Kendling & Kendling and Anor (No. 4)

FAMILY COURT OF AUSTRALIA

KENDLING & KENDLING AND ANOR (NO. 4)

[2008] FamCA 370

FAMILY LAW – CONTEMPT - findings

Family Law Act 1975 (Cth) ss 112AB(1)(b)(ii); 112AP(1)(b)
Evidence Act 1975 (Cth) ss 67; 141

Witham v Holloway (1995) 183 CLR 525
Tate & Tate (2002) FLC 93-107
Abduramanoski and Abduramanoska (2005) FLC 93-215
Ibbotson v Wincen (1994) FLC 92-496
Fauna Holdings v Mitchell (2000) FLC 93-053
English & English (1986) 10 Fam LR 808
Ha & Hay (1998) FLC 92-819
Mead (2006) FLC 93-267
Dyers v The Queen (2002) 210 CLR 285
Jones v Dunkel (1959) 101 CLR 298

APPLICANT:

Mrs Kendling

RESPONDENT:

Mr Kendling

2^nd RESPONDENT:

B Ltd

FILE NUMBER:

SYF

2903

2003

DATE DELIVERED:

15 April 2008

PLACE DELIVERED:

Sydney

PLACE HEARD:

Sydney

JUDGMENT OF:

Watts J

HEARING DATE:

28 March 2008

REPRESENTATION

COUNSEL FOR THE APPLICANT:

Mr Richardson SC

SOLICITOR FOR THE APPLICANT:

Michael Conley Lawyers

COUNSEL FOR THE RESPONDENTS:

Mr Baran

SOLICITOR FOR THE RESPONDENTS:

Dorrough Smart Solicitors

FINDINGS

I find the husband guilty of a contempt of this court which involves a flagrant challenge to the authority of the court, in that, on or about 9 February 2008, he deliberately caused, or deliberately assisted in causing, B Ltd to breach order 9 of the orders made 27 September 2007 to lend and advance to the husband a sum of money in the amount of at least $1.1 million.
I find that the husband is guilty of a contempt of this court which involves a flagrant challenge to the authority of the court, in that he, in or about 9 February 2008, granted to B Ltd, a mortgage or charge over 10% of his shareholding in B Ltd, in deliberate breach of order 1, of the orders made by Cohen J on 4 July 2007.
I find B Ltd to be guilty of a contempt of this court which involves a flagrant challenge to the authority of the court, in that B Ltd, on or about 9 February 2008, lent and advanced to the husband, a sum of money in the amount of at least $1.1 million in deliberate breach of order 9 of the orders made 27 September 2007.

IT IS NOTED that publication of this judgment under the pseudonym Kendling & Kendling and Anor is approved pursuant to s 121(9)(g) of the Famiy Law Act 1975 (Cth)

FAMILY COURT OF AUSTRALIA AT SYDNEY

FILE NUMBER: SYF 2903 of 2003

Mrs Kendling

Applicant

And

Mr Kendling

Respondent

And

B Ltd

2^nd Respondent

REASONS FOR FINDINGS

INTRODUCTION

The prosecution charges that the husband and B Ltd knowingly contravened orders of this Court, which were both simple in their terms and narrow in their operation. The prosecution further charges that the contraventions were exceptional and striking in their nature. On 12 March 2008 I found a prima facie case both against the husband and B Ltd in relation to each of each of the charges. On 31 March 2008 I found that the charges have been established beyond reasonable doubt. These are my reasons for those findings.
My conclusion that the charges are established is founded on two alternate reasons.
Firstly, I find that the husband and B Ltd, were guilty of the charges beyond reasonable doubt, even if I accept the explanation that has been given by the husband and B Ltd.
In the alternative, if I am wrong, and the explanation offered by the husband and B Ltd means that no flagrant breach of orders has occurred, then I do not, on balance, accept the explanation that has been offered by the husband and B Ltd. Absent an acceptable explanation, flagrant breach by the husband and B Ltd is proven.

THE CHARGES

Pursuant to applications filed by the wife on 26 February 2008, the husband has been charged with:
5.1.Being guilty of contempt of this Court which involved a flagrant challenge to the authority of the Court, in that, in or about January or February 2008, he deliberately caused, or deliberately assisted in causing, B Ltd to breach order 9 of the orders made 27 September 2007, by lending and advancing to the husband a sum of money in the amount of at least $1,100,000.
5.2.Being guilty of a contempt of this Court which involved a flagrant challenge to the authority of the Court, in that he, in or about January or February 2008, granted to B Ltd, a mortgage or charge over 10 percent of his shareholding in B Ltd, in deliberate breach of order 1 of the orders made by Cohen J on 4 July 2007.
and B Ltd was charged with:
5.3.Being guilty of a contempt of this Court which involves a flagrant challenge to the authority of the Court, in that B Ltd, in or about January or February 2008, lent and advanced to the husband, a sum of money in the amount of at least $1,100,000, in deliberate breach of order 9 of the orders made on 27 September 2007.
On 12 March 2008 a prima facie case was found against the husband in relation to a further charge of flagrant challenge to the authority of the Court. The application which formed the basis of that charge was withdrawn and dismissed on 28 March 2008.

ORDERS MADE

During the proceedings there was some contention in relation to the terms of the orders made by Cohen J on 4 July 2007. In my reasons for making the prima facie findings dated 20 March 2008 I record, at paragraph 8, the words of the order of 4 July 2007 as the order issued from the Court.
The husband, in his defence, contended that the orders had additional words. On 28 March 2008 it was conceded that the husband was correct. On 28 March 2008, pursuant to the slip rule, the order of 4 July 2007 was amended so that it read:-
1.That pending further or final order the husband is hereby restrained from assigning, transferring, selling, encumbering by mortgage, charge or by any means dealing with or disposing of his interest or any part of his interest at law or in equity in [B] Limited and from doing or failing to do any act, or thing or executing any document which has the effect of diminishing the value of [B] Limited except in the course of managing the day to day business of the said company save that the husband may use his shares in [B] Ltd as security for any borrowings raised limited to the purpose of complying with the orders made by O’Ryan J on 25 May, 2007 and thereafter to meet his own legal costs and disbursements in these proceedings.
On 27 September 2007 following a contested hearing before O’Ryan J, an order was made in the following terms:-
9.Until further order [B] Ltd is restrained from making any loans or advances to or for the benefit of any person or persons or any other entity.
The circumstances in which that order was made are dealt with below.

KNOWLEDGE OF ORDERS

Mr Baran of Counsel appeared on behalf of both the husband and B Ltd and Mr Baran conceded “knowledge of order” by both the husband and B Ltd. That is, the hearing of the charges against the husband and B Ltd proceeded before me on the basis that the husband and B Ltd conceded knowledge of the Court orders made on 4 July 2007 and 27 September 2007 at the time of the alleged respective breaches. Consequently no evidence was required to establish that the husband or B Ltd had knowledge of the relevant orders said to be breached at the date the alleged breaches occurred.
It is clear that the husband understood the terms of the order made by Cohen J on 4 July 2007 as the following passage from the husband’s cross examination makes clear:
“Mr Richardson: Mr [Kendling] you’re aware aren’t you that on 4 July 2007 Cohen J made some orders in these proceedings?---Yes, I do, your Honour.
In part you’re aware, aren’t you, that the effect of the order was to restrain you from encumbering your shareholding in [B] Limited but for two stated exceptions; is that your understanding?---Yes – yes, that’s right.
Those two exceptions were, firstly, in raising funds to meet the order that O’Ryan J had made for you to pay [the wife] $1.1 million, that order having been made on 25 May 2007; is that correct?---Yes, that’s right.
The second exception being to permit you to pay your own legal costs and disbursements in these proceedings?---That’s right.
There were, you know, no other exceptions?---That’s right, your Honour.” {transcript 28.3.08 at page 11]
The husband also agreed in cross examination that in December 2007 he was conscious that there were orders of the court that prevented the husband from dealing with his shares in B Ltd as and how he may choose (transcript page 13).

NATURE OF THE PROCEEDINGS

The wife proceeded against the husband under s.112AP of the Family Law Act (“FLA”). Each allegation made involves not only a contravention of an order of the Court but in addition a “flagrant challenge to the authority of the Court”.
The onus of proof must be established by the wife as prosecutor on all elements beyond reasonable doubt (Witham v Holloway (1995) 183 CLR 525; Tate & Tate (2002) FLC 93-107; Abduramanoski and Abduramanoska (2005) FLC 93-215).
The provisions of s.141 of the Evidence Act 1995 (Cth) apply and are in the following terms:-
1.In a criminal proceeding, the court is not to find the case for the prosecution proved unless it is satisfied that it has been proved beyond reasonable doubt
2.In a criminal proceeding, the court is to find the case of a defendant proved if it is satisfied that the case has been proved on the balance of probabilities.
The first of the two charges against the husband arising from the application for contempt filed on 26 February 2008 is a charge that the husband aided and abetted B Ltd to breach a court order. Section 112AB(1)(b)(ii) FLA defines a contravention of an order to include aiding and abetting a contravention of an order by a person who is bound by it.

FLAGRANT CHALLENGE TO THE AUTHORITY OF THE COURT

The wife asserts that each of the contempts with which the husband has been charged constitutes a “contravention of an order under this Act and involves a flagrant challenge to the authority of the Court” within the meaning of s.112AP(1)(b) of the Family Law Act.
The concept of “flagrant challenge” involves conduct of an exceptional striking or repeated nature (see Ibbotson v Wincen (1994) FLC 92-496; Fauna Holdings v Mitchell (2000) FLC 93-053). These requirements are not cumulative. The breach in question must be wilful (that is, deliberate as distinct from inadvertent) but not necessarily contumacious (English (1986) 10 Fam LR 808; Hay (1998) FLC 92-819; Mead (2006) FLC 93-267).

THE CIRCUMSTANCES IN WHICH THE ORDER OF 27 SEPTEMBER 2008 WERE MADE

Order 9 of 27 September 2008 is narrow in its compass and very clear in its terms.
The husband conceded in cross examination that the circumstances in which this order was made was to preserve the comparatively small amount of monies (about $1,500,000) that remained in B Ltd’s account after assurances to the wife had been breached. The husband agreed that there had been a “big issue” in the proceedings between the husband and the wife in which there had been a number of court appearances concerning and leading to the court making orders restraining B Ltd from dealing with it’s funds. The husband agreed that a facility had been sold and that B Ltd had, through it’s solicitor, assured the wife that the net proceeds of $30 million would be held in the bank for B Ltd. That assurance was breached and the monies ($30,000,000) were moved out of the reach of the husband and into T Pty Ltd. It was in those circumstances that O’Ryan J made the order against B Ltd from disposing of its remaining liquid assets.
The husband further agreed that T Pty Ltd was a company in respect of which there is an issue in the substantive proceedings as to whether or not the husband owns or controls it (the husband saying that he had nothing to do with it at all).

SOME RELEVANT BACKGROUND FACTS

The order of O’Ryan J on 25 May 2007 required the husband to pay to the wife by way of interim costs an amount of $1,100,000.
The husband says in his affidavit of 19 March 2008 (paragraph 16) that on or after 13 July 2007 he entered into a written loan agreement with his daughter.
Ms Penelope Kendling is the husband’s daughter.
Annexure D to the wife’s affidavit sworn 20 December 2007 is an affidavit sworn by the husband on 13 December 2007. At paragraph 13 of that affidavit the husband makes the following admission:-
“On the last occasion when I had access to $1.1 million dollars to satisfy the Court Orders of 25^th May 2007, I had to do so by making a personal borrowing of those moneys from my daughter, Ms [Penelope Kendling]. Annexed hereto and marked with the letter “B” is a copy of the Loan Agreement between Ms [Penelope Kendling] and myself which incorporates those moneys paid by me to the Wife in satisfaction of those Court Orders referred to herein. I have no further access to making further borrowings from Ms [Penelope Kendling] or from my other children.”
The loan agreement which the husband annexes records that Penelope Kendling will make advances available to the husband as follows:-
a.The sum of $550,000 on the date of this agreement
b.The sum of $850,000 on or before 16 July 2007
c.The sum of $100,000 after 16 July 2007 and upon the husband’s written request.
Under the loan agreement, if an event of default occurs as defined in clause 10(2), then the loan and all interest becomes immediately payable at the option of the lender and in the event the lender exercises that option “the security will become immediately enforceable”.
The “security” is relevantly defined to mean the “security listed at item 7....”.
The security referred to in item 7 of the loan agreement is:-
“First mortgage over 10% of the borrower’s shareholding in [B] Limited”
The interest rate on the principle sum of $1,500,000 is 12 percent per annum and the term of the agreement is five years.
The husband confirmed in an affidavit sworn 19 February 2008 that he had given Penelope Kendling security over 10 percent of his shares in B Ltd.
Penelope borrowed money paid to the husband from T Pty Limited. She is a director of that company. These borrowings were made in July 2007. The agreement between Penelope and T Pty Ltd will be discussed below.
On 25 January 2008 O’Ryan J made an order that the husband pay the wife a further amount of $1 million by way of interim costs. This payment was required to be made by the end of February 2008.
On 28 January the husband wrote to his solicitors instructing them to lodge an appeal against the orders made 25 January 2008.
The husband says that in January 2008, T Pty Ltd was required to complete a contract for the purchase of real estate at F entered into in approximately mid 2006.
On 9 February 2008 the husband and B Ltd were involved in a series of transactions (which are described in more detail below) and are the actions which have led to the current charges against the husband and B Ltd.
The husband filed an appeal and an application for a stay in relation to the orders of 25 January 2008 on 19 February 2008. It is clear that the transaction involving the transfer of $1,506,000 took place prior to the husband lodging an appeal and an application for a stay against the orders.

THE HUSBAND’S CREDIT

The husband gave evidence, in his defence, and was cross examined. There were a number of occasions in which the husband failed to give credible evidence.

The Director’s meeting of B Ltd on or about 9 February 2008 which resolved to lend the husband $1,506,000

The husband was asked questions about this in cross examination in the following terms:-
“Mr Richardson: You firstly, insofar as [B Ltd] undertook that transaction, you authorised it on behalf of the company, didn’t you?---The company authorised it, yes.
Yes, and you were the person who authorised it, weren’t you? You caused the company to make that decision?---No, it was by a meeting of directors.
You were one of the directors?---Yes, that’s right, your Honour.
You didn’t vote against it, did you?---I can’t recall whether I did vote or not vote.
You certainly didn’t make it known that you didn’t want the money; indeed, you wanted the money, didn’t you?---I asked for the money.
Yes?---Yes.
You asked for the money expecting that – or at least hoping that the company would provide it to you?---Would advance it, that’s correct.
Yes?---Yes.
You asked for the money expecting that – or at least hoping that the company would provide it to you?---Would advance it, that’s correct.
Indeed, you had no doubt that the company would advance it to you if you wanted it, did you?---No, not – no.
Because even if the other directors didn’t agree - - -
His Honour: Sorry, Mr Richardson - - -
Witness: No, your Honour, that’s right.
His Honour: I’m not sure what the answer ‘no’ means. What are you saying ‘no’ to?---To – that it automatically would become a loan, your Honour, if not necessarily – if the other director said, ‘no’, then so be it.
Yes Mr Richardson, I understand what the ‘no’ means now. Sorry to interrupt you.
Mr Richardson: If the other – just pausing there - you hold all of the shares in [B Ltd] that have voting rights, don’t you?---I do.
So if the directors acted other than in accordance with your will, at any time, can I suggest, it is within your control to take steps to cause them to be removed; correct?---Yes, that legal right is there.
Or to hold a general meeting of the company, at which you would be the only person voting, and to resolve to have the company act contrary to how the directors had determined; correct? You could override them, as a shareholder?---I could override them, your Honour, yes.
So I suggest to you again that when you asked [B LTd] for the money, you had no doubt that could be secured and it would happen?---No, I don’t agree with that.” [transcript 28.3.08 at page 14 and 15]
I do not accept that the husband was telling the truth when he said:-
41.1.He did not recall whether he voted or not at the meeting.
41.2.That he went to the meeting thinking that it might be possible that the other directors might say “no” to him receiving the loan that he sought from B Ltd.

The husband’s denial that he knew what he was doing and what the company was doing was contrary to the orders

On two occasions during cross examination the husband gave oral evidence that he did not know what he was doing was contrary to the orders.
Those statements are as follows:-
“At the time you did that, you knew that you were doing it [have B Ltd lend to the husband $1,506,000] contrary to the orders that had been made by O’Ryan J on 27 September 2007?---I’m sorry, your Honour, no I didn’t know that.” [transcript 28.3.08 at page 15]
“In doing that [B Ltd paying $1,506,000 to the husband’s account with Westpac], I want to suggest to you that you had no doubt that, firstly, [B Ltd] was acting contrary to the orders of O’Ryan J of 27 September 2007?---No – no, your Honour, I was not aware of that.” [transcript 28.3.08 at page 22]
These two denials orally by the husband on his oath are incompatible with:
44.1.The husband’s concession that at all relevant times he had knowledge of order 9 made 27 September 2007.
44.2.The simple and narrow nature of that order.
44.3.The circumstances in which the order of 27 September 2007 was made.
44.4.The deliberate nature of the act which constituted the breach of the order.
44.5.The concession made by counsel for the husband in submissions that the respondent accepted a responsibility that he had in respect of the 27 September orders and “the respondent accepts that those orders were in force, the respondent accepts obviously that on the evidence as presented by the wife arguably there was a contravention, no more”. The two denials do not show such an “acceptance”.
These two denials reflect poorly on the husband’s credit.

The husband’s denial that part of the payment of $1,506,000 to his daughter contained capitalised interest

The husband was asked in cross examination about the amount of $1,506,267 that was paid to Penelope:-
“You say the capital advances were $1,430,000?---and thirty-thousand dollars, that’s right.
The balance of the amount repaid, then, was interest was it not?---No, its not.” [transcript 28.3.08 at page 22]
The husband with this answer seeks to depart from the proposition that apart from the capital advances which the husband in his oral evidence said were $1,430,000 the balance of the monies paid to Penelope were capitalised interest.
In his affidavit sworn 19 March 2008 at paragraph 46 (set out below), the husband in his own words refers to the repayment to his daughter as “taking the monies from B Ltd to repay my daughter that loan and the interest owing on it”.
There was no re-examination of the husband that gave me any information about what it was the husband claimed that the balance amount that he paid his daughter represented, if it didn’t represent interest.
The document written by Penelope on 11 February 2008 (annexure “B” to the husband’s affidavit sworn 19 March 2008) says:-
“At the time of repayment there was being paid to the person who had advanced the money $1.4 million plus interest and charges thereby totalling $1,506,267.”
It may be that the husband’s answer was drawing the fine point that the balance wasn’t just interest but also charges but the way in which the husband gave that answer did not give me the impression that he intended to make such a fine point. The husband was either being deliberately untruthful or being sly in the way he answered the question; either interpretation reflects poorly on the husband’s credit. On balance I find that “no it is not” without any further explanation was a denial that the balance paid to his daughter under the original loan agreement which represented interest and charges, did not in part represent capitalised interest.

The husband’s denial of his awareness of the terms of the loan agreement between Penelope and T Pty Ltd

Following the husband’s denial that the balance of the amount repaid to Penelope represented interest, the husband went on to deny knowledge of the terms of a loan between Penelope and T Pty Ltd that had enabled Penelope to advance $1.4 million or thereabouts to the husband in July 2007. The husband said he did not know about it and had nothing to do with it and that he could not recall anything about the terms of the loan (page 23 of the transcript 28.3.08).
The husband was then referred in cross examination to the terms of an affidavit sworn by the husband on 19 February 2008 (in support of his application for a stay of the orders of 25 January 2008 requiring the husband to make a further payment of $1 million by way of interim costs to the wife). In that affidavit the husband shows some detailed knowledge of the terms of the loan between Penelope and T Pty Ltd.
The husband was referred to paragraph 5 of that affidavit which states:-
“The loan from my daughter was unsecured.”
and was asked:-
“Do you see that?---Yes
That was untruthful?---Yes, that’s incorrect.
That was untruthful, wasn’t it?---I didn’t say it was untruthful, it is incorrect.” [transcript 28.3.08 at page 24]
The husband was unable to concede that a statement made by him under oath was untruthful, contenting himself by saying that it was an incorrect statement.
The husband was then taken to the balance of paragraph 5 and gave the following evidence:
“Mr Richardson: Then you went on in paragraph 5 to set out certain matters as to the loan between [T Pty Ltd] and her; correct?---that was my understanding, yes, that’s right.
You told his Honour earlier today you knew nothing of the terms of that loan?---That was – I am now reading it, and I - - -
Mr [Kendling], please address yourself to my question; do you agree that earlier today you told his Honour you knew nothing of the terms of the loan between [T Pty Ltd] and [Penelope]?---Well, I don’t know the terms about the loan. It doesn’t say that. It says that she borrowed money from [T Pty Ltd]; that’s what it says. On – my understanding is that she borrowed – ‘borrowed by her from [T] Proprietary Limited’.
Well, where did you get this understanding?---How did I get an understanding?
Yes?---When I talk to my daughter.
Because what you set out at paragraph (c) of 5 is thoroughly misleading, isn’t it?---Well, that’s – that is now. That is what I thought would be three years.
Sir, you are endeavouring by this affidavit to suggest that:
[Penelope] owed [T Pty Ltd] money that had been borrowed for a term of three years subject to a proviso that [T Pty Ltd] could demand the funds if required.
That’s what you said at (c), isn’t it?---That’s what it says here.
That was untrue?---That’s what I believed to be - - -
Because in fact, at the time you signed this affidavit, [Penelope] and [T Pty Ltd] had entered into an agreement that the loan was for a period of seven years without any ability of [T Pty Ltd] to call up the loan any earlier?---I don’t know that.
Paragraph (c) here was an endeavour on your part to mislead the Court into accepting that there was a legitimate basis for some trigger to you having to pay [Penelope] earlier?---No.
Because it’s upon the basis of the allegation that [T Pty Ltd] was entitled to call up the loan to [Penelope] that you claim you had an obligation then to pay [Penelope] early?---No.
That obligation you claim you satisfied on 11 February 2008?---I have stated what I believe here.” [transcript 28.3.08 at page 25]
On any construction of the husband’s evidence his oral assertion that he knew nothing about the arrangement between Penelope and T Pty Ltd cannot be accepted. The husband has been untruthful when he has told me that on his oath.

The husband’s denial that moving money to Penelope was in part the reason the husband could not comply with the order made 25 January 2008

The husband gave the following evidence in cross examination:-
“Mr Richardson: Your incapacity to pay it was in part dependent upon the reduction of funds available to [B Ltd], and therefore reduction of any ability on your part to borrow from [B LTd]; correct?---No, that’s not true.” [transcript 28.3.08 at page 20]
This evidence does not sit comfortably with the evidence given by the husband, at paragraphs 7, 8 and 9 in his affidavit sworn 19 February 2008 (annexure C to the wife’s affidavit sworn 25 February 2008) which seems to be to the opposite effect. These paragraphs are set out below.
I do not accept that the husband’s asserted incapacity to make the payment as ordered on 25 January 2008 was not “in part” dependent upon the reduction of funds available to B Ltd, and therefore a reduction of an ability on the husband’s part to borrow from B Ltd. A payment by the husband to the wife of $1 million from B Ltd would have required a variation of the order made on 27 September 2007 but there is nothing to suggest that the wife would not have readily agreed to that variation in order for her to have received a payment of $1 million.

The husband’s lack of memory as to whether or not $30 million had been moved prior to the injunctive order of 27 September 2007

As set out above, the husband agreed that B Ltd through its solicitor, had assured the wife that money from the sale of a facility owned by the company would remain in the company’s bank account, but in fact the $30 million was lent to T Pty Ltd.
The following questions were put to the husband:-
“Mr Richardson: It was after that happened that his Honour made the injunction of 27 September 2007?---I can’t recall that, your Honour.
I want to suggest to you, you knew fairly well – clear and well, I say – that that injunction restraining [B Ltd] from permitting you to draw further funds on loan was made to protect […] [the wife] in the property settlement case; you knew that, didn’t you?---I can’t recall that – what you just mentioned.” [transcript 28.3.08 at page 17]
I do not accept that the husband could not recall whether or not the injunctive order freezing the remaining funds in B Ltd was made before or after the $30 million was moved. I find that his assertion that he lacks a memory about that not to be credible.

Conclusions in relation to credit

The husband gave evidence deliberately but sometimes tentatively. He chose not to look at Senior Counsel for the wife at any time during the questioning and directed his answers toward me. I was not impressed with his demeanour in the witness box. A number of his answers were not truthful.
I find that the husband was not a credible witness.

WHAT THE HUSBAND AND THE COMPANY DID

The husband and B Ltd both had knowledge of the orders of 4 July 2007 and 27 September 2007 as at January and February 2008 and more particularly on or about 9 February 2008.
The husband in an affidavit which he swore and filed 19 February 2008 (annexure “C” to the wife’s affidavit sworn 25 February 2008) states at paragraphs 6 – 9:-
6.I am aware that in January 2008 [T Pty Ltd] was required to complete a contract for the purchase of real estate at [F] entered into in approximately mid 2006.
7.As I could not raise funds from any external sources to repay the money borrowed from my daughter when [T Pty Ltd] called in the loan to her, I could only meet the repayment demand by taking an advance from funds held on deposit by [B Ltd], and the [B Ltd] Director [sic] consented to this as a further interim measure, with [B Ltd] taking as security the 10% Shareholding of mine, which [Penelope Kendling] had previously held as security over those moneys borrowed.
8.I was compelled to repay the loan from my daughter by this means because I had no other means of raising the required funds and I could not put [T Pty Ltd] at risk of losing money if it failed to complete its contract.
9.To not make repayment when demand was made, I would also have exposed myself to a claim by [T Pty Ltd] for any losses it might sustain.

THE HUSBAND’S INVOLVEMENT IN THE MEETING WHICH LED TO THE 9 FEBRUARY 2008 TRANSACTION

I have already set out the husband’s oral evidence about his involvement at the B Ltd director’s meeting which lead to the loan by B Ltd to the husband of $1,506,000.
I find that, at a time when the husband knew and B Ltd knew, that B Ltd was restrained from making any loans or advances to or for the benefit of any person or persons or any other entity:-
69.1.B Ltd lent an amount of $1,506,000 to the husband;
69.2.The amount of $1,506,267 was paid to Penelope, the daughter of the husband;
69.3.Penelope discharged the security which she held over the husband’s 10 percent shareholding in B Ltd;
69.4.The husband’s 10 percent shareholding in B Ltd was offered back to B Ltd as security for the loan of $1,506,000 from B Ltd.

EVIDENCE RELIED UPON BY THE HUSBAND AND THE COMPANY

The husband swore an affidavit on 19 March 2008 upon which he relied and to which I refer in detail below.
The husband also relied upon a letter that the husband wrote to his solicitor, Ms Megan Dorrough, on 28 January 2008 (Exhibit S). The relevant parts of that letter are as follows:-
“Please check following on O’Ryan judgment
-what restrictions are placed on [B Ltd] to encumber – mortgage – sell or buy property – and date please?
-I don’t there [sic] are any – because [B Ltd] is not on trial –
-I do know my shares in [B Ltd] may be mortgaged as per Cohen’s judgment. ____
-Please be sure to lodge appeal on O’Ryan’s judgment of $1 million – which is lunacy – I also don’t have the means to raise this money.....
Please advise me on Thursday after 8.30am – 11am on mobile […] as I will be BACK in Sydney.
Regards [Mr Kendling]”
The husband was asked questions about any response that he received from his solicitors in relation to this request for advice. The husband’s evidence is in the following terms:-
“Did you receive a letter in response from your solicitors, to your recollection?---I can’t recall that.
Do you recall whether you received any answer to that letter, whether it be by way of advice orally in person or by telephone, or by written communication?---I’m afraid not, your Honour. I don’t remember.
His Honour: You don’t remember?---I don’t remember that, your Honour.” [transcript 28.3.08 at page 10]
Given the findings as to the husband’s credit, I have difficulty in accepting that the husband cannot remember whether or not he received the advice he sought prior to entering into the transaction which clearly breached the orders of 27 September 2007, but I proceed at this stage of my reasons on the basis that that is so.
The wife called for any documents in relation to any advice given as a result of this request by the husband to Ms Dorrough. Nothing was produced. Ms Dorrough gave no evidence to say that no advice was given to the husband in response to the advice which was sought. Counsel for the wife submitted that this invited “a Jones v Dunkel submission”. However, Gaudron & Hayne JJ in Dyers v The Queen (2002) 210 CLR 285, observed that the mode of reasoning in Jones v Dunkel (1959) 101 CLR 298, ordinarily cannot be applied to a defendant in a criminal trial. The right of the defendant to silence is not confined to the accused giving evidence personally. Accordingly I place no weight on any Jones v Dunkel submission based on the fact that Ms Dorrough gave no evidence.
In the end the letter by the husband (Exhibit S) is of no great relevance because the trial proceeded with Counsel for the husband conceding that at all relevant times the husband and B Ltd knew of the terms of the orders of 4 July 2007 and 27 September 2007.

PENELOPE’S EVIDENCE NOT ADMITTED

The husband also sought to rely upon an affidavit of Penelope sworn 19 March 2008 at Sydney, on the basis that the material in that affidavit was first hand hearsay and that Penelope was unavailable to give oral evidence and be cross examined. The provisions of s.67 of the Evidence Act (“EA”) had not been complied with and leave was sought to call the evidence pursuant to s.67(4) EA.
On 25 March 2008 the husband and B Ltd tendered a medical certificate (Exhibit P) from Dr … who is Penelope’s general practitioner. It was the doctor’s opinion that Penelope was suffering from respiratory track infection and that she was unfit to attend court on 25 March 2008. The doctor gave evidence by telephone and confirmed that Penelope was 26 weeks pregnant, that he had seen her on the morning of 25 March 2008 and that she presented with a history of respiratory infection for the last three weeks (based on the history given by Penelope to the doctor). His opinion was that Penelope had a viral respiratory infection. She complained to the doctor of lethargy, a sore throat, cough, fevers and had recently developed nausea.
The doctor expressed the view that Penelope would be likely to recover and be able to answer questions and give evidence “in a week or so”.
In answer to a question in cross examination, the doctor made it clear that his certificate went to the issue of her attending court and his view that he did not think it was wise for her to travel from the Central Coast. However, the doctor was of the view that nothing would prevent Penelope talking on the telephone.
In re-examination, the doctor was asked what degree of stress Penelope would be capable of enduring whilst talking on the telephone. The doctor said that he would not answer that question but would take the advice of Penelope’s obstetrician. The doctor was asked how long Penelope should be asked to answer questions for if put to that requirement on 25 March 2008. The doctor said that at that very moment it would probably be only a matter of minutes but it depended on how she improved over the next several days to a week.
When the matter adjourned on 25 March 2008, it was anticipated when the matter resumed before me on the afternoon of 28 March 2008 that Penelope would be available on the telephone to answer some questions. Shortly after 2pm on 28 March Mr Baran indicated that Penelope would not be available for questioning by electronic means. The husband and B Ltd tendered a letter from Dr A to Mr J Burreket (Penelope’s lawyer) dated 28 March 2008 (Exhibit R). That letter was in the following terms:-
“[Penelope Kendling] is currently 27 weeks pregnant. In [Penelope’s] recent visits [Penelope] has expressed significant concerns about the amount of stress she is experiencing as a result of her substantial commitments, particularly relating to her substantial work pressures and other commitments.
[Penelope] has also expressed concerns about her current family court commitments and the substantial amount of stress that is resulting from her frequent visits to the family court.
[Penelope] has been experiencing significant amounts of stress which in my medical opinion is not advantageous to a healthy pregnancy and ultimate birth of her child.
It is in my medical opinion that [Penelope] should no longer be required to attend the family court until well after the birth of her baby.”
The letter from Dr A addressed the issue about Penelope attending the Family Court but is silent as to the issue of Penelope making herself available to give evidence by telephone. Counsel for the husband and B Ltd sought leave to call further oral evidence by telephone from Dr A. Dr A however was not available to give further evidence.
The affidavit of Penelope sworn 19 March 2008 contained contentious material primarily about an alleged collateral agreement entered into on or about 13 July 2007. I concluded that leave should not be granted to allow the husband and B Ltd to rely upon Penelope’s affidavit in circumstances where there was no evidence before me that she was unavailable to answer at least some questions by electronic means.
It is appropriate to comment at this point, as is clear below, that even if I accept the husband’s version of events without question, I still find that the charges are made out.

THE EXPLANATION BY THE HUSBAND AND THE COMPANY ABOUT WHAT THEY DID

The written evidence given by the husband is contained in his affidavit sworn 19 March 2008 and, given its length, can be conveniently set out in full:-
43.I am the Defendant to the Contempt Application filed by the wife on 26^th February 2008.
44.Whilst the Loan Agreement between my daughter and myself, to which I refer to herein above, was for a maximum term of five (5) years, I understood that I must repay those moneys to my daughter if called on at an earlier time to do so, if she was in need of those moneys to be repaid.
45.On or about early February 2008, I had a conversation with my daughter, [Penelope], in which she said to me, words to the effect: ‘Dad, I need you to repay those loan moneys to me, and the interest. I need them to be put back into [T Pty Ltd] by me to complete other acquisitions of my company. I can’t let that loan to you go on any longer. I’m sorry to have to do this to you. You’ll have to repay me immediately. I need the money back now”. I said to her, words to the effect: “O.K. I’ll see what I can do. I’ll get your money back to you as quickly as I can”.
46.I knew that I could not borrow further moneys in the usual manner. As I had ten percent (10%) of my shareholdings in [B Ltd] used as security on the loan to my daughter, I considered that the only way that I could fix this situation was to refinance that loan to my daughter by taking the moneys from [B Ltd] to repay my daughter that loan and the interest owing on it, and transferring that security of the ten percent (10%) shareholding to [B Ltd] itself on those moneys.
47.On or about 9^th February 2008, I did this and organised to repay those outstanding moneys to my daughter. Annexed hereto and marked with the letter “B” is a copy of a letter from [Penelope Kendling] to me, dated 11^th February 2008 in regard to that repayment.
48.At no time did I believe that I was flagrantly disobeying or disregarding the authority of the Court, by my acting in this manner. I believed that I was not further encumbering myself with debt, but merely changing the entity to whom that debt was owed, being from my daughter to the company.
49.I say that I am not in a position to repay those said moneys to [B Ltd] at this time. I do not have other funds available to me other than the shares I hold in [B Ltd].
50.On or about late February 2008, I had a conversation with my daughter ([Penelope Kendling]) in which I said to her, words to the effect: “I think that I have mucked up in paying those moneys back to you, even though you called in that loan from me. Can you get the money back to me now, and I’ll pay you again later when I can?” My daughter then said, words to the effect: “I can’t do that Dad. I have paid those moneys back into [T Pty Ltd] and [T Pty Ltd] has used those moneys in the course of business. There isn’t money there to be able to take it as a loan myself, and then lend it again to you”.
51.Should the Court in any way determine that my action was in any way flagrantly flouting the authority of this Court, I sincerely apologise to the Court, and seek the indulgence of the Court to accept that I did not do so intentionally by this action.
52.I say that the content of this Affidavit is the truth of the best of my knowledge and belief.

Annexure “B” referred to in paragraph 47 is a letter from Penelope to the husband dated 11 February 2008 in the following terms:-
“Dear […],
Upon receipt of repayment of the loan of $1.4m plus interest and charges totalling $1,506,267 million, I hereby release the security held by myself upon 10% of the shares of [B] Ltd.”
On the face of that document it appears that by 11 February 2008 a transaction had taken place whereby Penelope was paid the amount of $1,506,267 of which $1,400,000 was a repayment of capital and $106,267 was a repayment of capitalised interest.
Inconsistently with the tender in his affidavit of that document without comment, the husband in oral evidence said that the repayment of capital was $1,430,000, not $1,400,000. If that oral evidence by the husband is accepted, then the interest which was capitalised and paid was $76,267 ($1,506,267 - $1,430,000). If annexure “B” is accurate, then the interest which was capitalised and paid was $106,267 ($1,506,267 - $1,400,000). I proceed on the basis that the husband’s oral evidence should not be preferred over the information in the written document and find that interest and charges of $106,267 was capitalised and paid.

IS THERE A FLAGRANT BREACH IF THE HUSBAND’S EXPLANATION IS ACCEPTED WITHOUT QUESTION?

Breach of order 27 September 2007

Even on the case presented by the husband and B Ltd, it is clear the husband and B Ltd knew, that from 27 September 2007, B Ltd was restrained from making any loans or advances to or for the benefit of any person or persons or any other entity.
Notwithstanding the husband’s knowledge of the orders of 27 September 2007, the husband and B Ltd, on the husband’s case, subordinated those obligations to what the husband alleges was a contractual obligation that he had to his daughter.
In paragraph 45 the husband says his daughter said the following to him “I need them to be paid back into [T Pty Ltd] by me to complete other acquisitions of company”.
In an affidavit sworn by the husband on 19 February 2008 (annexure C to the wife’s affidavit sworn 25 February 2008), the husband gives the following evidence in relation to the borrowing in July 2007 from Penelope:-
5.The loan from my daughter was unsecured but made by her on the understanding that the money she loaned to me was
(a)     borrowed by her from [T Pty Ltd]
(b)    secured by [T Pty Ltd] by her by way of an unregistered mortgage over real property owned by her
(c)    while an interim measure intended to be for a period of three years was subject to repayment upon demand by [T Pty Ltd] if that company required the funds to carry out on its business activities.
I consequently conclude that even on the husband’s explanation he has flagrantly breached the orders of 27 September 2007 in that he has prioritised his obligations under a contract with his daughter and her commercial interests over obligations that he knew he had under an order of this Court. The amount of money involved is $1,506,000.
I do not accept the submission that whilst the husband may be guilty of breaching a court order, the breach could not be categorised as being a flagrant challenge to the authority of the Court. I find that, even on the husband’s own case put at its highest, the breach by the husband of the order and the breach by the company of the order of 27 September 2007 is “exceptional” or “striking” as those terms are used in Ibbotson v Wincen (1994) FLC 92-496. I also find that the breach in question is wilful and was not inadvertent. A contractual or even a moral obligation that the husband thought he might owe his daughter is insufficient in my view to excuse a deliberate breach of an order of which the husband and the company had knowledge.

Breach of Order 4 July 2007

The husband knew that there were only two purposes for which he could encumber by mortgage charge or by any reason deal with his interest at law or in equity in B Ltd. Those two particular purposes were to secure borrowings so that he could firstly comply with the orders made by O’Ryan J on 25 May 2007 and secondly thereafter meet his own legal costs and disbursements in these proceedings.
The husband some time on or about 9 February 2008 further encumbered his shareholding in B Ltd by giving those shares as security to B Ltd for the purposes of securing a borrowing which included a borrowing to repay capitalised interest. This act by the husband was done by him at a time when he conceded knowledge that there was an order in place injuncting him from encumbering his shares for any purpose other than to comply with orders made by O’Ryan J on 25 May 2007 and thereafter to meet his own legal costs and disbursements in these proceedings.
The husband’s explanation is that “I believe that I was not further encumbering myself with debt, but merely changing the entity to whom that debt was owed, being from my daughter to the company”.
That is not an accurate statement, even on the husband’s most recent version of his evidence. In or about July 2006, $1,430,000 was borrowed against the husband’s equity in his shares in B Ltd. In February 2008 the husband offered his shareholding in B Ltd as security for a further amount of $106,267. It is incorrect to say that the husband was merely changing the entity to whom the debt was owed. The debt was in fact increased. The additional borrowing was not for a purpose that was permitted by the orders of 4 July 2007.
Even from the husband’s version, I find the breach by the husband of the order of 4 July 2007 is “exceptional” or “striking” and also that the breach is wilful and is not inadvertent.

IS THE HUSBAND’S STORY ON BALANCE BELIEVABLE IN ANY EVENT?

Given the findings I have already made, it is not strictly necessary for me to consider whether or not the husband’s explanation (although I have found it inadequate to prevent a conviction) is in any event on balance believable. I do so on the basis that my conclusion that there is flagrant breach even having regard to the explanation of the husband and B Ltd, is found not to be correct.
The husband asserts, at paragraph 44 of his affidavit sworn 19 March 2008 (see above), a collateral oral contract in different terms to the written contract entered into on or about 13 July 2007.
The husband does not mention in his affidavit sworn 13 December 2007 that there was a collateral oral agreement with his daughter in different terms to the written agreement, which is now what he asserts was the case.
Counsel for the wife submits that, as a matter of law, a collateral agreement that is in different terms to a written agreement is of no effect. I accept that is so. I do not, however, need to further consider that submission given that I do not accept on balance that there was any collateral oral agreement.
As mentioned earlier, the husband said in oral evidence that the statement in paragraph 5 of his affidavit of 19 February 2008 that the loan from his daughter was unsecured was incorrect.
The arrangements between father and daughter were effected with the professional assistance of Mr Z, solicitor. Exhibit U are documents produced by Mr Z.
Some concerns arise from the transactions evidenced in Exhibit U. The arrangement between Penelope and T Pty Ltd is secured. There is an email suggesting that the agreement should be backdated to 4 July 2007. There is a subsequent suggestion made by someone in Mr Z’s office that there should be an updated agreement prepared that should delete the reference to security over real estate because the Stamp Duties Office will treat that as a mortgage and assess it for duty accordingly. Some minutes were created of a meeting in late July of T Pty Ltd. They purport to be minutes recorded in a meeting on 1 July 2007 and at that meeting T Pty Ltd resolves to advance monies to Penelope.
Mr Z communicated with Penelope requiring the minute to be amended because Mr Z was merely a shareholder and not a director. Penelope apparently prepared another minute, once again dating it 1 July 2007. The minute records the meeting as being a shareholders’ meeting.
What is clear from the file is that instructions were given as to the terms of the contract between Penelope and T Pty Ltd. The contract was prepared in writing. There is not a signed copy of the contract on the file. The husband has not tendered one as part of his case. The inference I have drawn is that the contract on the file is the final version. It contains no provision to enable T Pty Ltd to require repayment in absence of default prior to the seven year term.
The husband asserts in paragraph 5(c) of his affidavit of 19 February 2008 that the arrangements between his daughter and T Pty Ltd were an interim measure, intended for a period of three years and subject to repayment on demand. The documents in Mr Z’s file however indicate that this is not the case. As mentioned earlier, the document shows a loan for seven years with no requirement for repayment on demand.
The husband gave evidence that the source of his knowledge about these matters were conversations that he had with his daughter. On the balance of probabilities I am not satisfied that the story the husband gave in the affidavit he swore on 19 February 2008 is an accurate one and I conclude that there was no reason why Penelope was legally required to repay T Pty Ltd monies in February 2008. Similarly, the written document between Penelope and the husband entered into on about 13 July 2007 was for a five year term.
I do not, on the balance of probabilities, accept that there was or that the husband believed there was, a collateral agreement between the husband and his daughter in July 2007, as alleged.
Additionally, on balance, I find that there was an alternate motivation for what the husband and B Ltd did.
As the husband records in paragraph 2 of his affidavit sworn 19 February 2008, O’Ryan J on 25 January 2008 made an order that he pay a further sum of $1,000,000 to his wife by way of interim costs.
In cross examination the husband was asked whether or not he was unhappy with that order. The husband indicated that he was “absolutely astounded” and “flabbergasted” by the order. Exhibit S has the husband describing, in his own handwriting, the order of O’Ryan J as “lunacy”. On the husband’s version, on 9 February the husband moved from B Ltd injuncted funds in the amount of about $1,500,000 in alleged repayment to his daughter of an oral collateral agreement of July 2007.
The husband thereafter asserts that he no longer has a capacity to make the payment ordered by O’Ryan J on 25 January 2008.
The husband had given his solicitors instructions on 28 January 2008 to lodge an appeal against the orders of 25 January 2008.
After the husband had moved the funds the appeal was lodged and an application was made for a stay of the orders made by O’Ryan J on 25 January 2008. The affidavit sworn by the husband on 19 February 2008 is an affidavit created to support his application for a stay of the interim costs orders made by O’Ryan J on 25 January 2008 (see paragraph 6 of the wife’s affidavit of 25 February 2008).
On balance I am of the view that the husband, motivated by his view of the “lunacy” of the orders of O’Ryan J on 25 January 2008, embarked upon a course of conduct that would mean that liquid funds held in B Ltd would not be available to satisfy the order of January 2008.
This finding about the motivation of the husband and B Ltd is not made beyond reasonable doubt and so is not directly relevant to support any finding of flagrant breach. It is a finding which renders nugatory the explanation the husband and B Ltd give as to why the breach occurred and, absent any acceptable explanation, flagrant breach by the husband and B Ltd is proven beyond reasonable doubt.

HUSBAND’S SUBMISSIONS ABOUT LACK OF PARTICULARS

The husband sought a summary dismissal of the charge against the husband for contravention of the orders of 4 July 2007 because counsel for the husband had asserted that the charge had not been particularised. The submission seems to be that because the charge did not assert that the husband had encumbered or charged his shares in B Ltd for the purposes of borrowing capitalised interest and charges, then the contempt charge should fail.
Secondly, counsel for the husband in final submission asserted that counsel for the wife could not rely upon an assertion that the transactions of 9 February 2008 were a flagrant breach of order because they were aimed at defeating the order made 25 January 2008 by O’Ryan J. The submission was that in order to make that submission in relation to flagrant breach, those details had to be particularised in the charge and they were not.
Counsel for the wife makes the following submissions:-
122.1.At the outset of the case, counsel for the wife never took any objection or contended that there was an obligation to particularise what acts or events it was that constituted flagrancy. The charges made by the wife simply put the contention that the acts were flagrant. A prima facie case was found on that basis.
122.2.The matters that led to these issues arose wholly from the evidence led in the defence and cross examination on that evidence. Counsel for the wife submitted that there was no principle to support any proposition that particulars of flagrancy needed to be amended or provided if one is going to rely upon an alternate hypothesis available from the evidence led by the defendant.
122.3.When cross examination was underway, there was no objection raised by the defence nor a direction sought under s.136 of the Evidence Act that answers should be limited to issues of credit only. The answers given by the defendant were available to support submissions in relation to flagrancy.
I find the submissions made counsel for the wife persuasive in relation to the issue of the provisions of particulars and I find that the submissions made by counsel for the husband in that regard are without substance.

WITHDRAWAL OF OTHER CHARGES

Counsel for the husband submitted that the withdrawal of the “[R1 property] mortgage contempt” and the withdrawal of the charge that the husband had breached the order of 29 June 2007 were matters that weighed in the husband’s favour on the issue of flagrancy when the court considered whether or not the husband was guilty of the remaining charges.
I do not know that I have any evidence as to why the first charges were not pursued, although counsel for the wife informed me (without demur from counsel for the husband) that the husband repaid monies that had been allegedly transferred in breach of orders.
Counsel for the wife made submissions as to why the second lot of orders were not pursued, notwithstanding the finding of prima facie case against the husband
The remaining charges arise out of a set of transactions which stand by themselves.
The fact that other charges are not pursued is, in my view, not a matter that affects how evidence in respect of the remaining charges should be viewed. The flagrancy in this case does not arise out of the frequency of the breaches but rather their extraordinary or striking nature.

THE HUSBAND’S APOLOGIES AND PURGING OF HIS CONTEMPT

Counsel for the husband submits that the court should accept the apology set out at paragraph 51 wherein the husband says:-
51.Should the Court in any way determine that my action was in any way flagrantly flouting the authority of this Court, I sincerely apologise to the Court, and seek the indulgence of the Court to accept that I did not do so intentionally by this action.”
In his submissions, counsel for the husband asserted that the husband could not purge his contempt in terms of him paying the money back because he is under injunctions and that the only way he could pay it back would be to borrow again over his shares. Counsel for the husband submitted that the husband has done what he can do, that is, apologise. Counsel for the husband submitted that, were the injunction of 4 July not in place, then the husband might have been able to do something to repay the money.
A little later in his submissions however, counsel for the husband seems to contradict this by pointing to paragraph 50 of the husband’s affidavit (which he points out was not the subject of cross examination). In that paragraph the husband gives evidence that he made an attempt in late February to try and get the money back but the money had already gone and his daughter was unable to repay anything to him.
In response, counsel for the wife submits that the husband did not attempt at any time to put before me evidence of his current financial position. The husband was not, however, cross examined upon his statement that “I do not have other funds available”.
I have referred previously to the two occasions in which the husband, in his oral evidence, asserted that he did not think he had done anything that would be a breach of the orders.
That oral evidence of the husband does not sit with any expression of contrition by him. I find that the husband is not sorry for any of the actions he has taken.
The apology in the husband’s affidavit is very much one that is couched in the alternative; that is, if the court determines he has done something wrong then he “sincerely apologies”. The attempt by the husband to apologise in the alternative is ineffective as a method of purging his contempt.

I certify that the preceding one hundred and thirty-five (135) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Watts

Associate:

Date: 15 April 2008

[2008] FamCA 370

15 April 2008

Key Legal Topics

Areas of Law

Civil Procedure

Equity & Trusts

Legal Concepts

Abuse of Process

Res Judicata

Costs

Injunction

Estoppel