v Chief Commissioner of Stamp Duties (1997) 42 NSWLR 505 at 512) and in American Express International Inc v Commissioner of State Revenue Charles JA, with whom Chernov JA and Hansen AJA agreed, held that the arrangements for the American Express credit card there under consideration involved no advance of money to or on behalf of the cardholder by American Express, and the payments made by the cardholder to American Express were not repayments (at [19]). However, it is sufficient merely to note the point and unnecessary to decide it. 31 Paragraph 19 of the further amended statement of charge is in a different position. It alleged: " Mr Sigalla is guilty of contempt of this Court in that with the intention of misleading and deceiving both the Court and the Plaintiff as to circumstances surrounding the payments referred to in paragraphs 14 to 18 above, Mr Sigalla: (a) arranged for and/or caused Frederick Joseph Aboud to swear an affidavit on 3 November 2009: (i) in which the matters deposed to in paragraphs 4 to 12 of that affidavit were false; and (ii) where Mr Sigalla knew that the matters deposed to in paragraphs 4 to 12 of that affidavit were false; and (b) swore an affidavit on 4 November 2009: (i) in which the matters deposed to in paragraphs 74 to 76 were false; (ii) where Mr Sigalla knew that the matters deposed to in paragraphs 74 to 76 were false. " 32 This allegation does not depend on a finding that Mr Sigalla disobeyed orders of the court by using his credit card to pay for services. Counsel for Mr Sigalla argued that if the earlier counts in the statement of charge were quashed, the charge in paragraph 19 should also be quashed as it "relied upon the circumstances of the charges at paragraphs 14 to 18." I do not accept the premise of that argument but, in any event, paragraphs 14 to 18 will not be quashed. 33 No argument was advanced that the matters of alleged subornation of perjury and of perjury were not capable of constituting contempt. 34 For these reasons I order that the first defendant's application that each of the charges in paragraphs 14-19, 26-42 and 55-57 of the further amended statement of charge dated 24 May 2010 and the relief sought in corresponding paragraphs of the further amended interlocutory process dated 24 May 2010 be dismissed. 35 In the course of argument Mr Stack said that if the defendant's application succeeded he would apply to amend the statement of charge. In concluding that the defendant's application should be dismissed, I am not expressing a view that ASIC's construction of the orders is correct, rather than that it is arguable, so that the counts should not be summarily struck out. It will be a matter for ASIC to decide whether it wishes to seek leave to amend and I will deal with any such application if and when it is made. ****** 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.