Goussetis, P. v Megas, M.N

[1990] FCA 220

JUDGMENT No. ..?%..? ..... %

NOT FOR DISTRIBUTION

IN THE FEDERAL COURT OF AUSTRALIA )

)

NEW SOUTH WALES DISTRICT REGISTRY ) No. NG 5 6 5 of 1989

)

GENERAL DIVISION )

BETWEEN:  PETER GOUSSETIS & ANOR.

Applicants

AND :	MICHAEL NESTOROS MEGAS &
ORS.

Respondent

6 April 1990

REASONS FOR JUDGMENT

This is an unfortunate matter. It is a motion by the

applicants pursuant to order 40 rule 5 of this Court's rules, for punishment of a solicitor, Richard Lee Smallwood, who is the fourth respondent in the proceedings, for alleged contempt of court. The statement of charge asserts that Mr Smallwood, on 12 September 1989, agreed to and entered into certain undertakings on behalf of his clients, the first and second

REGISTRY

respondents	Michael Nestoros Megas and
that:

FEDERAL COURT OF

AUSTRALIA PRINCIPAL

" 2 . You did then consent to those

undertakings being issued as orders of the court dated 12 September 1989, a copy of which is annexure marked A.

Acting upon the faith of the said undertakings and orders the applicants did not pursue their motion for interlocutory orders to restrain the sale of the property of the first and third defendants as referred to in the consent orders, annexure A, nor the disbursement to the third respondent of one-half of the proceeds thereof.

3.

4. Having entered into the said undertakings and consent orders, you did thereafter disregard those undertakings and orders in that

(a) You did not retain one-half of the net proceeds of sale of the said property;

applicants solicitors of your (b) You did not notify the

intention to disperse - it must be, I suppose - to disperse that half of the net proceeds eight days prior thereto nor at any time prior thereto.

5. You are in breach of your undertakings

and in breach of the orders of this
Honourable Court."

It is admitted that the notice of motion for contempt and the statement of charge were duly served upon Mx Smallwood. The evidence in support of the motion consists of the affidavit of Michael John Vaughan sworn on 14 November

1989 and certain oral evidence given by him. The evidence

adduced for Mr Smallwood consists of two affidavits: one of Mr Smallwood himself, sworn on 21 December 1989, and the other of his partner, Roderick James Cathcart, sworn on 21 December

1989. Both Mr Smallwood and Mr Cathcart were cross-examined,

as was M r Vaughan.

There is a deal of common ground in the evidence but certain crucial matters are in dispute and must be resolved by the court's assessment of the credibility or reliability of witnesses. I shall state my findings of fact. Of necessity they must be a little lengthy because of the nature of the dispute between the parties. Mr Smallwood is a solicitor of the Supreme Court of New South Wales and was retained by the first and third respondents in May 1989 to act on their behalf on the sale of their property at Belrose.

Contracts were exchanged for the sale of the property on 21 July 1989. The first and third respondents owned the property at Belrose as joint tenants. Prior to settlement M r Smallwood became aware that there were two caveats lodged against the title, the first by Colonial Mutual Life Assurance Society Limited, CML, dated 11 May 1989. The caveatable interest claimed was said to arise from an agreement of 31 March 1989.

The second caveat was lodged by the second applicant in this matter, Ernfold Holdings Pty Limited, and is dated 23 June 1985. Discussions and correspondence between Mr Smallwood and the solicitors for the second applicant resulted in the withdrawal of the second caveat. Mr Smallwood had numerous discussions with a Elr Belling of Messrs Abbott Tout, who acted for CML. By 7 September 1989 there had been no agreement reached between Mr Smallwood and Mr Belling in relation to the withdrawal of the caveat to enable the sale to proceed.

On 7 September 1989 M r Smallwood received by facsimile transmission a copy of a letter of that date from the solicitors for the applicants and he replied by facsimile transmission of the same date, the subject matter of that correspondence relating to the disposition of the contemplated proceeds of sale and certain ancillary matters. On or about 7 September 1989 Mr Smallwood received instructions to appear

which were instituted by the applicants initially against the	for Mrs Megas, the third respondent in these proceedings,
first respondent, Michael Nestoros Megas.
On 28 August 1989, Mr Smallwood had been told by Mr Belling that the amount due to CML was greater than $100,000 and that there were at least five more claims not yet quantified. Prior to 11 September, Mr Smallwood sought confirmation from Citibank Limited of the amount due to it pursuant to its mortgage which was secured over the second and third respondent's house in Belrose.
Mr Smallwood sought the information so that he could attend court on 12 September, properly informed as to the amount owed to Citibank. He then received from Citibank a letter of 11 September 1989 by facsimile, saying that the amount owing at 11 September was $486,842.18 and certain other information. He also received on 11 September the facsimile letter from Abbott Tout to which I need not refer in any detail.

Mr Smallwood attended before a judge of this Court on

12 September 1989 when his Honour Mr Justice Beaumont referred

the proceedings to a deputy registrar for a mediation conference. That was held the same day and at that conference

Mr de Meyrick of counsel appeared for the applicants, Mr

Smallwood attended on behalf of the third respondent, Mrs

Megas and counsel appeared for the first and second respondents.

At the conference Mr Smallwood said words to the

following effect:

"There is no allegation against Mrs Megas, she has only been joined because she is a joint tenant. There is a mortgage for about $490,000 to Citibank and CML does not yet know exactly how much is owing to it but it is over $100,000 and could be much higher. Apparently there are other claims which have not yet been determined."

Mr de Meyrick said either then or later at that

conference, words to the effect:	"They must know how much is
owing if there are court orders."

Mr de Meyrick also said:  "Well, there is not much

point in us proceeding with the motion because there will not

be anything left anyway."

Mr Smallwood said that:

"CML has indicated its willingness to allow the matter to be settled on the basis that they consider they have no claim against Mrs Megas, but they wish to claim on Mr Megas's share. "

A little later Mr de Meyrick asked Mr Smallwood if CML
were aware of the Federal Court proceedings. When Mr Smallwood

informed Mr de Meyrick that they were not, he then suggested

they should be informed.

Accordingly, Mr Smallwood left the room and telephoned

Mr Belling, of Abbott Tout. After a short conversation with

Mr Belling, Mr O'Brien, who was the solicitor for the first respondent, spoke to Mr Belling, and then Mr Vaughan, the solicitor for the applicant, also spoke with Mr Belling on the telephone.

Mr Vaughan then returned to the conference and informed the conference that CML would not remove its caveat and that the third respondent would have to obtain a court order. Discussions then took place at the conference about the appropriate place to institute proceedings to withdraw the caveat.

The parties then discussed how the court proceedings could be resolved on an interim basis, and Mr de Meyrick sought certain directions, which were agreed to between the applicants and the parties, other than the third respondent.

Mr Smallwood took no part in those discussions.

The undertakings which are expressed in paragraph 3 of what I shall call the directions document - exhibit 1, were then agreed. That document is set out below.

BEFORE REGISTRAR DAWSON

In re Matter No NG 565 of 1989

BY CONSENT -

1.   These proceedings on Notice of Motion for interlocutory orders be reserved with leave to bring back before the Court on two days notice.

2.   The Application in re Section 52 (T.P.A.) proceedings be the subject of directionnnns for further particulars sought within 14 days, with answers to those particulars within a further 14 days, and with Defence filed within a further 14 days, thereafter; with leave to either party for further direction or to restore as necessary on short notice.

3.   The Applicants undertake not to take any steps or proceedings to prevent any sale of the subjedct property (171 Forest Way, Belrose, N.S.W.) subject to -

(a) Mr Smallwood, of Smallwood Cathcart,

Solicitors for the First and Third Respondents in the sale of the said property, having undertaken to notify the Applicants' Solicitors forthwith of the removal of Caveat No. Y376215 in respect of the said property;

(b) Mr Smallwood's undertaking not to

disperse of one half of the nett proceeds of sale of the said property without notice to the Applicants' Solicitors of his intention to do so, eight days prior thereto; and

(c) The Applicants shall not take any steps or proceedings to restrain the dispersement of the remaining one half of the nett proceeds of sale of the said property to the Third Respondent.

4.    Costs to be costs in the proceedings.

Signed: John de Meyrick, Counsel for the Applicants: R.J.H. Darke, Counsel for the First & Second Respondents; R.L. Smallwood, Solicitor for the Third Respondent).

DATED: 12 September 1989

In relation to undertaking 3(b) therein referred to,

Mr Smallwood said words to the effect, "I am prepared to undertake that I will not disburse to M r Megas his share of the proceeds." M r de Meyrick said: "I am not satisfied with that being restricted to the words 'to Mr Megas' since we do not want him to be able to get the money through some stooge." Or some other word may have been used than "stooge",

suggesting that some person other than Mr Megas would receive the money on behalf of Mr Megas beneficially. Accordingly, the words "not to disburse one half of the net proceeds" were used. When Mr de Meyrick wrote down subparagraph 3(b), Mr de Meyrick did not include the word "net", and Mr Smallwood said words to the effect, "The word 'net' should be included before 'proceeds of sale'. " Mr de Meyrick said, "We all know what 'proceeds of sale' mean." The Deputy Registrar made a statement to the effect that the meaning of "proceeds of sale" was clear. Mr Smallwood said: "I want it made clear that it is net proceeds of sale."

M r Smallwood said:

"I want an undertaking from the applicants that they will not do anything to restrain disbursement to Mrs Megas of her share."

M r de Meyrick said:

her share if we undertake not to prevent the	"We cannot prevent you from giving Mrs Megas
sale of the property.''

Mr Smallwood said:

"But there will be nothing to prevent you from taking some proceedings to restrain me from disbursing Mrs Megas's share to her, even though the sale was completed. I want an express undertaking that you will not take any proceedings stopping me paying out to Mrs Megas her share."

And Mr Smallwood also said something to the effect:

"I am not prepared to give any undertakings to

you unless you undertake that you will not prevent me from paying out any money to Mrs Megas. "

Paragraph 3(c), as set out in the directions document,
was then agreed and written down. After the document had been

completed, the registrar said to the people present, words to

the effect, "You sign them and then I will sign them. " That

was then done, and the document was signed by the legal
representatives of the parties and by the deputy registrar.

At no time was Mr Smallwood asked by the deputy registrar if he gave the undertakings that are there recorded as being attributed to him, and nor was it suggested by the deputy registrar or any other person present that the undertakings were undertakings to the Court, as distinct from undertakings between the parties. Mr Smallwood has sworn that he understood at the time, and has always subsequently

believed, that the undertakings were given between the	parties, and I accept his evidence.
After the mediation conference, Mr Smallwood returned to his office. There was then an exchange of letters by facsimile transmission, which I need not dwell on in detail. On 15 September 1989, Mr Mann of Abbott Tout, who acted for CML, telephoned Mr Smallwood and said that CML was prepared to withdraw its caveat on terms, namely, that the proceeds
otherwise payable to Mr Megas be paid on account to CML, and that he would like to explore the possibility of where Mrs Megas's share was going. On a without prejudice basis, CML had no immediate intention of commencing proceedings against her.
Mr Smallwood then telephoned Mr Vaughan and said words to the effect, "I am going on holidays today and I want to try and get this matter settled before I go, and to get it out of my hair. To get the sale settled, I may be able to get Abbott Tout to agree to hold one half of the funds on trust." Mr Vaughan replied: "I would not be too happy about that, but I would be happy for you to hold the moneys on trust."
Mr Smallwood said:

"The problem with that is that, if there is a fight over the funds, I will simply have to interplead. And as I would only be acting for

Mrs Megas, and you have no problems with her	obtaining her share, I do not really want to
be involved after the sale is finalised."
Mr Vaughan replied, "Well, are you giving me notice?"

Mr Smallwood said, "No, but leave it with me for a moment and

I will get back to you." Mr Smallwood left for holidays on the afternoon of 15 September 1989, leaving the matter to be attended to by his partner, Mr Cathcart. The conveyance was apparently settled on 27 September 1989. There is in evidence the settlement sheet prepared by Mr Cathcart from which, together with his oral evidence, it is plain that certain moneys were paid to Mrs Megas on or shortly after settlement, in the order of $108,000, which included a cheque payable to her of $71,421.10 and the bulk of the deposit moneys which had previous been lodged of some $37,000.

No moneys were in fact payable on settlement to Mr Megas, himself. The dispute really centres round what is described in the settlement sheet as cheque number 7 in favour of B.R. Belling and I.D. Osborne, trustee for CML, and Rebair Pty Limited, Dyleen Pty Limited and Peron Pty Limited, of $107,691.10. They appear to have been creditors - or persons asserting that they were creditors of Mr Megas. And the money

- and the sum of $107,691.10, which was paid in the fashion I

have indicated, was a cheque paid to Mr Belling and Mr Osborne as trustees for CML and subsequent caveators represented by Mr Osborne's solicitor.

Mr Smallwood did not give notice to the solicitors for the applicants in accordance with undertakings 3(b) of the directions document, because he did not believe there were any net proceeds of sale nor were any moneys being paid to Mr Megas nor to anyone in circumstances which would lead to M r Megas receiving any part of the proceeds.

The relevance of his belief is perhaps open to some question but to the extent that it is relevant if at all, I accept his evidence on that point. In due course the proceedings in this Court came before a deputy register on 6 November 1989 when Mr Vaughan attended as did Mr Cathcart. It was indicated before the deputy registrar by Mr Cathcart, that the Belrose property had been sold and settlement had taken place, that after clearing the registered mortgage in favour of Citibank Limited, an amount of approximately $224,000 remained, half of which had been paid out to Mrs Megas, and the remaining half had been paid by way of trust to the two solicitors to whom I have mentioned on behalf of CML and other creditors.

Mr Cathcart said to the deputy registrar words to the

effect:

"There is a second caveat which is supported

evidence by deed of charge of 22 May 1989, and

by an equitable interest in the property,

an unregistered mortgage of the same date signed by Mr Megas. The first caveat is supported by an equitable interest in the property flowing from orders in the Supreme Court, whereby Mr Megas agreed to enter into a mortgage of his interest in the property, subject only to the first mortgage. After the first mortgage was paid out, Mr Megas' half share of the proceeds of sale did not satisfy the claims of the first and second caveators, so there were no proceeds of sale available to hold on trust for Mr Vaughan's client. It was because there were no net proceeds of the sale available to be disbursed that I did not give notice to Mr Vaughan in terms of the orders."

Mr Cathcart also said that, "as far as Mr Megas is concerned, he received nothing because the encumbrances on his share of the property exceeded the value of his shares". When

Mr Cathcart took over the carriage of the conveyance on 19

September after his partner, M r Smallwood, had left for holidays, he read a diary note left for him by Mr Smallwood which indicated that Mr Vaughan had been given notice of settlement of the conveyance. Consequently, Mr Cathcart naturally assumed that notice had been given. In fact it appears that it had not.

On 18 September 1989, Mr Cathcart became aware that further caveats had been lodged, namely a caveat by Rebair Pty Limited, Dyleen Pty Limited and Peron Pty Limited, and another caveat by Deembin Pty Limited and Trastav Pty Limited. Mr Cathcart was able to have the second of those two caveats lifted unconditionally. The solicitors acting for the

caveat to which I need not refer at the moment, were adamant	caveators with respect to the first caveat, and one other
that they would not lift the caveats unless all funds that would otherwise have been available to Mr Megas on settlement would be paid to the solicitors for the caveators in trust for them.
Mr Cathcart then read the orders that had been made by the chief clerk of the Supreme Court of New South Wales Common Law Division on 5 May 1989 in matter S1876 of 1989 between CML and Mr Megas and Others. He telephoned the solicitor for CML and said, in effect, "What does Mr Megas owe you?" The solicitor said, "We are not sure yet but it will certainly be well in excess of $100,000." Mr Cathcart telephoned Mr Megas, who said words to the effect, "Yes, there will be more than $100,000 owing to CML and I agreed to settle that matter on the basis that they could take it out of the proceeds of the sale of the house."

A copy of the deed of charge of 22 May 1989, between

Mr Megas' companies and Rebair and Others was on Mr Cathcart's

file, so he read that, and requested the solicitors for Rebair to forward him a copy of the mortgage of 22 May 1989, referred to in the caveat to which I have first mentioned, as having been lodged by Rebair. Mr Cathcart telephoned Mr Megas who confirmed that he had signed the requisite mortgage and deed, and in effect had agreed that the caveators could have what

was left to him when the property at Belrose was sold.

Mr Cathcart formed the view that both caveators had

good equitable interests, the value of which exceeded the value of the funds which would otherwise have been available to Mr Megas on settlement. Agreement was then reached with the solicitors acting for the caveators, that the caveats be lifted, provided all funds that would otherwise have been available to Mr Megas would be paid to the solicitors for the caveators in trust for them.

Mr Cathcart telephoned Mr O'Brien who was Mr Megas' solicitor, and advised him of the agreement and the fact that Mr Megas had instructed him to proceed on that basis. Mr Cathcart also telephoned Mr Smallwood on 26 September, when Mr Smallwood was on holidays and I need not go into the detail of that conversation, except to say that as a result of it, Mr Smallwood and Mr Cathcart agreed that there was no requirement to give notice to Mr Vaughan in terms of the undertaking set out in the directions document, because there would be, in fact, no proceeds from the sale left over to be disbursed to Mr Megas.

That sufficiently refers to the evidence. Where there is conflict of evidence between the three solicitors in the matter, I prefer the evidence of M r Smallwood and Mr Cathcart to the evidence of Mr Vaughan. I turn to the statement of charge. I am satisfied that the undertakings given by Mr

document were undertakings that were given between the parties	Smallwood in paragraphs 3(a) and (b) of the directions
and not to the Court through its registrar. That alone is sufficient for the motion to fail.
I am also satisfied that the reference in undertaking 3(b) to the net proceeds of sale of the property was with respect to the half share in the proceeds of the sale of the
property to which Mr Megas would be entitled, if any, after
discharging all mortgages, costs, claims, disbursements and deductions that would be payable on the settlement of the sale of the property. I am satisfied on the evidence before me that there were no moneys which answered the description of the one half of the net proceeds of sale of a property referred to in clause 3(b) of the directions order, which came into the control or trust account of Mr Smallwood such as would have been payable to Mr Megas or to which he would have been entitled within the contemplation of those undertakings. There was no such surplus therefore even if the undertakings as they are described in order 3 by Mr Smallwood were undertakings to the Court, there was no breach of them.
The directions document, as I have described it, was a mix of orders, directions and the noting of the undertakings in paragraph 3. It was not taken out so that there is no certified or office copy, in fact, of that order encompassing the alleged undertakings to the Court. Pursuant to order 37,
rule 2:

An order shall not be enforced by committal or sequestration unless the order or a certified or office copy thereof is served personally on the person bound.

It is common ground that there was no such document served upon Mr Smallwood. There is a dispute as to whether there was a necessity for such a document to be served upon him.

In my opinion, just as breaches of court orders may be enforced for contempt of them, so may, of course, undertakings given to the Court. The undertakings in this case, even if they had been undertakings to the Court, were encompassed in the document called the directions document to which I have referred, and in my view that document falls within the scope of an order for the purposes of order 37, rule 2, and ought to have been served in order to ground the motion in this case.

The Court has power to dispense with service under rule 2 of order 37. I see no basis for any discretion being exercised in that way in this case. So, if I had been asked to exercise it, I would not have done ao. For those reasons the motion must be dismissed. Accordingly, the motion is dismissed.

eighteen (18) pages are a true copy of	I certify that this and the preceding
the reasons for judgment herein of the Honourable Mr. Justice Lockhart.
Associate Dated: 6 April 1990

Counsel for the Applicant:	John de Meyrick
Solicitors for the Applicant:	Johnston Vaughan
Counsel for the Respondent:	D. Davies  & A. Ayling
Solicitors for the Respondent:	Phillips Fox
Date of Hearing:	4 and 6 April 1990
Date of Judgment:	6 April 1990