Australian Securities Commission v Corplan Nominees P/L

[1994] FCA 590

JUDGMENT No. ....YI---------~ 5% ^4___

THE FEDERAL COURT OF AUSTRALIA ) No. QG 3007 of 1994

D DLSpaICT REGISTRY 1

- )

IN THE MATTER OF CORPLAN NOMINEES PTY. LTD. A.C.N. 010 178 784

BETWEEN c

Applicant

AND c

First Respondent

AND :  -

Second Respondent

AND :  -

Third Respondent

AND c

Fourth Respondent

AND c

Fifth Respondent

AND c -

Sixth Respondent

AND c

Seventh Respondent

29 April, 1994 by failing to disclose:

Drummond J 19 August, Brisbane

1. Cyril John Pearson is in contempt of court in that he failed to comply with the order of the Court of

\ - . 3 , ,

.wr a... . , . L.. . . . . .a... S.. 2 , .-- J

(a)	the interests of the first respondent in six items of real property;
(b)	the interest or former interest of the said Cyril John Pearson himself in one item of real property and as the registered holder of one share in each of four companies.

1. The respondent to the notice of motion filed 22 June, 1994 pay the applicant's costs of and incidental to the notice of motion to be taxed on an indemnity basilr.

   The applicant be at liberty to tax those costs forthwith.

m 3 Settlement and entry of orders is dealt with in Order 36 of the - .

OF AUSTRALIA ) No. QG 3007 of 1994

1

)

IN THE MATTER OF CORPLAN NOMINEES PTY. LTD. A.C.N. 010 178 784

BETWEEN: e-

Applicant

AND :  PTY. LTD,

First Respondent

AND :  -

Second Respondent

AND :  N JAMES PEARSON

Third Respondent

AND :  LAN MARKETING PTY. LTD.

Fourth Respondent

AND :  S PTY. LTD'

Fifth Respondent

AND :  -

Sixth Respondent

AND :

Seventh Respondent

!&.WB:	Drunrmond J
-8	19 August, 1994

2luSS: Brisbane

IusAsoMs FOR JUDGXENT

This is an application by the Australian Securities Conmission ("ASC") that the second respondent, Mr. Cyril Pearson, be dealt with for contempt of court. In proceedings commenced by the M C , I made an order on 29 April last excluding Mr. Pearson from continuing to take part in the management of the first respondent, a company hitherto under his control, whose business comprised acting as trustee for a number of superannuation funds. I also then made an order in aid of the court's Mareva jurisdiction which, it is said, Mr. Pearson breached thereby putting himself in contempt of court. This order bound Mr. Pearson as well as the other respondents to deliver to the ASC's solicitors a detailed list, verified by affidavit, of all the property of each of the respondents whatever the nature of the extent of interest therein, whether it is situated in Australia or overseas, and whether the said interest is presently existing or has, at any time within the last three years, so existed, and whether it is owned by each of those respondents either individually or jointly, or owned by each of those respondents jointly with another party or parties, or held upon a trust for other persons.

The ASC's statement of charge alleges, so far as swore and delivered to the MC's solicitors in compliance with	remains relevant, that Mr. Pearson failed in the affidavit he
this order on 16 May last to disclose, firstly, the interests of the first respondent in six items of real property and, secondly, the interest or former interest of Mr. Pearson himself in one item of real property and as the registered holder of one share in each of four companies. Mr. Pearson has now admitted that he failed to make these disclosures in an affidavit he filed on 28 July in the contempt proceedings
which the ASC instituted on 22 June last.
All the property to which I have referred in which the first respondent was interested was held by it as trustee for persons not connected with Mr. Pearson. There is no euggestion now that Mr. Pearson or anyone associated with him obtained any pecuniary benefit from his failure to reveal the first respondent's interest in any of this property, nor is there any basis for thinking that he, or anyone associated with him, obtained any other kind of benefit or advantage by thie non-dieclosure. It is not suggested, for example, that
Mr. Pearson sought to put the ASC off the trail of
investigating his or any other person's involvement in the administration of any of these trusts by the non-disclosures in question.
A similar position obtains with respect to the real property and shares that Mr. Pearson holds or has held in hie
of 16 May. Save for the share he held in Jancy Pty. Ltd., I own name but which he also failed to mention in his affidavit
accept that he himself had no beneficial interest in any of this property and no expectation of obtaining any benefit for himself or his family from not disclosing details of it. Jancy Pty. Ltd., the company in which he once held one share, is the trustee of a discretionary trust with substantial assets and Mr. Pearson is within the range of persons to whom distributions of trust income and capital can be made by that trustee company.
It also appears that he may remain in a position to control the making of those distributions. 1t was not, however, submitted by the ASC that this gave rise to any inference that Mr. Pearson's non-disclosure of his former interest in the one share in Jancy Pty. Ltd. was designed to frustrate the Mareva orders I made against him on 29 April, 1994 by concealing property that might have been available to persons damaged by any misconduct that might ultimately be established against any respondent. It would appear that Jancy Pty. Ltd. could properly exercise its powers as trustee to ensure none of the trust income or property goes to Mr. Pearson.
The burden of the charge that the ASC makes is that this is a case in which Mr. Pearson wilfully disobeyed the order of the Court requiring him to make full disclosure of
all hie and the other respondents1 property by deciding for
himself that he would not disclose certain property that any
respondents held in trust for others. The ASC further submits that Mr. Pearson aggravated his defiance of the Court's authority by filing his affidavit of 28 July in these very contempt proceedings which he knew to be false in a number of material respects, for example, insofar as, on 28 July, he falsely swore that when he swore his affidavit of 16 May he believed he was complying with the order of 29 April and when he also went on to falsely swear on 28 July that he now accepted that he may not have complied with the order but that was not done deliberately or with the intention of misleading the Court.
It is also submitted that he falsely swore on 28 July that, when drafting his affidavit of 16 May without access to legal advice, he took the view, erroneously, that any interest held by the first respondent as trustee in property on behalf of the superannuation fund was not an interest covered by the order of 29 April. He also said that he falsely swore in the affidavit of 28 July that he did not disclose his former interest in Jancy Pty. Ltd. because, as a shareholder in the company which acted as trustee for the Jancy Trust, he did not regard that share as having any value.
That the ASC's submissions are soundly based is put beyond doubt by the formal admissions Mr. Pearson has made in the document he signed on Wednesday last, 16 August. In that
document he says his failure to comply with the order of 29
April was wilful, with full knowledge that the order included a requirement that there be disclosure of property held by Corplan Nominees Pty. Ltd. on trust for others; with full knowledge that the order required disclosure of all property and assets of his own, whether or not he thought he had any equity in them; with full knowledge that the order required disclosure by Mr. Pearson of all shares held by him within the last three years in any companies; and that it continued after he had received from his solicitor, Mr. Nagel, by facsimile on 18 May, 1994, a letter from the ASC concerning these matters dated 17 May, 1994.
Mr. Pearson, in this formal admission, went on to admit that, as a practicing accountant, he was aware of the nature of interest held upon trust and, save for two presently irrelevant exceptions, he had no excuse or defence to offer by way of mistake, error or otherwise for his failure so to comply with the order of 29 April. Mr. Pearson, in this document, then went on to admit that his conduct was in contempt and he apologised for it.
Although Mr. Pearson's breach of the order of 29 April to which I have referred is plainly deliberate, I do not accept that it was only the ASC's action in subpoenaing W . Nagel, a solicitor acting for Mr. Pearson when he prepared his affidavit of 16 May, 1994, in purported compliance with the disclosure order of 29 April to produce, among other things,
his correspondence file that contained the ASC letter to Mr. Nagel of 17 May, 1994, that caused Mr. Pearson to make his
very late acknowledgment that his failure to comply with that order was, indeed, quite deliberate.
In this letter of 17 May the ASC expressly raised with Mr. Nagel Mr. Peareones failure to disclose in his affidavit of 16 May any assets he or other respondents held in trust, including assets held in trust for the Jancy Trust. As was only to be expected, Mr. Nagel, by a facsimile of 18 May, immediately gave Mr. Pearson a copy of this ASC letter and invited Mr. Pearson's attention to the deficiencies in his affidavit of 16 May referred to therein. Although not obliged to do so, Mr. Pearson waived the legal privilege that attached to this facsimile from his solicitor and permitted Mr. Nagel to hand it over to the ASC earlier this week in response to the ASC's subpoena directed to Mr. Nagel, but it must have been quite obvious to Mr. Pearson, when on 18 May he got from
. Nagel the ASC letter of the previous day, that he could not hope to conceal the trust assets I have referred to, yet he did nothing to correct the omission in his affidavit of 16 May until 28 July, that is, until well after he knew that the ASC was not going to let his default rest and had instituted contempt proceedings against him.
Even more surprisingly, he made statements in this affidavit of 28 July in purported explanation for his earlier default which were false and which he must have known, because
of what the ASC had to say in its letter of 17 May, if for no other reason, that he could not hope to get away with; the
more so, given his professional background. I accept his admissions of 16 May, very belated though they are, as reflecting a genuine recognition by Mr. Pearson that he breached the disclosure order of 29 April without any legitimate excuse. Having regard to Mr. Pearson's conduct between 16 May and 16 August, to which I have referred, and to other features of his conduct in the course of this litigation
to which Mr. Jerrard Q.C. referred in his submissions, I think there is substance in Mr. Jerrard's suggestion that Mr. Pearson was actuated, up until 16 August, 1994, by what Mr. Jerrard described as a "mulish" refusal to disclose all that
Mr. Pearson well knew he was required by the order of 29 April
to disclose. Mr. Pearson may have adopted this attitude because of a sense of grievance he felt at what he may have seen to be draconic orders which I made on 29 April, including the order excluding him from management of his company and freezing his assets.
The contempt committed by Mr. Pearson has the following features: firstly, it was deliberate and it was aggravated by his false explanations of 28 July last, and it was also persisted in for a long time. But, on the other hand, Mr. Pearson never stood to benefit personally in any way
or to procure any benefit for anyone associated with him from
this deliberate and long continuing breach of the disclosure order. Secondly, it is not suggested that his conduct has
caused prejudice to any person interested in the outcome of the litigation in the course of which the order was made.
Finally, he has made an apology which, although it has come very late in the day, I accept to be genuine.
One important objective of the contempt jurisdiction, according to what was said in v
(1986) 161 C.L.R. 98 at 107, is to protect the effective administration of justice by demonstrating that the court's orders will be enforced. In that case it was also said at pp. 112-113 that lying behind punishment for a contempt which involves wilful disobedience to a court order is the very substantial purpose of disciplining the defendant and vindicating the authority of the court. Mr. Pearson's wilful disobedience of an order of the Court, that remains in force, is in no way excused by any feeling that he has that the orders of 29 April should not have been made or that they were unfair or that they were even harsh. So long as an order of the Court stands, it must be obeyed by those to whom it is directed. But I think the Court's authority, hitherto flouted by Mr. Pearson, will be sufficiently vindicated by an order that he pay the MC's
costs of and incidental to the motion for contempt to be taxed on an indemnity basis and by a further order that the M C be at liberty to tax those costs forthwith.
Although I have decided that imprisonment or a fine is not called for in the circumstances of this somewhat
unusual case, the indemnity costs order will itself be a substantial burden for Mr. Pearson to bear. But the ASC has

taken action to bring to the attention of the Court, in a formal way, Mr. Pearson's defiance of the Court's authority. Persons against whom the ASC obtains orders in the exercise of its regulatory functions should therefore note that the ASC, very properly, will not stand by and allow such orders to be ignored or breached and that, quite apart from any penal orders the Court may make against such persons, the Court will ensure, so far as it can, that the ASC is not out of pocket in respect of the legal costs incurred in doing that. Hence the order for indemnity costs and leave to enforce the order forthwith.

I certify that this and the preceding

nine pages are a true copy of the
reasons for judgment herein-of the

Honourable Mr. Justice Drumond.

Associate	r B/+
Date :	19 ~ugust, C994

Counsel for the applicant:	E.M. O'Reilly
Solicitors for the applicant:	Australian Securities Commission
Counsel for the respondents:	J.A. Jerrard Q.C.
Solicitors for the respondents:	Robertson O'Gorman
Date of Hearing:	18 August, 1994