Admark Property Group Pty Ltd (in liq) v GJ Building and Contracting Pty Ltd

[2016] NSWSC 1309

Supreme Court

New South Wales

Medium Neutral Citation:	Admark Property Group Pty Ltd (in liq) v GJ Building and Contracting Pty Ltd [2016] NSWSC 1309
Hearing dates:	22 August 2016
Decision date:	16 September 2016
Jurisdiction:	Equity - Corporations List
Before:	Black J
Decision:	Respondent to Notice of Motion filed on 20 May 2016 found guilty of contempt.
Catchwords:	PROCEDURE — Contempt of court — where order sought that director of company be punished for contempt under Part 55 r 13 of the Supreme Court Rules 1970 (NSW) – where company gave undertaking to the Court that a certain amount of monies from proceeds of sale of units would be paid into a controlled money account to be held on trust – where it was contended that the director had caused company to act contrary to that undertaking thereby knowingly impeding the administration of justice – whether it was established beyond reasonable doubt that alleged contemnor had requisite knowledge of undertaking – whether r 36.5 of the Uniform Civil Procedure Rules 2005 (NSW) applies to undertakings voluntarily offered to court – whether undertaking was not sufficiently precise to ground a charge of contempt – whether charge of contempt established.
Legislation Cited:	- Evidence Act 1995 (NSW), s 136 - Home Building Act 1989 (NSW) - Supreme Court Rules 1970 (NSW), Pt 55 r 13 - Uniform Civil Procedure Rules 2005 (NSW), rr 36.5, 40.6
Cases Cited:	- ANS Nominees Pty Ltd v Beverley Manufacturing Co Pty Ltd [1979] 2 NSWLR 875; (1979) 4 ACLR 737 - Athens v Randwick City Council [2005] NSWCA 317; (2005) 64 NSWLR 58 - Australian Competition and Consumer Commission v Hughes [2001] FCA 38 - Australian Consolidated Press Ltd v Morgan [1965] HCA 21; (1965) 112 CLR 483 - Baker v Paul [2013] NSWCA 426 - CCOM Pty Ltd v Jiejing Pty Ltd (1992) 36 FCR 524 - Chamberlain v R (No 2) [1984] HCA 7; (1984) 153 CLR 521 - Electricity Generation Corporation (t/as Verve Energy) v Woodside Energy Ltd [2014] HCA 7; (2014) 306 ALR 25 - Fajloun v Khoury [2016] NSWCA 101 - Firstmac Fiduciary Services Pty Ltd v Gilmour (No 3) [2013] NSWSC 570 - Iberian Trust Ltd v Founders Trust & Investment Company Ltd [1932] 2 KB 87 - Kayserian Nominees (No 1) Pty Ltd v J R Garner Pty Ltd [2008] NSWSC 1011 - Kirkpatrick v Kotis [2004] NSWSC 1265; (2004) 62 NSWLR 567 - Microsoft Corporation v Marks (No 1) (1996) 69 FCR 117 at 143; 139 ALR 99 - Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; (2015) 325 ALR 188 - Pang v Bydand Holdings Pty Ltd [2011] NSWCA 69 - Re Mycorp Pty Ltd [2014] NSWSC 899 - Reid v Howard (1993) 31 NSWLR 298 - Sigalla v TZ Ltd [2011] NSWCA 334 - Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165 - Witham v Holloway [1995] HCA 3; (1995) 183 CLR 525 - Zhu v Treasurer of the State of New South Wales [2004] HCA 56; (2004) 218 CLR 530
Category:	Procedural and other rulings
Parties:	Admark Property Group Pty Limited (in liquidation) (Plaintiff) GJ Building and Contracting Pty Limited (Defendant)
Representation:	Counsel: D R Stack (Plaintiff/Liquidator) D Sulan/J Buncle (Defendant) M Thangaraj SC/M J Dawson (Respondent on Motion)   Solicitors: ERA Legal (Plaintiff/Liquidator) Bridges Lawyers (Defendant) Maguire & McInerney (Respondent)
File Number(s):	2015/367939

Judgment

1. By Notice of Motion filed on 20 May 2016, the Defendant, GJ Building and Contracting Pty Limited (“GJ Building”) seeks an order, pursuant to Part 55 r 13 of the Supreme Court Rules 1970 (NSW) that the Respondent, Mr Vito Pennimpede be punished for contempt and made liable to such punishment as the Court thinks appropriate, and that Mr Pennimpede pay the costs of the motion on an indemnity basis. By Notice of Motion filed on 20 June 2016, Mr Pennimpede seeks an order that the proceedings constituted by that motion be dismissed. Those motions appear to raise essentially the same issues.

2. The liquidator of the Plaintiff, Admark Property Group Pty Limited (in liq) (“Admark”) also seeks an order that Admark be released from an undertaking given to the Court on 18 December 2015, to which I will refer below. That application has been deferred to be heard after delivery of the Court’s judgment as to liability in this application.

Findings of fact

3. By its Amended Statement of Charge filed on 18 July 2016 (“ASC”), GJ Building pleads the relevant events, which appear to be largely uncontroversial, although there is of course a contest as to whether those events give rise to liability for contempt on the part of Mr Pennimpede. GJ Building relies on the affidavit of its solicitor, Mr Parker, dated 20 May 2016 which sets out the background to the dispute between Admark and GJ Building.

4. Mr Barnes, a solicitor who acted for Admark at the relevant time, also gave oral evidence on subpoena. His evidence is that he acted for Admark from about mid-2015 until it went into liquidation on 18 January 2016 and that he took instructions from, and only from, Mr Pennimpede in that regard (T18). I will refer to other aspect of Mr Barnes’ evidence below. Mr Vittorio Cuoco, who is the principal of CVC Law which acted for Admark in respect of the sales of units in the property, also gave oral evidence on subpoena. Mr Cuoco assisted with the completion of sales of units in the property in 2015 (T25). He issued contracts in respect of some units in mid-2014 and monies were received into the CVC Law trust account in respect of the sale of the units (T26). He obtained instructions from Admark and was dealing with Mr Pennimpede and took instructions from Admark through Mr Pennimpede (T26–T27). I will refer to Mr Cuoco’s evidence in respect of particular transactions below.

5. I now set out several findings of fact. Mr Pennimpede was the holder of all ordinary shares in Admark at all relevant times and was also the sole director of Admark (Ex A1, pp 2, 4). Admark and GJ Building were party to a contract for the construction of units at Campbelltown, NSW.

6. Mr Pennimpede tendered purported minutes of a meeting of Admark on 1 June 2014 (Ex D1). Mr Thangaraj, who appeared with Mr Dawson for Mr Pennimpede, accepted that those minutes could only be admitted on the basis of a limitation under s 136 of the Evidence Act 1995 (NSW) that they provided only that the document was provided by Mr Pennimpede to Mr Cuoco and not the matters stated in it (T35). Neither the fact nor the content of the meeting which that document purports to record was established, and it was therefore also not established that any corporate authority was given for the matters referred to in that document. Even if those minutes had been admitted on a basis that proved the fact, they would have provided little assistance to Mr Pennimpede. A resolution was purportedly passed that a company associated with Mr Pennimpede, Manbead Pty Ltd (“Manbead”), have its mortgage “repaid in full” upon completion of the sale of the units within the property; however, that proposition did not establish the amount secured by that mortgage or support a payment prior to the completion of the sale of the units. A resolution was purportedly also passed that Manbead be paid a facilitation fee, secured by mortgage, equivalent to 10% of the cost of the development but there is no evidence as to the cost of the development that would allow the amount of that fee to be determined. There is also reference to Manbead entering an option to acquire any of the units, to which I refer below. There is also a purported resolution that Mr Pennimpede’s wife be paid the sum of $2,000 per week, as a “consultant” for the development, but no evidence as to the number of weeks for which that amount was payable or whether it was paid.

7. Mr Pennimpede also tendered a mortgage dated 17 February 2014 by Admark in favour of Manbead (Ex D2), which refers to an amount of credit of $1,210,000 (Ex D2), but there is no evidence that that amount was in fact advanced to Admark or as to any amount that was payable by Admark to Manbead in December 2015 or January 2016. Mr Pennimpede also tendered a mortgage dated 26 March 2015 by Admark in favour of Janadele Pty Ltd (“Janadele”) (Ex D3) which refers to an amount of credit of $965,000, amended in hand to $1,265,000. There is also no evidence as to whether that amount was advanced or as to the amount that was outstanding in December 2015 or January 2016 (Ex D3). Mr Pennimpede tendered a further mortgage from Admark to Manbead dated 4 June 2014 (Ex D4) which refers to an amount of credit of $2,200,000 (Ex D4) but there is no evidence as to whether that amount is in addition to the amount secured by the first mortgage in favour of Manbead, or in substitution for it, or that any such amount was advanced, or as to the amount outstanding as at December 2015 or January 2016. Mr Cuoco’s evidence, in the course of cross-examination, was that Manbead had “at one stage” advanced $1.21 million in respect of the property and that Janadele had “at one point” advanced $1.265 million in respect of the property (T33). Mr Cuoco was not asked by Mr Thangaraj, and did not say, whether those amounts remained owing in December 2015 or January 2016.

8. Mr Pennimpede also tendered a deed of call option dated 24 June 2014 between Admark and Manbead (Ex D5) and a notice of nomination of nominee under an option dated 29 June 2014 (Ex D6). By the deed of call option, Admark granted Manbead an option to purchase residential units “based on the purchase price issued by” Manbead as of the date of the deed; by the notice of nomination of nominee, Manbead purported to nominate Mr Pennimpede’s wife as the purchaser of Unit 23 in the property (Ex D6); however, there is no evidence that any purchase price for that unit was ever paid.

9. By the time that work on the property was completed and an occupation certificate was issued in late 2015, Admark and GJ Building were in dispute over payment for the project. On 15 December 2015, Admark commenced proceedings seeking orders that GJ Building, its servants and agents be prevented from entering the property so as to facilitate the completion of sales of units in the property. On 16 December 2015, GJ Building undertook to the Court that it would not attend the property until the matter was back before the Court on 18 December 2015.

10. In the morning of 18 December 2015, a representative of Admark’s solicitor emailed Mr Pennimpede indicating that the firm needed urgent instructions and requesting him to contact its office (Ex A1, p 33). On 18 December 2015, In the course of a hearing before Bergin CJ in Eq, sitting as Equity Duty Judge, Admark was represented by Senior and Junior Counsel. Senior Counsel for Admark introduced the matter by indicating that Admark proposed that “we put that amount that [GJ Building] says should be paid into trust until 6 January”, being the date on which it was suggested the matter could be fixed before the vacation judge. Senior Counsel for Admark in turn responded to a question asked by Bergin CJ in Eq, “how much are you willing to put in an account” by referring to the figure of $606,595.50, which was subsequently reflected in the undertaking given by Admark to the Court on that day. In further dialogue between Bergin CJ in Eq and Senior Counsel for Admark, her Honour sought confirmation whether the amount of approximately $600,000 “goes into a controlled monies account” and that matter was confirmed by Senior Counsel for Admark who in turn advised her Honour that:

“That represents all the amounts that [GJ Building] seeks to have paid now and secures them in respect of that and allows the matter to be properly ventilated.”

11. Her Honour in turn put to Counsel for GJ Building that Admark was “willing to put into a controlled monies account $606,595” and Senior Counsel for Admark did not seek to qualify that observation. Her Honour then observed that Admark:

“were willing to do a little better, to actually cocoon $606,595 into a controlled monies account while you start your proceedings for the debt.”

Admark’s Senior Counsel also did not seek to qualify that proposition. Her Honour in turn noted that GJ Building intended to commence proceedings for the recovery of amounts allegedly owed to it by Admark, and listed the matter for directions in the Technology and Construction List in early April 2016.

12. In the result, upon Admark’s undertaking as to damages, GJ Building undertook to the Court on that day that it would not, by itself, its servants or agents enter the relevant property except to attend to its obligations under the Home Building Act 1989 (NSW), and would not hinder Admark, its servants or agents in accessing the property. The Court made certain orders, and noted Admark’s undertaking that:

“… [Admark] undertakes to the Court that until further order the amount of $606,595 from the proceeds of the sale from units of the Property will be paid into the controlled money account and held in trust for [Admark] and [GJ Building] by the solicitor for [Admark].” (ASC [1])

13. GJ Building alleges, and I find, that Mr Pennimpede had knowledge of the orders made by the Court and the undertaking given by Admark and noted by the Court on 18 December 2015, and that Admark’s solicitors obtained instructions from Mr Pennimpede to the effect that he agreed, on 18 December 2015, to the undertaking being given and the relevant amount being paid into a controlled monies account in order to preserve an injunction in Admark’s favour in these proceedings. Mr Barnes’ evidence was that he acted for Admark in respect of the hearing on 18 December 2015 and he took instructions from Mr Pennimpede in respect of that hearing and in respect of the undertaking given by Admark to the Court at that hearing (T19–T20). He communicated with Mr Pennimpede about that matter by telephone on 18 December 2015 (T20), and later communicated with Mr Pennimpede about the terms of the order by written correspondence (T20). Mr Barnes’ evidence was also that he had no indication that Mr Pennimpede did not receive the letters that Mr Barnes sent to him (T22), and Mr Pennimpede did not lead evidence to the contrary.

14. GJ Building alleges, and I find, that, between 18 December 2015 and 18 January 2016, Admark sold, or alternatively settled the sales of, units of the property and received or became entitled to the proceeds from the sale of units of the property (ASC [7]–[8]). Monies in respect of sale proceeds for the sale of units were deposited into CVC Law’s trust account in the period from 18 December 2015 (Ex A1, pp 45ff). Mr Cuoco’s evidence was that payments into CVC Law’s trust account in the name of Mr Pennimpede (Ex A1, pp 198–200) reflected proceeds of the sale of the units in the property (T27–28).

15. GJ Building alleges, and I find, that, on 21 December 2015, the solicitors for Admark sent Mr Pennimpede, by email, a note of the orders and undertakings made on 18 December 2015 which set out, in substantially the same terms, the relevant undertaking. GJ Building alleges, and I find, that, by letter dated 22 December 2015 (Ex A1, pp 34–36), addressed to “Vito Pennimpede Esq Admark Property Group Pty Ltd”, Admark’s solicitor wrote to Mr Pennimpede reporting on the events of the hearing of 18 December 2015, including setting out the undertaking given on that date; requesting that the amount of $606,595.50 be deposited into the solicitor’s trust account and stating that:

“The Court did not impose a time by which that money had to be paid into trust, however the first available funds after payment of secured creditors should be paid into trust. Failure to do so would be a breach of the undertaking and is punishable as a contempt of a Court. There is no doubt [GJ Building] will ask for confirmation of the monies paid into the Trust Account.”

16. GJ Building alleges, and I find, that, on or about 23 December 2015, Mr Pennimpede provided a written direction to CVC Law (Ex A1, p 39) to complete the sales of the units at the property and disburse the funds to pay out the first mortgagee, Commonwealth Bank of Australia, as priority; deduct legal expenses and agent’s commission; repay Janadele under its unregistered mortgage; and repay Manbead in the form of a cheque payable to Westpac Banking Corporation (“Westpac”) for $2 million and the balance as directed by Mr Pennimpede (ASC [8B(a)–(d]). Mr Cuoco’s evidence was that he received the direction dated 23 December 2015 given by Mr Pennimpede in respect of the proceeds of the sale on or about its date (T27). Mr Pennimpede was the sole director and sole shareholder of Manbead at the relevant time (Ex A1, pp 13, 14).

17. GJ Building also alleges, and I find that, on or about 31 December 2015, Mr Pennimpede gave further instructions to CVC Law to transfer the amount of $2 million to an account at Westpac for the benefit of Manbead from the proceeds of sales of units in the property (ASC [8C]–[8D]) and, on or about that date, CVC Law transferred that amount to Westpac for the benefit of Manbead (ASC [8E]). The trust account ledger maintained by CVC Law records that, on 31 December 2015, an amount of the proceeds from the sale of the units was paid to Westpac (Ex A1, pp 46, 60). Mr Cuoco’s evidence was that the instructions to make that payment, by way of a trust cheque (Ex A1, p 202), were given by Mr Pennimpede and that trust cheque was to be paid to Mr Pennimpede (T28–29).

18. GJ Building alleges, and I find, that, by a letter dated 12 January 2016 addressed to “Vito Pennimpede Esq Admark Property Group Pty Ltd” (Ex A1, p 40), Admark’s solicitors again wrote to Mr Pennimpede reminding him of the undertaking and asking for instructions. By a further letter dated 13 January 2016 addressed to “Vito Pennimpede Esq Admark Property Group Pty Ltd”, Admark’s solicitors referred to recent correspondence and reminded Mr Pennimpede that a failure to deposit the amount of $606,595.50 into the controlled monies account may be a contempt of Court, and also advised Mr Pennimpede that the Court had broad powers including powers of imprisonment in respect of a contempt of Court, and that the matter should be treated as of the utmost seriousness.

19. GJ Building alleges, and I find, that, on 14 January 2016, Admark’s solicitors wrote to the solicitor then acting for GJ Building and stated that:

“Our client is aware of its undertaking to the Court, and the nature of that obligation. Once proceeds of sale from units are available, they will be placed in a controlled monies account and you will be notified.”

20. GJ Building alleges, and I find, that, on or about 18 January 2016, Mr Pennimpede gave instructions to CVC Law to make a telegraphic transfer in the amount of $2,731,571.33 and to make an electronic funds transfer in the amount of $80,000 and those transfers were made on or about that date from the proceeds of sale of units in the property and in accordance with those instructions (ASC [8F]–[8G]; Ex A1, p 61). Mr Cuoco’s evidence was that the amount of $2,731,571.33 (Ex A1, p 201) was transferred overseas from CVC Law’s trust account on the instructions of Mr Pennimpede to an account in the name of Mr Pennimpede’s wife in Croatia (T29). Admark was also placed in voluntary liquidation and a liquidator was appointed on that date, and the balance of its funds of $80,000 was paid to the liquidator on that date (Ex A1, pp 51, 57). Mr Cuoco’s evidence was that an amount of $80,000 was transferred to the liquidator on Mr Pennimpede’s instructions (T29–30) and Mr Pennimpede informed him that Mr Pennimpede would appoint a liquidator to Admark (T30).

21. In the period from 24 March 2016, the solicitors for GJ Building sought information from the then solicitor for Mr Pennimpede as to whether an amount was held by Admark in compliance with the orders, to which they received unilluminating responses.

The nature of the contempt charge against Mr Pennimpede

22. GJ Building alleges that Admark did not pay $606,595 from the proceeds of sale of the units into the controlled monies account to be held in trust for it and GJ Building by the solicitor for Admark. GJ Building also alleges that failure was a breach of the undertaking given to the Court by Admark (ASC [9]–[10]). GJ Building alleges that the directions given by Mr Pennimpede to CVC Law on 23 December 2015, 31 December 2015 and 18 January 2016 were a breach by Admark of the undertaking given to the Court by Admark (ASC [10A]–[10C]). GJ Building also alleges that Mr Pennimpede impeded or interfered with the administration of justice by failing to cause Admark to pay $606,595 from the proceeds of the sale of units in the property into the controlled money account to be held in trust for Admark and GJ Building by the solicitor for Admark. Further or alternatively, GJ Building alleges that Mr Pennimpede impeded or interfered with the administration of justice by causing, procuring or allowing Admark to breach the order and undertaking; or further or alternatively providing the relevant directions to CVC Law and that, by reason of those matters, Mr Pennimpede has committed contempt of Court and is liable to be punished for contempt (ASC [11]–[12]).

22. The relevant legal principles are well established and did not appear to be substantially in contest. Mr Sulan (who appears with Mr Buncle for GJ Building) submits, and I accept, that a person who is not personally bound by a court order or an undertaking to the court will be guilty of contempt if, with knowledge of the order or undertaking, he or she causes that order or undertaking to be thwarted, on the basis that he or she knowingly impeded or interfered with the administration of justice: CCOM Pty Ltd v Jiejing Pty Ltd (1992) 36 FCR 524 at 530–531; Reid v Howard (1993) 31 NSWLR 298 at 308–309; Zhu v Treasurer of the State of New South Wales [2004] HCA 56; (2004) 218 CLR 530 at 571–572; Sigallav TZLtd [2011] NSWCA 334 at [14]–[17]; Baker v Paul [2013] NSWCA 426 at [20].

23. In CCOM Pty Ltd v Jiejing Pty Ltd above at 530–31, cited with approval by Young JA (Macfarlan JA and Handley AJA agreeing) in Sigalla v TZ Ltd above, Drummond J observed that:

“Mr McCullagh however is not a party to the action and is not bound by the undertaking. Such a person is not subject to the strict liability in contempt which rests upon a person bound by an undertaking that is breached. However a person who is not in terms bound by an undertaking but who knows of it and who then does something which disrupts the situation created by the undertaking may, but not necessarily must, be guilty of contempt of court.

Such a person will be guilty of contempt where his conduct, coupled with his knowledge of the undertaking, shows that he is flouting the authority of the court by doing something which he knows will prevent the undertaking given to the court achieving its intended object. Such a person will be in contempt, because he has ‘knowingly impeded or interfered with the administration of justice by the court in the action between A and B’”.

25. In Zhu v Treasurer of the State of New South Wales above at 571–572, the High Court also observed that:

“Intervention against persons who, though not personally bound by a court order, procure those who are bound by it to contravene it, or otherwise thwart it, rests on a different basis: those persons are not liable as accessories who aided and abetted the persons bound by the order, but are directly liable for independent contempts committed by themselves in obstructing the course of justice.”

26. In Baker v Paul above at [17] Meagher JA (with whom Barrett and Gleeson JJA agreed) referred to Sigalla v TZLtd above and noted the distinction between a contempt constituted by noncompliance with an order directed to the party charged and “the contempt constituted by a third party who, knowing of an order, assists in its breach and thereby interferes with the administration of justice”.

27. A contempt by knowing obstruction or interference with the course of justice must be proved beyond reasonable doubt: Witham v Holloway [1995] HCA 3; (1995) 183 CLR 525 at 534; Sigalla v TZ Ltd above at [25]; Baker v Paul above at [19]. I recognise that, where the evidence against Mr Pennimpede is circumstantial in nature, the Court may draw an inference from the circumstances of the case, but the circumstances must exclude any reasonable hypothesis consistent with innocence: Chamberlain v R (No 2) [1984] HCA 7; (1984) 153 CLR 521 at 536; Sigalla v TZ Ltd above at [27]. I also remind myself that it is necessary for GJ Building to prove beyond reasonable doubt that Mr Pennimpede intended to prevent or impede the purpose of the undertaking and that, if the evidence showed that he had an honest, but mistaken, belief as to the meaning or operation of that undertaking which, if correct, would mean that his conduct could not be an interference with its operation, then there is the lack of mens rea necessary to put him in contempt: Sigalla v TZ Ltd above at [28]. Mr Pennimpede did not give evidence and there is no evidence as to any such belief on his part, other than any inference that should properly be drawn from other evidence.

Mr Pennimpede’s knowledge of the undertaking

28. In order to establish the charge of contempt against Mr Pennimpede, it must be established beyond reasonable doubt that he knew of the undertaking given by Admark. GJ Building submits, and I am satisfied beyond reasonable doubt, that Mr Pennimpede had the requisite knowledge of the relevant undertaking. I find that he gave instructions to Admark’s legal representatives to provide the relevant undertaking. He was notified of the undertaking by Admark’s solicitor promptly after it was given and was repeatedly reminded of that undertaking, with his attention expressly being drawn to the risk of contempt if that undertaking was not complied with.

Mr Pennimpede’s submission that he was not party to the undertaking

29. Mr Pennimpede submits that he was not party to the undertaking and did not give it personally. That submission does not assist Mr Pennimpede. Mr Pennimpede is not charged with contempt based on any claim that he gave the undertaking personally, or was bound by it personally, but for his role in causing Admark to act contrary to that undertaking.

Mr Pennimpede’s submission that the undertaking did not require a payment from the first available funds from the sale of the units

30. Mr Sulan submitted that the proper construction of the undertaking was that, upon sufficient funds being available to Admark from the proceeds of sale of the property, it was to pay the specified amount of $606,595 into the controlled monies account (T45). Mr Sulan also points out, and I accept, that monies in excess of that amount were received on 18 December 2015, the date on which the undertaking had been given (T46). Mr Thangaraj advanced the primary submission (T56) that the undertaking was clear and did not require Admark to make the relevant payment into the controlled monies account from the first available funds or prior to Admark disposing of the last of the sale proceeds for the property. Mr Thangaraj submitted that the commercial purpose of the undertaking would be satisfied provided that monies were paid in accordance with the undertaking prior to the disposal of the last of the sale proceeds for the property.

31. In construing the undertaking, I proceed by reference to well-established principles of construction. In Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165 at [40], a unanimous High Court observed that:

“This Court, in Pacific Carriers Ltd v BNP Paribas, has recently reaffirmed the principle of objectivity by which the rights and liabilities of the parties to a contract are determined. It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction.” [Citations omitted]

32. That approach was confirmed in Electricity Generation Corporation (t/as Verve Energy) v Woodside Energy Ltd [2014] HCA 7; (2014) 306 ALR 25 at [35] where French CJ, Hayne, Crennan and Kiefel JJ observed that (citations omitted):

"[T]his court has reaffirmed the objective approach to be adopted in determining the rights and liabilities of parties to a contract. The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding 'of the genesis of the transaction, the background, the context [and] the market in which the parties are operating'.”

The High Court also reviewed the principles of construction in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; (2015) 325 ALR 188 (at [46]–[52], [59]) and I proceed on the basis that construction should commence with the language used by the parties, although the Court may also have regard to objective surrounding circumstances.

33. I do not consider that the construction for which Mr Pennimpede contends is open on the terms of the undertaking, and having regard to the objective surrounding circumstances known to the parties, and to Mr Pennimpede as Admark’s sole director and shareholder. Those included that GJ Building had entered into occupation of the property; that the settlement of sales of units in the property was imminent; that Admark was seeking urgent injunctive relief to prevent GJ Building’s occupation of the property, other than for limited purposes, the grant of which would permit settlement of the sales of the units; and that the undertaking was given as a term of that injunctive relief, and would, if complied with, protect GJ Building’s position when that relief was given. The construction for which Mr Pennimpede contends would have the result that the injunction obtained by Admark in its favour would take effect immediately but any security for GJ Building’s position would only be made available when, and if, the last unit in the property was sold and the last of the sale proceeds for the property became available. If there was a significant delay in the sale of the last unit in the property, then the monies would not reach the controlled monies account for a lengthy period; and, if Admark simply chose not to sell the last unit in the property so as to realise the last of the sale proceeds of the property, which was a matter within its control, then the monies would never be paid to the controlled monies account. The unlikelihood that the parties objectively intended that result points to the implausibility of the construction for which Mr Pennimpede contends.

34. I do not find it necessary to rely on the transcript of the proceedings before Bergin CJ in Eq to reach that result, and it is therefore not necessary to address a submission raised by Mr Thangaraj that the Court may not do so. Mr Thangaraj drew attention to an observation in an English text dealing with the law of contempt, which in turn referred to a Canadian decision to the effect that the court would look only to the words of the formal order made by the court and not to the transcript of the proceedings in determining whether a contempt had occurred by breach of an undertaking. It is difficult to assess the weight of that proposition, where that decision was not made available for review. Had I relied on that transcript, the position taken by Admark on Mr Pennimpede’s instructions at that hearing, to which I referred in the outline of the relevant events above, would have been consistent with the conclusion that I have reached on other grounds.

Mr Pennimpede’s submission that no time was fixed for compliance with the undertaking

35. In the alternative to, or possibly in addition to Mr Pennimpede’s primary submission, Mr Pennimpede submits that, where an order or undertaking does not specify a time for compliance, an order must first be obtained under r 36.5 of the Uniform Civil Procedure Rules 2005 (NSW) for the fixing of time and, until that time is fixed, the order is unenforceable. Mr Pennimpede submits, and it is common ground, that no time for compliance was fixed in respect of the undertaking. Mr Pennimpede submits that the undertaking was therefore not breached, and also that this gives rise to uncertainty in the undertaking, a matter that I will address below. Mr Thangaraj refers to the observation of Brereton J in Kayserian Nominees (No 1) Pty Ltd v J R Garner Pty Ltd [2008] NSWSC 1011 at [4] that, where an order required the defendant to do an act forthwith on a specified event, namely upon the plaintiff giving up possession of the premises:

“The defendant would not be liable to be dealt with for contempt, unless and until the Court had, by order pursuant to r 36.5, fixed a time for compliance with the order.”

36. Mr Thangaraj did not, however, identify any authority supporting the application of r 36.5 of the Uniform Civil Procedure Rules to an undertaking voluntarily given by a party to a court, and it seems to me that that rule is not capable of applying in that context. The rule refers, in its terms, to a judgment or order which requires a person to do an act within a specified time, or forthwith on a specified event, and not to an undertaking given to the court. Bergin CJ in Eq did not, on 18 December 2015, deliver a judgment or make a relevant order in respect of the matters addressed by Admark’s undertaking. Her Honour, instead, noted an undertaking that was voluntarily offered by Admark to the Court. It seems to me that r 36.5 of the Uniform Civil Procedure Rules does not apply to such an undertaking, by the terms of the rule. In principle, it also seems to me that rule ought not apply to such an undertaking that is not imposed upon a party by the court, but instead voluntarily offered to the court, in the terms which a party chooses to give it. This matter is therefore not an answer to the findings that I have reached above as to the proper construction of the undertaking.

Mr Pennimpede’s submission that the terms of the undertaking were not sufficiently precise to ground a charge of contempt

37. Mr Thangaraj also submits that the terms of the undertaking were not sufficiently precise to ground a charge of contempt. Mr Thangaraj also submits that an undertaking must be sufficiently clear and unambiguous for the alleged contemnor to know precisely what must be done to comply with it, before a charge of contempt may be brought.

38. The requirements for certainty in an undertaking or order, before it can support a claim for contempt, are well-established. Before a contempt of court is established, the order must direct what is to be done in unambiguous terms: Iberian Trust Ltd v Founders Trust & Investment Company Ltd [1932] 2 KB 87 at 95; Australian Consolidated Press Ltd v Morgan [1965] HCA 21; (1965) 112 CLR 483 at 515–516 per Owen J, with whom Windeyer J agreed at 506; Firstmac Fiduciary Services Pty Ltd v Gilmour (No 3) [2013] NSWSC 570 at [10]; Baker v Paul [2013] NSWCA 426 at [21]–[22]; Re Mycorp Pty Ltd [2014] NSWSC 899 at [53]ff, aff’d Fajloun v Khoury [2016] NSWCA 101.

39. In a claim brought against a party bound by the undertaking, a defence relying on ambiguity must at least involve that, on one reasonable view of the contempt alleged, that party was not in breach. In Kirkpatrick v Kotis [2004] NSWSC 1265; (2004) 62 NSWLR 567 at [55], Campbell J (as his Honour then was) observed:

“In my view, the court approaches the question of whether the order is ambiguous with the caution appropriate to a type of litigation which could result in the defendant being punished – if 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 it 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. This means that there will sometimes be orders which a grammatical analysis would show to contain a syntactic ambiguity, but which are nonetheless enforceable if it is the type of ambiguity that has no real risk of misleading. There will sometimes be orders which contain a term which has multiple meanings, but where that semantic ambiguity has no real risk of misleading. If there were to be an order addressed to a promoter of musical groups not in any way to be involved in the advertising or promotion of a band under some particular name, the order would be enforceable notwithstanding that a “band” can sometimes be a rubber band, or a headband.”

That observation was cited with approval by Beazley JA (with whom McColl JA agreed) in Pang v Bydand Holdings Pty Ltd [2011] NSWCA 69 at [54]–[56] and by Meagher JA (with whom Barrett and Gleeson JJA agreed) in Baker v Paul above at [24].

40. The proposition that an order or undertaking must indicate what is to be done in unambiguous terms does not have the consequence that “there is no breach wherever there is difficulty in the construction of the terms of an order or injunction which it falls to a court to resolve”, or that a contempt will not be found where the alleged contemnor did not understand the terms of the order or injunction according to their true meaning, or where he or she was unaware that his or her conduct constituted a breach of an order: Microsoft Corporation v Marks (No 1) (1996) 69 FCR 117 at 143; 139 ALR 99. In considering whether a party knows or plainly should know what is required by an order, the court may also have regard to the circumstances in which the order was made or the undertaking was given: Athens v Randwick City Council [2005] NSWCA 317; (2005) 64 NSWLR 58 at [36]. The Court of Appeal there also noted that, if there was ambiguity on the face of an order between two meanings, and a party had breached the order whichever of the two meanings was adopted, that may be sufficient to establish contempt, at least unless it appears that the breach may have been due to uncertainty as to what steps were required (per Hodgson JA at [37], Tobias JA agreeing at [141]). I see no reason why a different approach would apply to an undertaking given by a party to the court.

41. I also recognise that, where the meaning of an order is unclear or ambiguous, it may not be enforced against the person alleged to have breached it; and, as the Court of Appeal observed in Baker v Paul above at [21]:

“[S]uch an order may not be the subject of a charge of interfering with the course of justice because one cannot knowingly assist the breach of an order whose meaning is unclear or open to real doubt.”

42. First, in the alternative to Mr Pennimpede’s primary submission, Mr Pennimpede submits that the undertaking lacks the requisite clarity by reason of the absence of a specified time for performance. I have addressed that submission above and held that r 36.5 of the Uniform Civil Procedure Rules was not applicable and that matter does not establish any lack of certainty in the undertaking. Second, in oral submissions, Mr Thangaraj also submitted that the undertaking was ambiguous or uncertain because it could be read as not requiring Admark to make the relevant payment into the controlled monies account prior to Admark disposing of the last of the sale proceeds for the property. I also do not accept that submission. As I have noted above, it does not seem to me that the undertaking could conceivably be read in the manner for which Mr Thangaraj contends. The undertaking is not made ambiguous by the possibility, which would exist in respect of any undertaking, that an implausible and incorrect construction of it could be advanced, after it has been breached, and readily rejected by the Court.

43. I raised the question, in the course of submissions, whether the undertaking required payment into the controlled monies account within a reasonable time of receiving the relevant proceeds of sale of the units in the property, or forthwith upon receiving the relevant proceeds of sale of the units within the property. I am satisfied, beyond reasonable doubt, that those possible readings also do not give rise to ambiguity or uncertainty in the undertaking because, in the relevant circumstances, they lead to the same result. A reasonable time after receipt of the sale proceeds would have been no longer than was required to take the administrative steps to make the payment into the controlled monies account, and a requirement that the monies be paid “forthwith” would have had the same content. If, contrary to my view, there is any ambiguity of any substance in the undertaking, between a requirement that the payment into the controlled monies account be made forthwith or immediately after the receipt of proceeds of the sale, or within a reasonable time after the receipt of the proceeds of sale, that ambiguity does not assist Mr Pennimpede, because Mr Pennimpede caused Admark to fail to comply with the undertaking on either construction of it and it would have been readily apparent to him that, also on either construction, his conduct would have that effect and would prevent the undertaking given to the Court achieving its intended object.

42. Mr Thangaraj also submits that the undertaking also lacked clarity because of the “uncertainty of complying with the undertaking from funds due to secured creditors”. I am unable to see any basis for the suggested lack of clarity. The undertaking required Admark to pay a specified amount in a specified way from the proceeds of sale of units in the property. It was a matter for Admark to deal with its secured creditors to ensure that it could comply with what it had undertaken to the Court that it would do. The most obvious way to do so would be to seek its secured creditors’ consent to its compliance with its undertaking, and it had taken upon itself the risk of obtaining that consent. If Admark could not obtain that consent, then it was nonetheless required to comply with its undertaking to the Court, even if that had the consequence that it was in breach of its obligations to its secured creditors, and they in turn may have had contractual or other rights arising from that breach.

43. There is nothing in the terms of the undertaking that suggests that it was subject to Admark having funds available to comply with it, whether under the terms of its arrangements with its secured creditors, its unsecured creditors or any other third party. No such suggestion was made to the Court when the undertaking was offered, and an undertaking subject to a qualification to protect the interests of secured creditors whose identity and claims had not been disclosed to the Court would plainly not have protected GJ Building’s interests. I am conscious that Mr Pennimpede’s solicitor at one point appears to have misunderstood the undertaking, by advising Mr Pennimpede that “the first available funds after payment of secured creditors should be paid into trust” (Ex A1, p 35). However, that misunderstanding also does not assist Mr Pennimpede, because Mr Pennimpede caused Admark to act contrary to the undertaking, even if he had understood it in that manner, for the reasons I set out below.

44. Mr Thangaraj also submits that the transactions of which GJ Building complains of were payments to secured creditors. I have held above that there was no exception to the undertaking to permit payments to secured creditors, and no lack of clarity or ambiguity in the undertaking in that respect. Mr Sulan responds, and I accept, that there is no evidence of any advance made by Manbead to Admark and the only evidence of an amount recorded as owing by Admark to Manbead, in a general ledger account of Admark for the period 1 July 2013 to 30 June 2016, indicates that the maximum amount ever due to Manbead, as at 27 June 2014, was $654,700 (Ex A2). The amount of $2 million paid to Manbead therefore substantially exceeded any amount due to it that is established by the evidence. Mr Sulan also points to a second, and fatal, difficulty with Mr Pennimpede’s reliance on any debt owed to or mortgage in favour of Manbead or Janadele in justification of the payment of the amount of $2,731,571 to an account in the name of Mr Pennimpede’s wife, namely that that amount was simply not paid to Manbead or Janadele (T48) and therefore cannot be justified by any reference to their being secured creditors.

45. Even if, contrary to its proper construction, the undertaking were read in a manner that permitted payment of the amounts shown to be due to Commonwealth Bank of Australia and the amount shown to be due to Manbead before the relevant payment was made into the controlled monies account, Admark would still have breached the relevant undertaking and Mr Pennimpede would still have caused it to do so. Even if the undertaking had been read as permitting payments to secured creditors of the amounts properly due to them, the fact of that breach would still have been apparent to Mr Pennimpede. These matters also do not assist Mr Pennimpede.

Whether Mr Pennimpede later took steps to satisfy the undertaking

48. Mr Pennimpede submits that he took steps to satisfy the undertaking by the sale of unit 23 which had previously been transferred to his wife and providing sufficient funds to the liquidator on 27 April 2016, a date prior to the filing of the Notice of Motion that sought to have him held liable for contempt. Mr Pennimpede relies on two emails sent by CVC Law to Admark’s liquidator, which he contends records Mr Pennimpede’s intention to comply with the undertaking, implicitly in substitution for Admark having done so. By the email dated 27 April 2016 (EX D7), CVC Law advised the liquidator of Admark, in respect of a resolution of a claim by the liquidator of Admark against Mrs Pennimpede that:

“As soon as you can after settlement could you please notify all parties including [GJ Building] you are now holding the funds in trust in accordance with the undertaking provided in December 2015 by the director Vito Pennimpede on behalf of Admark Property Group Pty Ltd.”

That email was admitted subject to a limitation, under s 136 of the Evidence Act, that it was not proof of the fact asserted in the second paragraph, that funds were held on the basis asserted by Mr Cuoco.

49. By email 10 June 2016 (Ex D8), CVC Law advised the liquidator that:

“As you know the amount that was retained from this sale being the sum of $606,595.00 was to satisfy the undertaking to the Supreme Court provided by [Mr Pennimpede] on behalf of Admark.

I was also advised that you had informed the Court of this. Could you please provide me with confirmation that the Court was informed and when.”

That email was admitted subject to a limitation under s 136 of the Evidence Act that it was also not proof of the fact that the amount was retained on the basis stated in the first paragraph.

50. The payment to the liquidator was made in the context of a claim by the liquidator against Mrs Pennimpede in respect of the transfer of unit 23 to her, allegedly without consideration, and that payment was made long after the last of the sale proceeds of the units had been received by Admark and paid out on Mr Pennipede’s instructions; the liquidator did not receive that payment as Mr Pennipede’s agent and was not bound by his wishes or instructions as to how to apply it; the liquidator did not in fact apply it by paying it into the controlled money account contemplated by the undertaking, where to do so would potentially have advantaged GJ Building over other creditors of Admark; the liquidator now seeks an order from the court that he be released from the undertaking given by Admark, if it in fact attaches to funds received by the liquidator in the relevant circumstances; and matters relevant to whether that release should be ordered will now include not only GJ Building’s interests but also the interests of Admark’s creditors as a whole and the statutory regime applicable to liquidations, including in respect of priority of debts and claims in a liquidation.

51. It seems to me that the fact that an amount was paid to the liquidator in settlement of a claim by the liquidator against Mrs Pennimpede, relating to the transfer of a property to her which was allegedly made without consideration, could not on any view bring about satisfaction of the undertaking given by Admark to the Court. The undertaking was that Admark would pay the relevant amount “into the controlled money account and held in trust for [Admark] and [GJ Building] by the solicitor for [Admark]”, and the amount paid by Mrs Pennipede (or Mr Pennipede) to the liquidator in respect of the claim against her was neither paid by Admark, nor paid into such a controlled money account, nor later paid by Admark or the liquidator into such an account. A payment by or on behalf of Mrs Pennimpede, or Mr Pennimpede, to Admark’s liquidator is self-evidently not a payment into a controlled money account, nor was the money then held in trust for GJ Building and Admark, nor was it held by the solicitor for Admark. It also did not satisfy the undertaking in substance, because it did not provide GJ Building with any security that monies would be available to meet a judgment in its favour in the proceedings which it sought to bring against Admark. That payment did not remedy Admark’s earlier breach of the undertaking, or avoid, after the fact, the finding that Mr Pennipede, with knowledge of the undertaking, had previously caused it to be thwarted.

Relevance of the fact that Admark is in liquidation

52. Mr Pennimpede submits that r 40.6 of the Uniform Civil Procedure Rules which provides for the enforcement of a judgment in contempt proceedings has no operation once Admark is in liquidation and his committal or sequestration will serve no coercive purpose. That submission does not assist Mr Pennimpede. First, the motion for his committal is sought under Part 55 rule 13 of the Supreme Court Rules, not under r 40.6 of the Uniform Civil Procedure Rules. Part 55 rule 13 of the Supreme Court Rules relevantly provides, where the contemnor is not a corporation, the Court may punish contempt by committal to a correctional centre or fine or both. Second, the interests of justice require that the Court address a failure to comply with an undertaking to it, and steps taken by a third party to bring about that failure, irrespective of whether a company that fails to comply with the undertaking is later placed in liquidation.

53. Mr Thangaraj also drew attention to ANS Nominees Pty Ltd v Beverley Manufacturing Co Pty Ltd [1979] 2 NSWLR 875; (1979) 4 ACLR 737. That decision appears to be authority that there is no utility in an order for contempt, for noncompliance with an order which cannot be performed after a company is placed in liquidation. It does not follow that there is no utility in an order for contempt, in respect of a noncompliance with a court order or undertaking which flouted the court’s authority, which occurred prior to the company being placed in liquidation. To put that proposition another way, it is scarcely conceivable that a director of a company who knowingly causes the company to breach a court’s order, prior to liquidation, may immunise himself or herself from the consequences of that conduct by placing the company in liquidation after the event.

54. Mr Thangaraj also submits that Mr Pennimpede cannot be criticised for placing Admark in liquidation. I did not understand GJ Building to advance any submission that Mr Pennimpede should be criticised for that matter, taken in isolation, and the question here is whether Mr Pennimpede’s conduct, as a whole, amounted to contempt. The voluntary liquidation is relevant to the wider sequence of events to which I return below.

Service and form of undertaking and enforcement process

55. A further contention as to aspects relating to the service and form of the undertaking and enforcement process was not pressed by Mr Pennimpede.

Conclusions

56. Mr Sulan contends, and I am satisfied beyond reasonable doubt, that Mr Pennimpede knew of the terms of the undertaking, since he gave instructions to give the undertaking and was subsequently advised of its terms by the letter dated 22 December 2015 (T47) and the subsequent correspondence to which I have referred above. The evidence does not provide any basis for any inference that Mr Pennimpede had an honest, but mistaken, belief as to the meaning or operation of the undertaking which, if correct, would mean that his conduct would not be an interference with its operation. Admark’s solicitor had repeatedly and clearly drawn Mr Pennimpede’s attention to Admark’s obligations under the undertaking and the risk that it would be held liable for contempt for breach of them, and on any reasonably arguable view of when payment was due to be made by Admark to the controlled monies account, and even if Mr Pennimpede had wrongly believed that the debts that have been established as due to secured creditors could be paid first, the conduct that he caused Admark to take would still have breached the undertaking.

57. Mr Thangaraj submits, and I accept, that it is necessary for GJ Building to prove beyond reasonable doubt that Mr Pennimpede intended to prevent or impede the purpose of the undertaking, in accordance with the approach indicated in Sigalla v TZ Ltd above. As Mr Sulan points out, Mr Pennimpede did not cause Admark to transfer $606,595 from the sale of units into his solicitor’s controlled monies account and instead caused CVC Law to transfer the relevant funds to other parties. Mr Thangaraj relies on several matters as weighing against such a finding. The first is that Mr Pennimpede, prior to the filing of the present application, took steps to provide sufficient funds to the liquidator to enable her to comply with Admark’s undertaking. I have addressed that transaction above and I do not accept that submission. Between late December 2015 and the appointment of a liquidator to Admark, Mr Pennimpede took no steps to cause Admark to comply with its undertaking, and caused Admark to make payments to third parties which placed it in a position that it was impossible for it to comply with its undertaking at the point that it was placed in liquidation. Steps taken by Mr Pennimpede, or by Mrs Pennimpede, after Admark was placed in liquidation, which did not in fact secure compliance with the undertaking, are incapable of displacing a finding that Mr Pennimpede did not intend to bring about compliance with Admark’s undertaking and intended to impede compliance with that undertaking, throughout the period until a liquidator was appointed to Admark and beyond. Mr Thangaraj also submits that the undertaking lacked clarity and precision, particularly as to the time for compliance and the availability of funds due to secured creditors. I do not accept that submission for the reasons noted above.

58. I am satisfied, beyond reasonable doubt, that Mr Pennimpede’s conduct, coupled with his knowledge of the undertaking, on any available construction of it, involved steps that he knew would prevent or impede the undertaking given to the Court achieving its intended object. I more readily reach that finding where that conduct involved, over a short time period, his authorising the giving of the undertaking by Admark, his receipt of repeated and clear advice from Admark’s solicitor drawing attention to Admark’s obligations under the undertaking and the risk that it would be held liable for contempt for breach of them, Admark’s receipt of substantial funds and Mr Pennimpede’s causing those funds to be paid away in a manner inconsistent with the undertaking, including to offshore accounts, and then causing Admark to be placed in voluntary liquidation with no assets beyond an amount to fund the liquidator’s fees.

59. Mr Sulan submits, and I accept, that a breach of an undertaking given to the Court in this manner diminishes the authority of the courts and removes, or at least reduces, the incentive of litigants, if that conduct is left unpunished, to comply with such undertakings: Australian Competition and Consumer Commission v Hughes [2001] FCA 38 at [15]; Re Mycorp Pty Ltd above at [19]. If parties to litigation could not have confidence that undertakings to the court will be complied with, and that the court will take appropriate steps in the case of breach of them, then such undertakings would also less readily be accepted and the administration of justice would be prejudiced.

60. In summary, I am satisfied, beyond reasonable doubt, that Mr Pennimpede had the requisite knowledge and intent to be liable in contempt; that his conduct, coupled with his knowledge of the undertaking, involved taking steps that he knew would prevent or impede the undertaking given to the Court achieving its intended object; that he thereby flouted the Court’s authority; and that the mens rea necessary to a finding of contempt is established. I therefore find that the charge of contempt against Mr Pennimpede is established beyond reasonable doubt.

61. Mr Sulan submits that, consistent with the usual practice, the question of punishment should be addressed if Mr Pennimpede is found guilty of contempt, as he has been. I will make directions and set the matter down for hearing for that purpose.

**********

Decision last updated: 20 September 2016