In the matter of Mycorp Pty Ltd

[2014] NSWSC 1293

Supreme Court

New South Wales

Medium Neutral Citation:	In the matter of Mycorp Pty Ltd [2014] NSWSC 1293
Hearing dates:	Written submissions 8, 10 September 2014
Decision date:	19 September 2014
Jurisdiction:	Equity Division - Corporations List
Before:	Black J
Decision:	Orders made for judgment in favour of second and third defendants against plaintiff in relevant amounts with interest, and for plaintiff to pay first defendant's costs of notice of motion on indemnity basis and payable forthwith.
Catchwords:	PROCEDURE - contempt, attachment and sequestration - contempt of court - penalty - disputed issues remaining before orders can be made to give effect to penalty judgment in proceedings - time to effect repayment of relevant monies to companies - enforcement - where order of indemnity costs held to be sufficient penalty - whether plaintiff's costs should be assessed and payable forthwith.
Legislation Cited:	- Civil Procedure Act 2005 (NSW) s 100 - Uniform Civil Procedure Rules 2005 (NSW) rr 36.4, 36.4(3)
Cases Cited:	- Fiduciary Ltd v Morningstar Research Pty Ltd [2002] NSWSC 432; (2002) 55 NSWLR 1 - Jazabas Pty Ltd v Haddad [2006] NSWSC 880 - Queanbeyan City Council v Sun (No 2) [2013] NSWLEC 64 - Tomanovic v Global Mortgage Equity Corp Pty Ltd (No 2) [2011] NSWCA 256; (2011) 288 ALR 385 - Traderight (NSW) Pty Ltd v Bank of Queensland Ltd (No 2) [2008] NSWSC 589
Category:	Consequential orders
Parties:	Fred Fajloun (Plaintiff/Respondent) George Khoury (First Defendant/Applicant) Mycorp Group Pty Ltd (Second Defendant) Moonstone River Pty Ltd (Third Defendant) Summer Tides Pty Ltd (Fourth Defendant) Snowy Falls Pty Ltd (Fifth Defendant) Telnac Pty Ltd (Sixth Defendant)
Representation:	Counsel: M Condon SC (Plaintiff/Respondent) J C Kelly SC (First Defendant/Applicant) Solicitors: Sage Lawyers (Plaintiff/Respondent) Bamford Lawyers (First Defendant/Applicant)
File Number(s):	2012/350220

Judgment

1. By my judgment delivered on 4 July 2014 ([2014] NSWSC 899), I held that a charge of contempt against the Plaintiff, Mr Fred Fajloun, had been proved beyond reasonable doubt, in respect of the circumstances in which Mr Fajloun paid cash amounts from the businesses of Mycorp Group Pty Ltd ("Mycorp") and Moonstone River Pty Ltd ("Moonstone") to himself during July 2013.

1. By my further judgment delivered on 27 August 2014 ([2014] NSWSC 1180), I reviewed the principles applicable to a penalty for contempt and the evidence as to the question of penalty, and also considered the basis on which the Court could make an order for repayment of the amounts that Mr Fajloun had paid to himself. I found that the Court had power to enter judgment in favour of Mycorp and Moonstone for those amounts, on the basis that the order initially made by the Court and breached by Mr Fajloun recorded an agreement between the parties that had contractual force. I also observed that it did not seem to me that a fine of the magnitude that Mr Khoury sought to have imposed on Mr Fajloun was warranted in the circumstances of the relevant breach and having regard to the evidence as to Mr Fajloun's financial position; I noted mitigating factors that tendered against the imposition of a substantial penalty; and I held that an order for indemnity costs payable against Mr Fajloun would be a sufficient penalty in the relevant circumstances. I therefore found that there should be judgment in favour of Mycorp against Mr Fajloun in the amount of $34,000 together with interest on that amount; judgment in favour of Moonstone against Mr Fajloun in the amount of $33,999 together with interest; and that Mr Fajloun should pay Mr Khoury's costs of the motion on an indemnity basis.

1. However, I indicated that I would defer making those orders for 7 days and hear the parties further as to any submissions which they wished to make as to the form of those orders. The parties were unable to agree terms to give effect to my orders and, on 8 September 2014, the solicitor for Mr Khoury submitted proposed Short Minutes of Order which were much more elaborate than those contemplated by my judgment and submissions in support of those Short Minutes of Order. The solicitor for Mr Fajloun indicated that Mr Fajloun did not propose any variations to the form of the orders proposed in my earlier judgment as to penalty.

1. Mr Fajloun submits that Mr Khoury's submissions go beyond the leave that was granted for further submissions and points to the principle that, as Campbell JA (with whom MacFarlan and Young JJA agreed) observed in Tomanovic v Global Mortgage Equity Corporation Pty Ltd (No 2) [2011] NSWCA 256; (2011) 288 ALR 385 at [7], where the Court grant leave for further submissions after a judgment, those submissions must be limited to the scope of the leave that has been granted, and submissions should be ignored to the extent that they extend beyond such leave. Mr Fajloun submits that the Court should disregard such further submissions. I consider that it is preferable in this case largely to determine those submissions, which are in relatively narrow scope and which do relate to the form of orders that should be made by the Court, on their merits, with the particular exceptions to which I refer below.

1. Mr Khoury's solicitor submits that the contempt proceedings were brought by reason of Mr Fajloun's position that he did not intend to return the monies taken and that he intended continuing to pay himself a wage of $1,000 per week in respect of each of the two companies. I do not understand Mr Fajloun to have indicated any continuing intention, beyond the delivery of the Court's judgment, to continue to pay himself the suggested wage, at least without obtaining a variation of the orders previously made by the Court. Any such intent on his part would be inconsistent with the findings that I have made as to the effect of the Court's order and any conduct of that kind is unlikely to be mitigated by any of the matters to which I referred in my earlier judgment.

1. Mr Khoury submits that the orders proposed to be made by the Court, which involve judgment in favour of each of Mycorp and Moonstone, do not stipulate the time by which Mr Fajloun is required to repay the relevant monies to those companies. Mr Fajloun responds that r 36.4 of the Uniform Civil Procedure Rules 2005 (NSW) provides that a judgment takes effect as at the date on which it is given and that he has not sought an order under r 36.4(3) for the judgment to take effect at a later date. The form of the orders reflects the fact that a money judgment takes effect in accordance with the usual rules applicable to such a judgment. Mr Khoury also submits that there is no certainty that Mr Fajloun will repay the monies to the companies but that is the common position in respect of a money judgment awarded against a natural person. It will be open to the companies to take steps to enforce the judgment if it is not satisfied.

1. Mr Khoury submits that none of Mr Fajloun's actions were inadvertent or accidental and that the explanations advanced by Mr Fajloun for his conduct were "contrived or contradictory". These submissions reagitate matters that were addressed in my earlier judgments and that I had considered in delivering my judgment as to penalty. I do not consider it necessary or appropriate to address them further. Mr Khoury also submits that Mr Fajloun has not indicated any intention or willingness to repay any of the monies taken, despite available assets disclosed in his affidavit evidence at the penalty hearing. I also addressed that question in my judgment as to penalty, where I had noted that, if a monetary judgment was awarded against Mr Fajloun, he had indicated that he might seek to have that judgment paid by instalments, but I had also noted that such an order would only be made if it were justified in the circumstances. I also do not consider it necessary or appropriate to address that matter further.

1. Mr Khoury points out that Mycorp and Moonstone are presently deadlocked, given the matters in dispute in the proceedings and, if Mr Fajloun does not repay the monies to each of the companies as ordered, Mr Khoury would need to seek leave to bring proceedings in the name of each of the companies for recovery of the monies then outstanding. Mr Khoury submits that the Court should deal with the issue of repayment of the monies to each of the companies by imposing a date by which Mr Fajloun is required to effect the repayment and now granting leave to Mr Khoury to commence recovery action if Mr Fajloun does not make repayment to either of companies by that date. I do not consider that I should make the former order, so far as a judgment ordered by the Court may be enforced in the usual way, and I do not consider that the second order is necessary for the reasons noted below.

1. Mr Fajloun submits that the Court should not now grant leave to bring proceedings on behalf of the companies, where to do so would assume a course of events that might not arise if Mr Fajloun brings a substantive appeal from the Court's judgment or makes an arrangement to pay the judgment sum, and indicates that a notice of intention to appeal has been filed on his behalf. Plainly, the position which Mr Fajloun may reasonably take in respect of consent to the commencement of such proceedings may depend on whether an appeal is under way and whether he has sought, or been granted, a stay of execution of the judgment.

1. It also seems to me unlikely, as a practical matter, that a situation would arise where Mr Fajloun seeks to use his position as a director of the companies to obstruct the recovery of the judgments in their favour against him. First, it seems to me that Mr Fajloun might well consent to the taking of any necessary steps to enforce the judgment against him, which may well not require the commencement of further proceedings, because a failure to do so would potentially amount to a serious breach of his duties as a director of the companies. Second, it may be that Mr Fajloun will take that course for pragmatic reasons, because he presently seeks to maintain derivative proceedings in the name of the companies and his ability to maintain those proceedings may depend on the Court's continuing satisfaction that he is acting in good faith in respect of the proceedings. Third, he might well consent to the taking of steps by the companies to enforce the judgment because he considers that, if he were to seek to use his position as a director of the companies to frustrate the recovery of that judgment, the Court might well appoint provisional liquidators to the companies on Mr Khoury's application, or might alternatively readily grant leave for the commencement of any necessary derivative claim by Mr Khoury and make any appropriate consequential order as to costs. It does not seem to me that Mr Khoury or the Court should be particularly troubled that Mr Fajloun would seek to frustrate the recovery of judgment against him given the substantial risks to him involved in his taking such a course.

1. Mr Khoury also submits that the contempt proceedings were brought because Mr Fajloun had continued to take monies from the companies beyond the period covered by the Statement of Charge. Mr Fajloun submits that the matters raised in respect of other monies said to have been taken by Mr Khoury should not be entertained, because that case was not pleaded and Mr Fajloun has not had the opportunity to propound a defence to it. That further submission does not seem to me to be open to Mr Khoury at this point, where it extends beyond the matters that were raised by the Statement of Charge, which defined the matters which Mr Fajloun had to meet in the hearing before me, and was not addressed in the earlier hearings before me.

1. Mr Khoury also submits that the Court should grant leave to him to commence action in respect of any other monies that have been taken in breach of the order previously made by the Court, where Mr Khoury would otherwise be put to the expense of seeking leave to commence action on behalf of the companies for the recovery of such monies. Again, it does not seem to me to be necessary or appropriate to make an order in that form. It does not seem to me to be appropriate to make such orders, where any other monies that may or may not have been taken in breach of that order were not in issue in the proceedings before me. It also does not seem to be necessary because, if Mr Khoury seeks Mr Fajloun's consent to taking steps to enforce the judgments in favour of the companies, he might well also seek Mr Fajloun's consent to seek to recover any such other monies which have been taken by Mr Fajloun, and Mr Fajloun might well consent to that course for the reasons noted above. It does not seem to me that the Court should now make orders against a contingency that Mr Fajloun would not do so.

1. Mr Khoury submits that he should not be left out-of-pocket as a consequence of bringing the contempt proceedings and submits that an order for indemnity costs both provides a mark of the Court's condemnation of the relevant conduct and avoids the risk that contempt proceedings would be discouraged if an applicant were left out-of-pocket: Queanbeyan City Council v Son (No 2) [2013] NSWLEC 64 at [47]. I had, in my earlier judgment, indicated a proposed order that Mr Fajloun should pay Mr Khoury's costs of the motion on an indemnity basis. Mr Khoury submits that there is no reason why those costs cannot now be agreed or assessed and why leave should not be granted to enforce such costs order forthwith. Mr Fajloun contends that it was common ground that Mr Fajloun should be ordered to pay costs on an indemnity basis at the hearing, and that Mr Khoury did not then seek a "forthwith" order. It seems to me that the questions of whether costs should be payable forthwith is properly now addressed where it relates to the form of the costs orders that should now be made.

1. The Court may make an order permitting earlier enforcement of the costs order relating to an interlocutory application where it relates to matters distinct from the substantive issues in the proceedings and, in particular, where those costs have been incurred as a result of unreasonable conduct by the party against whom the order has been made, and where the costs are significant and the time for payment may otherwise be deferred for a long period by reason of the state of the proceedings: Fiduciary Ltd v Morning Star Research Pty Ltd [2002] NSWSC 432; (2002) 55 NSWLR 1 at [10]-[13]; Jazabas Pty Ltd v Haddad [2006] NSWSC 880 at [12]; Traderight (NSW) Pty Ltd v Bank of Queensland Ltd (No 2) [2008] NSWSC 589. In the particular circumstances, the result of the order for contempt is distinct from the result of the proceedings generally, and it seems to me that this is a proper case for an order that Mr Khoury have liberty to assess such costs and that they be payable forthwith.

1. Mr Khoury also made submissions in reply, which were not contemplated by the orders for further submissions which I had made. It does not seem to me to be necessary or appropriate to permit submissions in reply, in respect of a relatively narrow dispute as to the form of orders in respect of an application which has now been the subject of two substantive judgments, one of which set out proposed orders by the Court, and an opportunity for submissions in chief. To the extent that those submissions were made without leave, I will disregard them in accordance with the authorities to which I have referred above.

1. Accordingly, I make the following orders:

1 Judgment in favour of the Second Defendant against the Plaintiff in the amount of $34,000 together with interest on the sums making up that sum to the date of payment calculated at the rates prescribed for the purposes of s 100 of the Civil Procedure Act 2005 (NSW).

2 Judgment in favour of the Third Defendant against the Plaintiff in the amount of $33,999 together with interest on the sums making up that sum to the date of payment calculated at the rates prescribed for the purpose of s 100 of the Civil Procedure Act.

3 The Plaintiff pay the First Defendant's costs of the Notice of Motion filed on 12 November 2013 including the costs of the hearing of the motion and the hearing of the penalty on an indemnity basis, such costs to be payable forthwith.

**********

Decision last updated: 24 October 2014