McLeary v Swift
[2014] NSWSC 1414
•16 October 2014
Supreme Court
New South Wales
Medium Neutral Citation: McLeary v Swift [2014] NSWSC 1414 Hearing dates: 1 October 2014 Decision date: 16 October 2014 Jurisdiction: Equity Division Before: Hallen J Decision: Direct the parties to bring in short minutes of order reflecting these reasons. Stand the matter over for 7 days, or such other mutually agreed period, to enable the short minutes of order to be prepared and delivered to my Associate. On the adjourned date, any argument as to the content of the short minutes of order or on the calculation of interest and the payment thereof will be heard.
Catchwords: JUDGMENTS AND ORDERS - Enforcement of orders - Whether order should be varied to make payment by the Defendant to the Plaintiff rather than to the ATO in circumstances where the Plaintiff has caused payment to the ATO to be made - Enforcement orders - s 135 Civil Procedure Act - Inherent jurisdiction to vary orders - Whether jurisdiction should be exercised Legislation Cited: Civil Procedure Act 2005 (NSW)
Supreme Court Act 1970 (NSW)
Uniform Civil Procedure Rules 2005 (NSW)Cases Cited: Australian Beverage Distributors Pty Ltd v Evans & Tate Premium Wines Pty Ltd [2007] NSWCA 57
Despot v Registrar General of NSW [2014] NSWSC 1002
Foster v ACCC [2014] FCA 240
Georges v Wieland [2010] NSWSC 1378
Hickie v Land Enviro Corp Pty Ltd [2013] NSWSC 706
McLeary v Swift [2012] NSWSC 1403
McLeary v Swift [2013] NSWSC 216
McLeary v Swift [2013] NSWSC 1674
McLeary v Swift [2014] NSWSC 870
Deborah Raulfs v Fishy Bite Pty Limited (No 3) [2013] NSWSC 1732
Riltang Pty Ltd v L Pty Ltd [2004] NSWSC 977
Stokes (by a tutor) v McCourt [2013] NSWSC 1014
Swift v McLeary [2013] NSWCA 173
Swift v McLeary [2014] NSWCA 52
Xu v Wan Ze Property Development (Aust) Pty Ltd (in Liquidation) [2014] FCA 461Category: Principal judgment Parties: Jeffrey John McLeary (Plaintiff)
Martin Smith (Defendant)Representation: Counsel:
Mr R McKeand SC; Mr B Bradley (Plaintiff)
Mr J T Johnson (Defendant)
Solicitors:
Shotters Lawyers (Plaintiff)
Beazley Singleton Lawyers (Defendant)
File Number(s): 2011/69385
Judgment
The Claims
HIS HONOUR: This is one of a number of hearings involving these parties who have, since about 2009, been involved in litigation with each other. I derive some of the facts set out from one, or other, of the reasons for judgment, given in their related matters, which facts cannot, any longer, be the subject of dispute between them.
The matter before me relates to a notice of motion filed on 22 August 2014, by Jeffrey John McLeary, the Plaintiff. He sought leave to file an amended notice of motion dated 4 September 2014 at the hearing before me and, as there was no opposition by counsel for Martin Swift, the Defendant, I granted him leave to do so. (I shall refer to each of the parties in this way rather than the role which he has played in one, or other, of the proceedings.)
In the amended notice of motion, Mr McLeary sought the following relief:
"1. Set aside order 1 made by Windeyer AJ on 26 November 2012 that the defendant pay to the Deputy Commissioner of Taxation, into Australian Taxation Office income tax account number xxxxx in favour of Teffcog Pty Limited the amount of $822,595.47.
2. a. Order that the defendant pay to the plaintiff or to Teffcog Pty Ltd the amount of $822,595.47 within seven days.
b. Alternatively, order that the defendant pay damages of $822,595.47 plus interest pursuant to s 100 Civil Procedure Act 2005 to the plaintiff, alternatively to Teffcog Pty Limited.
3. Alternatively to paragraphs 1 and 2 -
a.Order that a receiver be appointed to the property or the income of the property of the defendant pursuant to UCP Rule 40.2(a), or,
b.Order that the property of the defendant be sequestrated pursuant to UCP Rule 40.2 (b))."
Mr Swift, the Defendant, has opposed the relief sought by Mr McLeary. I shall refer to the nature and grounds of his opposition later in these reasons.
The Background
Unfortunately, it is necessary to set out a summary of the history of the current proceedings, which history is long and tortuous, in order to come to the determination of the proceedings before me. I shall do so in an abbreviated way, and will refer to the reasons for judgment in the different cases that have led to the filing of the amended notice of motion and against the background, and in the context, of which it must be determined.
Prior to February 2009, Mr McLeary and Mr Swift carried on an air conditioning and refrigeration business. One of the companies through which the business was conducted was Teffcog Pty Ltd ("Teffcog"). Although Mr Swift's shares in Teffcog were transferred to Mr McLeary, pursuant to a separation agreement, entitled "Heads of Agreement", signed by Mr McLeary, and by Mr Swift, on 27 February 2009, it was provided that each would be liable to pay one half of any tax liabilities of Teffcog assessed in relation to years prior to 30 June 2008.
Upon receipt of an amended assessment from the Australian Taxation Office ("the ATO"), Mr McLeary arranged for the payment of one-half of the amount owing, which payment was made by the trustee of his family trust. Mr Swift, however, did not pay his half, leading Mr McLeary to commence proceedings, in the Equity Division of this court, for specific performance and damages.
Windeyer AJ (as his Honour then was), in reasons for judgment that bear the medium neutral citation McLeary v Swift [2012] NSWSC 1403, dealt with two questions arising from the separation agreement, which he identified as follows:
"The first question is whether, under cl 5.9 of the Heads of Agreement, the defendant is liable to pay to the Australian Taxation Office ('ATO') one half of the taxation liability (including a shortfall penalty) of Teffcog Pty Ltd ('Teffcog') for the 2006 financial year. Teffcog was, at the time the Heads of Agreement was signed, a company associated with the plaintiff and the defendant.
The second question is whether, under cls 8.2 and 8.3 of the Heads of Agreement, the defendant must indemnify the plaintiff for one half of the amount payable to the ATO by Teffcog."
Windeyer AJ ordered that Mr Swift should fulfil his obligations under the agreement. He made the following orders on 26 November 2012:
"1. The Defendant to pay within 28 days to the Deputy Commissioner of Taxation, into Australian Taxation Office income tax account number xxxxx, in favour of Teffcog Pty Limited (Teffcog), the amount of $822,595.47 made up of the following sums:
(a) The amount of $485,100 representing the Defendant's obligation to pay one half of the amended taxation liability assessed as payable by the Australian Taxation Office for Teffcog for the financial year ended 30 June 2006 pursuant to clause 5.9 of the Heads of Agreement between the parties dated 27 February 2009;
(b) The amount of $242,550 representing the Defendant's obligation to pay one half of the short fall penalty imposed by the Australian Taxation Office for Teffcog for the financial year ended 30 June 2006 pursuant to clause 5.9 of the Heads of Agreement between the parties dated 27 February 2009; and
(c) The amount of $94,945.47 representing one half of the unremitted Shortfall Interest Charge imposed by the Australian Taxation Office on Teffcog on 9 July 2010 together with all unremitted General Interest Charges imposed on Teffcog on its unpaid taxation debt since 24 October 2011.
2. The Defendant to pay the Plaintiff's costs.
3. Exhibits to be returned to the custody of the Plaintiff.
The Court notes:
4. For the avoidance of doubt, Order (1) is made for the benefit of both the Plaintiff and Teffcog and, in the event of the Defendant's failure to comply with Order (1), it may be enforced by either the Plaintiff or Teffcog or both.
The notation in paragraph 4 was inserted at the suggestion and by the agreement of the parties."
Windeyer AJ dismissed a claim by Mr McLeary for damages, in addition to the order for the payment of money by Mr Swift to the ATO.
Mr Swift brought an appeal from that judgment. He submitted that the separation agreement involved mutual obligations in respect of the tax liability of Teffcog and that Mr McLeary had not met his obligation to pay half the debt, because, rather than making the payment himself, he had arranged for payment to be made from his family trust. He placed emphasis, in the appeal, on the allegation in the Statement of Claim that Mr McLeary had made such a payment.
Mr McLeary filed a notice of cross-appeal, contending that Windeyer AJ had erred in dismissing his damages claim and in failing to find that he suffered substantial damage by reason of the breach of contract.
Prior to the hearing of the appeal, Mr McLeary sought security for costs. The application was heard, and determined, by Gleeson JA. His Honour's reasons for judgment bear the medium neutral citation Swift v McLeary [2013] NSWCA 173. His Honour ordered that Mr Swift provide, within 14 days, security in the sum of $40,000 for Mr McLeary's costs of the appeal by payment into court and that the appeal be stayed until such security was provided. His Honour also made some consequential orders and ordered Mr Swift to pay Mr McLeary's costs of the notice of motion for security.
The substantive appeal was heard by the Court of Appeal constituted by McColl, Basten and Barrett JJA, with the reasons for judgment bearing the medium neutral citation Swift v McLeary [2014] NSWCA 52. The Court of Appeal unanimously concluded that Mr McLeary had performed his obligation under the separation agreement by arranging for payment of one-half of the tax liability of Teffcog from resources under his control. It also found that, then, the agreement imposed upon Mr Swift an obligation, owed to Mr McLeary, to make a payment to the ATO in fulfilment of his contractual promise to be liable for one-half of the taxation impost suffered by Teffcog. The appeal was dismissed with costs.
In relation to Mr McLeary's cross-appeal, the Court of Appeal concluded that any failure by Mr Swift to pay money to the ATO, as required by the separation agreement did not cause a diminution in the value of Mr McLeary's interest as sole owner of Teffcog. That diminution had occurred because the liability for the tax was imposed by legislation upon Teffcog. Mr McLeary, then, had a right to require Mr Swift to pay to the ATO, as promised, one-half of Teffcog's taxation liability, thereby eliminating one-half of the diminution suffered by Mr McLeary. The order made by Windeyer AJ, that Mr Swift pay one half of the amount to the ATO vindicated that right. Having obtained the benefit of that order, Mr McLeary had achieved what the separation agreement had intended him to have. He then suffered no loss by reason of breach of contract by Mr Swift. The cross-appeal was also dismissed with costs.
Because of what has subsequently occurred, to which I shall refer, it is necessary to set out what Barrett JA (with whom McColl and Basten JJA agreed) wrote, at [47]:
"Counsel for the respondent suggested that if his client was ultimately unsuccessful in obtaining the full fruits of the order for specific performance, he might wish to return to the Equity Division with a view to further attention being given to his claim for damages against the appellant. Such an approach is entirely misconceived. The respondent's cause of action based on breach of the agreement ceased to have any independent existence when he obtained the order for specific performance. The cause of action merged in the judgment. The basis for the making of an order for specific performance was, in words used by Kindersley V-C in Falcke v Gray (1859) 4 Drew 651; 62 ER 250 at 252, that 'a mere compensation in damages is not a sufficient remedy and satisfaction for the loss of the performance of the contract'. If, having been awarded specific performance, the respondent fails in the long run to achieve full satisfaction (because, for example, the appellant simply does not have the money necessary to comply with the order), that circumstance represents no basis whatsoever for attempting some form of retrospective revival of an alternative claim said to arise from the wrong for which a remedy had been provided by the order actually made. It might, of course, permit other steps to enforce the court order."
The evidence reveals that, even after the appeal was determined, Mr Swift did not comply with the order for the payment to the ATO. This prompted the matter to be brought back to this court. On 11 March 2013, Young AJ heard, and determined, an application, by Mr McLeary, for freezing orders. These were with respect to the property of Mr Swift and corporations in which he had an interest, and were brought because of a fear that the judgment given might be nullified by Mr Swift's activities.
His Honour's reasons for judgment bear the medium neutral citation McLeary v Swift [2013] NSWSC 216. Young AJ was satisfied, at [23], that, between 10 December 2012 and 29 January 2013, Mr Swift had divested himself of his beneficially owned shares in five corporate entities. The transferee in each case was Astbury Enterprises Pty Ltd ("Astbury"), a company that is the trustee of one of Mr Swift's discretionary trusts (known as the "Swift Family Trust") under which he was appointor and contingent beneficiary. Young AJ found that, by so doing, Mr Swift had divested himself of his beneficial interest in that property.
His Honour also noted a number of other transactions Mr Swift had performed and, therefore, was satisfied that it was appropriate to make freezing orders against Mr Swift and Astbury. These orders were:
"(a) as against Astbury Enterprises Pty Ltd, that it not permit any dealing with its shares nor any disposal of assets or rights other than in the ordinary course of its ordinary business pending the disposal of these proceedings in the Court of Appeal with liberty to apply on 5 days notice;
(b) as against Mr Swift, that he not be permitted to make any disposition of property without the consent of the respondent or the Court, save and except as to his living expenses up to $900 per week and the cost of this litigation not exceeding $15,000, or such other amount as the respondent may consent to with liberty to apply on 5 days notice."
Subsequently, the matter came before me, in the Duty Judge List, on 12 September 2013, upon Mr McLeary's application, by notice of motion, to issue a garnishee order, or a writ of execution, against Mr Swift. I concluded that it was not a matter that should be in the Duty Judge List and I directed the parties to agree upon a statement of issues for determination by the court in relation to the enforcement of the orders made by Windeyer AJ, by 4:00 p.m. 30 September 2013. I adjourned the matter to the Registrar's list on 3 October 2013, with the intention that, if possible, the matter would be re-listed, for hearing, before Windeyer AJ at a date convenient to the court.
The matter came back to Windeyer AJ, for hearing, on 8 November 2013. His Honour delivered reasons for judgment bearing the medium neutral citation McLeary v Swift [2013] NSWSC 1674. His Honour determined that Mr McLeary "has failed on the issues put forward for determination". The notice of motion, filed by Mr McLeary on 20 June 2013, was dismissed with costs.
In his Honour's reasons for judgment, at [23], the following passage appears:
"I find it difficult to accept that the Court is powerless to enforce an order of the type made in this action. I said during the hearing that I was sympathetic to the plaintiff as the Court expects its orders to be obeyed. There is no evidence the defendant does not have the resources to obey it but there was no occasion to adduce that evidence. There is an important question of the interaction of ss 130 and 131 of the CPA and rule 40.6 of the UCPR. In addition there is a question of the powers of the Court under rule 40.2. The normal method of enforcement of orders for specific performance and an order in the nature of that made here is by proceedings for contempt. I refer to this only because I do not accept that the Court is powerless in a situation such as has arisen here but it is not proper to go into this in detail as it was not argued."
The matter was again before this court on 24 June 2014, when it was listed before White J, as Duty Judge, on an application for the extension of the freezing order made by Young AJ, which had been made, initially, up to the determination of the appeal. The application was not opposed, the only issue being for how long the freezing order should be extended. His Honour's reasons for judgment bear the medium neutral citation McLeary v Swift [2014] NSWSC 870.
White J noted that the extension of the freezing order was sought in order that Mr McLeary could pursue other means to enforce the orders by way of an application for contempt, presumably with an associated claim for the sequestration or the appointment of a receiver to the assets of Mr Swift. On this issue, his Honour wrote at [8] - [9]:
"Consideration would also need to be given to whether an application should be made to vacate the order for specific performance and for an order for the payment of damages, or damages in lieu of specific performance.
It is not clear to me whether or not such a claim may already have been determined adversely to the plaintiff by orders made by the Court of Appeal."
And then, after referring to paragraph [47] of the Court of Appeal's judgment, which I have set out above, his Honour added at [11] - [12]:
"It does not appear that the Court of Appeal was referred to relevant authorities such as Johnson v Agnew [1980] AC 367 at 393-394, Buckman v Rose (1980) 1 BPR 9558 or JAG Investments Pty Limited v Strati [1981] 2 NSWLR 600 at 603-604. (See also Riltang Pty Ltd v L Pty Ltd [2004] NSWSC 977 at [51], Zorbas v Titan Properties (Aust) Pty Ltd [2005] NSWSC 440 at [12] and Georges v Wieland [2010] NSWSC 1378 at [25].)
The plaintiff will need to consider whether or not the orders of the Court of Appeal would preclude any such application or whether such an application should be made in addition to, or as an alternative to, a claim to punish the defendant for contempt and associated relief."
His Honour ordered that the freezing orders that had been made in terms of orders 2(a) and 2(b) on 22 March 2013 (but recorded as having been made on 22 April 2013) be extended until 5:00 p.m. on 26 August 2014. He stood the proceedings over to the Registrar's list on 25 August 2014 and gave the parties liberty to apply on five days' notice to vary or discharge the orders.
Subsequently, the freezing orders that were made were extended, by consent of the parties, by the Registrar, until the day of the hearing before me. At the conclusion of the hearing, I extended the freezing orders on terms proposed by counsel for Mr McLeary, which terms counsel for Mr Swift did not oppose (although he did not consent).
The current amended notice of motion
I have earlier identified the claims for relief made in Mr McLeary's amended notice of motion. In support thereof, there was filed, and read at the hearing, without objection, an affidavit, affirmed 28 August 2014, of Mr McLeary's solicitor, Sean Simon Shotter. The exhibit to the affidavit was tendered. Mr Shotter was not cross-examined.
In paragraph 4 of his affidavit, Mr Shotter affirmed that:
"In order to avoid Teffcog being in default of its obligation to pay that tax, it was paid on the Plaintiff's behalf by Star Means [sic] Pty Ltd, as trustee of the McLeary Family Trust, a discretionary trust of which the Plaintiff is a beneficiary, by an instalment arrangement entered into with the Australian Taxation Office. The final instalment was paid on 17 April 2013...".
(It was accepted by counsel for Mr Swift that there was a typographical error in the name of the trustee of the McLeary Family Trust, which was, in fact, Star Mend Pty Ltd. He did not object to me reading the paragraph with the correct name of the trustee being noted and without the need to call Mr Shotter to correct the error.)
No evidence was filed, served, or read, by, or on behalf of, Mr Swift, on the hearing of the notice of motion. No documents were tendered by counsel for Mr Swift. Indeed, Mr Swift did not attend the hearing other than by counsel.
It was accepted, as it had to be, that Mr Swift had not complied with the order made by Windeyer AJ, to pay the amount, or any part of it, to the ATO. There remained no evidence that Mr Swift was unable to comply with the order or the reasons why he had not done so. Nor had he made any application to the court for an extension of the time within which he could carry out the order of the court.
I have earlier referred to the statement of Barrett JA, at [46], to the effect that the court, by its order for specific performance, had vindicated Mr McLeary's right to require Mr Swift to pay to the ATO, as promised, one-half of Teffcog's taxation liability, thereby eliminating one-half of the diminution suffered by Mr McLeary.
The question whether the order of Windeyer AJ is properly described as a mandatory order rather than an order for specific performance was considered by Gleeson JA on the security for costs application. His Honour wrote, at [48] - [49]:
"Strictly, orders in the nature of specific performance are described as mandatory orders where the contract is executed on one side and the plaintiff simply requires enforcement of a legal right. This is often referred to a 'quasi-specific performance' or relief 'in the nature of specific performance' or relief 'approximate to specific performance': see Young, Croft, Smith, On Equity Lawbook Co 2009 at [16.870] and the authorities there cited.
In this case, the relevant agreement appears to have been executed on one side, at least in terms of the appellant having transferred his interest in Teffcog to the respondent. Thus, the language of Windeyer AJ referring to the order as a mandatory order was appropriate. Ultimately, however, nothing turns on this issue for present purposes."
Preliminary Matter
By email sent to counsel for Mr Swift, and to my Chambers on the morning of the hearing of the amended notice of motion, Mr McKeand, senior counsel for Mr McLeary, foreshadowed that Mr McLeary "would object to the Defendant being heard on the... notice of motion... because [Mr Swift] remains in contempt of the Court".
At the hearing, Mr McKeand SC relied upon Stokes (by a tutor) v McCourt [2013] NSWSC 1014, in which Lindsay J had given consideration to whether a contemnor can be heard in his own cause before purging his contempt. Ultimately, his Honour declined to accede to the application that the defendant should not be heard on his motion until he had complied with the directions given by the court.
It is not necessary for me to repeat the very detailed consideration given by his Honour in that case. Lindsay J considered the authorities on the topic and whether there was "a general rule subject to exceptions or simply a discretionary rule", stating that there was debate in New South Wales. Ultimately, his Honour concluded, at [43] - [50]:
"In practice, any difference between the respective approaches of those who favour a 'rule subject to exceptions' and those who prefer a 'discretionary rule' may be illusory. That is because the dynamics of the litigation process channel a dispute about whether a contemnor should be heard into a procedural framework in which the court is able, and required, to exercise a discretion, according to case management principles, even in the context of a statement of the law in terms favoured by Romer LJ.
There are at least four possible explanations for this phenomenon. First, the operation of 'the rule;', as currently perceived and however formulated, is not conditioned upon formal steps having been taken, or foreshadowed, for prosecution of a contemnor for contempt: Young v Jackman (1986) 7 NSWLR 97 at 101D-E; KP Cable Investments Pty Limited v Meltglow Pty Limited [1995] FCA 76; (1995) 56 FCR 189 at 206C-G. It operates within the realm of general case management principles. It is not confined by the comparative rigidity of criminal law practice and procedure or a prosecutorial mindset.
Secondly, where objection is taken to a contemnor being heard, a routine response by the contemnor is to move the court for relief against the order or undertaking sought by the objection to be enforced. This too engages a need in the court to focus attention on questions of case management. Is the contemnor's motion to be heard first? Can it be, should it be, must it be, heard in conjunction with other process before the court?
The practical necessity for a contemnor to apply for relief from the orders or undertakings sought to be enforced provides a vehicle for a focussed review of the cutting edge of enforcement procedures and, at least, an occasion upon which, if appropriate, an order for costs can be made in vindication of the court's authority.
Thirdly, in a case of contempt of an interlocutory order or undertaking, the most effective means for dealing with that contempt may be for the court to take whatever steps may be available to advance the proceedings as quickly as possible to a final determination, by conventional means uncomplicated by a complaint of a denial of procedural fairness arising from a refusal to hear the contemnor. An inflexible refusal to hear a contemnor may unnecessarily arm the contemnor with a ground of appeal that might, perversely, serve the contemnor's strategy of obstructing enforcement of a court order or an undertaking given to the court. With a focus on ultimate outcomes, a court might be constrained to hear a contemnor: embracing the counter-intuitive to avoid the counter-productive.
Fourthly, it is a comparatively rare thing (outside a small range of cases that includes child abduction cases such as Hadkinson v Hadkinson, or cases such as X Limited v Morgan-Grampion (Publishers) Limited [1992] 1 AC 1 at 45 E-F in which disclosure obligations are sought to be enforced against a journalist) for an alleged contemnor to reveal, during the pendency of proceedings in which he, she or it seeks actively to participate as a persuasive force, a settled intention never to comply with an order or undertaking sought to be enforced. Absent an overt challenge to the authority of the court, its ordinary business, which mandates that parties be allowed an opportunity to be heard, generally proceeds, one way or another, in the ordinary course.
Despite appearances, the respective approaches of Romer and Denning LJJ might be thought to complement, rather than to contradict, one another. They approach the same question (namely, whether a contemnor should be heard) from opposite sides. Romer LJ's approach starts with a negative answer then explores competing factors. Denning LJ's approach starts with an affirmative answer, then considers competing factors. Both approaches require the court to examine factors bearing upon the administration of justice generally and the dictates of justice in the particular case. In exploring their middle ground, both are bound to take into account the case management provisions of the Civil Procedure Act 2005 NSW.
Strictly, I do not, ultimately, need in these proceedings to choose between a statement of the law in terms of 'a rule subject to exceptions' or in terms of a 'discretionary rule'. However the question of whether the defendant should be heard notwithstanding his non-compliance with directions of the Court is approached, the outcome is the same. Case management considerations loom large."
In Xu v Wan Ze Property Development (Aust) Pty Ltd (in Liquidation) [2014] FCA 461, I note that Robertson J stated at [43] - [44], and then [47]:
"The broad submission put by Ms Hong Jiang and Mr Yongan Xie was that each of the applicants was prima facie in contempt and should not be heard. Reliance was placed on KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189 per Beazley J (as her Honour then was). Reference was also made to Agricultural & Rural Finance Pty Ltd v Atkinson [2013] NSWSC 1066 at [33]-[37] per Stevenson J.
In KP Cable Investments Pty Ltd v Meltglow Pty Ltd at 206, Beazley J said there was no reason in principle, where there had been a breach of the court's orders, that the party in breach should be prevented from obtaining relief from the court and that the court had a discretion as to whether to hear such a party. Her Honour then referred to the possibility of a party being seriously prejudiced if there were an inflexible rule. See also the discussion by Lindsay J in Stokes (by her tutor Stokes) v McCourt [2013] NSWSC 1014 at [18] and following.
...
In any event, in my opinion, the better view is that the Court retains an overriding discretion to hear a party who is prima facie in contempt...".
At the conclusion of the submissions made on behalf of Mr McLeary on this preliminary issue, I informed the parties that I proposed to exercise my discretion so as to permit Mr Swift, by his counsel, to be heard. I reasoned that, bearing in mind the history of these proceedings, it would be in the interests of the parties, and in accordance with s 56 of the Civil Procedure Act 2005 (NSW), to take whatever steps were necessary to determine this outstanding issue as quickly as reasonably possible and to reach a solution, and that this could best be achieved by a conventional hearing, uncomplicated by a complaint of a denial of procedural fairness arising from a refusal to hear Mr Swift. I also considered that the justice of the case required me to hear from Mr Swift as to the relief, if any, that ought to be granted to Mr McLeary. Finally, I took the view that, commendably, the approach then being adopted by counsel for Mr Swift complied with the obligation imposed by s 56(4)(a) of the Civil Procedure Act upon a barrister representing the party in the proceedings to assist the court to further the overriding purpose prescribed by s 56(1).
The Submissions on the amended notice of motion
Mr R McKeand SC, with Mr B Bradley of counsel, appeared at the hearing, for Mr McLeary. Their written submissions, dated 26 September 2014, were provided and will remain with the court papers.
The thrust of the submissions were:
(a) The court has power to grant alternative relief following the frustration of an order for specific performance: Georges v Wieland [2010] NSWSC 1378.
(b) Mr Swift remains in contempt of court and has not come before the court to purge his contempt or to explain it: Foster v ACCC [2014] FCA 240.
(c) Mr McLeary is now simply seeking a slightly different remedy against the same party on the same cause of action as that on which the original remedy was ordered the effect of which is the enforcement of the orders that have been made.
(d) In the event that the relief referred to is not available, Mr McLeary seeks an order under Uniform Civil Procedure Rules 2005 (NSW) ("UCPR"), Rule 40.2. If such an order is made, he asks for a writ of sequestration pursuant to UCPR, Rule 40.3 and a further order dispensing with service.
(e) Alternatively, he seeks a charging order under s 106(1)(c) of the Civil Procedure Act 2005.
Counsel for Mr McLeary accepted that, depending upon the order made, it would be necessary to discharge the relevant order that had been made by Windeyer AJ relating to the payment of the sum stated to the ATO. They submitted that, then, the appropriate order would be an order that Mr Swift pay, to Mr McLeary, the sum ordered by Windeyer AJ to be paid, plus interest, with the notation of an undertaking given to the court by Mr McLeary to pay Star Mend Pty Ltd; alternatively, that Mr Swift should pay Star Mend Pty Ltd the sum ordered by Windeyer AJ to be paid to the ATO, plus interest; or, alternatively, that Mr Swift pay Teffcog the sum ordered by Windeyer AJ to be paid to the ATO, plus interest, with the notation of an undertaking to the court by Teffcog to pay Star Mend Pty Ltd. (In each case, senior counsel provided the relevant undertaking to the court.)
Mr J Johnson of counsel appeared, at the hearing, for Mr Swift, as he had done in virtually all of the proceedings to which I have referred. His written submissions were dated 30 September 2014. Those submissions, also, will remain with the court papers.
The thrust of his submissions were:
(a) Proceedings had not been commenced by Mr McLeary in the nature of contempt against Mr Swift and, in particular, a Statement of Charge in accordance with the UCPR has not been filed.
(b) What Mr McLeary appeared to be doing was exercising his rights under the provisions of s 94 of the Civil Procedure Act to have orders made by the court in supervision of the orders previously made by it, namely the orders of 26 November 2012 for specific performance of the obligations under the terms of the separation agreement. (In oral submissions, he accepted that some form of relief should be available to Mr McLeary to ensure that the orders of the court were complied with: T5.36 - T5.42.)
(c) The relief claimed in the Statement of Claim was limited to an indemnity by Mr Swift to the Commissioner of Taxation as part of an order for specific performance or a payment of amounts of money to Mr McLeary with only the order for specific performance being made in favour of the Commissioner of Taxation for the reasons identified in the reasons for judgement.
(d) The Court of Appeal had dealt with Mr McLeary's claim for damages, concluding that it was no longer available.
(e) He submitted, upon instructions, that if there were a claim following the discharge of the relevant order made by Windeyer AJ, it was a claim that really was for the benefit of Teffcog, and that Teffcog should be joined as a party. A monetary order (the amount referred to in the order of Windeyer AJ together with interest to date) could be made in its favour against Mr Swift personally.
I requested the parties to agree, within 7 days, if possible, upon the amount of interest that would be payable on the amount ordered to be paid by Windeyer AJ. On 9 October 2014, I received a schedule of calculations from Mr Bradley, which identified the amount of interest at $132,004.04. The covering email stated that the schedule of calculations had been forwarded to Mr Johnson but that no response from him had been received.
Subsequently, in answer to an email sent by my Associate as to whether the schedule of calculations had been received, and if so, whether it was accepted as being correct, Mr Johnson responded, relevantly, as follows:
"I raise the question as to whether the rate of interest ought be at the rate requested - s 101 Civil Procedure Act 2005, or the rate contemplated by s 100 of the Civil Procedure Act 2005 read with rule 6.12 of the Uniform Civil Procedure Rules 2005 (a lower rate). I note of course that the court has a discretion in respect of pre and post judgment interest rate to fix a rate as it considers appropriate."
In the circumstances, my Associate sent an email, in the following terms, to all counsel:
"His Honour has been shown the e-mail sent by Mr Johnson this morning.
As there appears to be no agreement on the quantum of interest or how it is to be calculated, his Honour does not propose to deal with the question of interest without further submissions.
Accordingly, you should be in a position to make submissions on the proper basis for the calculation of, and the quantum of, interest that would be payable on the date when Judgment is to be delivered."
Due to the unavailability of counsel for Mr McLeary, it will not be possible to deal with the issue of interest immediately upon these reasons being delivered. Accordingly, the proper basis for calculation of interest will be determined at the time the orders proposed are made.
Determination
In Riltang Pty Ltd v L Pty Ltd [2004] NSWSC 977, White J considered what could occur in the circumstance where it was necessary to enforce an order for specific performance. His Honour wrote at [51] - [53]:
"It is well established that where a plaintiff obtains an order for specific performance the Court may substitute other forms of relief where a decree of specific performance is not complied with. (Fry on Specific Performance (6 ed paras 1170-1181)). Where the purchaser has gone into possession such substituted relief may include the appointment of a receiver, an injunction to restrain the purchaser from continuing possession of the land, and an order for sale of the land with the vendor to have liberty to bid. Where either plaintiff or defendant wishes to rescind a contract pursuant to a contractual right to do so, or terminate if for breach, he must obtain leave, or more appropriately, vacation of the order for specific performance. (Sunbird Plaza Pty Ltd v Maloney [1988] HCA 11; (1988) 166 CLR 245 at 260; JAG Investment Pty Limited v Strati at 603-604). Whilst not directly in point these cases illustrate the width of the Court's jurisdiction to superintend the enforcement or working out of an order for specific performance.
I see no reason in principle why the Court should not have jurisdiction to secure the proper performance of its own orders. A party may be precluded from obtaining the Court's assistance to enforce its order where the parties have agreed to act differently from its requirements. (Harvey v Hall (1873) LR16Eq 324; Gilbert v Gilbert [1955] Qd R 245). That is not the present case. Even though the document which the parties executed was not that which the order required, there is no evidence that the parties agreed or intended to depart from the requirements of the order.
In Singh (Sudagar) v Nazeer [1979] Ch 474 Sir Robert Megarry VC said (at 481):
'.... where....an order for specific performance contains not only the declaratory part but also the consequential directions...., those consequential directions regulate the performance of the contract so long as they stand and are not varied by the court. If those consequential directions are not complied with , then the Court may make an appropriate order in respect of the default, that default being a breach not so much of the still subsisting contract as of the order of the court as to how that contract is to be carried out'
In my view it makes no difference to the Court's jurisdiction to deal with the matter that the default was mistaken rather that intentional, or that it was by both parties not one. Unless the order for specific performance is vacated, or a different order is subsequently made, the plaintiff as much as the defendant is bound to act in conformity with it."
In Georges v Wieland, Brereton J discussed, at [25] - [33], the principles that apply as follows:
"First, when a decree for specific performance is made, the court may grant further relief, including - where, despite the decree, the defendant fails or refuses to complete the contract - by rescinding the order and substituting alternative relief [see Edward Fry, Fry on Specific Performance, 6th ed (1921) Stevens & Sons at 546-7, [1170]-[1173]; Gareth Jones and William Goodhart, Specific Performance, 2nd ed (1996) Butterworths at 258-9; Morrow v Tucker (No 2), [8]-[9]]. So in Johnson v Agnew [1980] AC 367, Lord Wilberforce explained (at 393-4) that where an order for specific performance is not complied with by a purchaser, the vendor may either apply to the court for enforcement of the order, or apply to dissolve the order and ask the court to put an end to the contract. And as Campbell J (as his Honour then was) said in Zorbas v Titan Properties (Aust) Pty Ltd [2005] NSWSC 440, (at [12]), it is a general principle concerning orders for specific performance that once such an order has been made, the contractual rights of the parties are not superseded but their future exercise is under the control of the court, so that the working out of the order for specific performance is under the court's control [see Singh (Sudagar) v Nazeer [1979] Ch 474, 481-2; Buckman v Rose (1980) 1 BPR 9558; Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245, 259-60]. Similarly, in Morrow v Tucker, Biscoe AJ said (at 21) that where an order for specific performance has been made, the rights and obligations of the parties come under the control of the court, and the working out of the order of specific performance is under the control of the court; reference was made to Pratt v Hawkins (1991) 32 NSWLR 319. Counsel for the defendants accepted that if, on such an application, the court allowed the contract to be discharged, it could substitute an award of damages; although I have not found a case that goes so far, the concession appears in principle to be necessarily correct. Thus, in the case of a decree for specific performance, it remains open to the court, in the event of continued non-performance, to substitute different relief.
Secondly, there is no problem with further consideration unless the proceedings have been disposed of by a final order, which may be influenced by the particular circumstances of a case. Thus, in Bonnici v Kur-ring-gai Municipal Council [2001] NSWSC 1124 orders were made on 11 November 1986 and entered on 6 February 1987 restraining the defendant from permitting or causing the flow of water from a street and footpath onto the plaintiffs' land so as to create a nuisance, ordering the defendant to carry out specified abatement work, and reserving liberty to apply (at 8 [38], 9 [45]). Although the abatement work was performed, the plaintiffs asserted that it did not prevent the water nuisance from continuing, and they filed an application, in purported exercise of the liberty to apply seeking a declaration that there was a continuing nuisance, an order that the defendant cease it, an order for specified new drainage work to be performed, a declaration that water flowing in and over a drainage line situated on uphill neighbouring properties was causing a nuisance, and other relief, including special and general damages. The defendant sought summary dismissal of this application, but Sperling J held that it was within the scope of the liberty to apply. His Honour acknowledged the authorities as to the usual effect and scope of liberty to apply, adding a reference to Ritchie's NSW Supreme Court Practice [42.12.2]:
Where liberty to apply is granted in relation to a final order, it is limited to matters concerning the implementation of the earlier order: Dowdle v Hillier (1949) 66 WN (NSW) 155; Cristel v Cristel [1951] 2 KB 725 at 730; Re Porteous [1949] VLR 383. It does not extend to the variation or amendment of the judgment or orders in respect of which the liberty to apply was granted (Wentworth v Woollahra Municipal Council (CA,(NSW), 31 March 1983, unreported))."
However, his Honour continued at [168] - [172]:
'The statements of principle in these cases and in Ritchie's should be read as applicable to the ordinary case. The context may show that a more liberal meaning was intended in a particular case.
As appears from the judgment of McLelland J in Phillips, the usual limitation on the scope of liberty to apply arises from the proceedings '[having] been disposed of by a final order'. That, speaking generally, forecloses further proceedings in the same cause. Exceptions do not extend to 'an application made for the purpose of giving substantive relief not sought in the statement of claim or which is substantially different to that given by the final order'.
In the present case, the proceedings have not been disposed of and the present claims are not outside the scope of the earlier process or substantially different from the orders previously made. In 1984, the plaintiffs sought relief against nuisance by the defendant. The consent orders of 11 November 1986 did not determine the issue as to whether any nuisance was being committed. In particular, the injunction in para 1 of the orders left open whether the flow of water from St Johns Avenue onto the plaintiffs' land constituted a nuisance. Any attempt by the plaintiffs to enforce the injunction would have required proof that the situation in that regard constituted a nuisance. The order in para 3 was a mandatory injunction limited to the stormwater which would be carried within the upgraded IADL [inter allotment drainage line]. It did not relate at all to overland flow of stormwater. The core of the plaintiffs' case that the defendant was guilty of nuisance by discharging stormwater onto the plaintiffs' land, which would not naturally have flowed onto it, was not determined by those orders.
For an order to be made now declaring that there has been a nuisance in that regard since the commencement of these proceedings would be to determine a claim made by the plaintiffs in the proceedings which was not determined by the orders made on 11 November 1986; and such an order made now would not be inconsistent with those orders.
In the circumstances of the present case, such an order can be made within the ambit of the reservation of 'liberty to apply' construed in that context.'
I refer, next, to Deborah Raulfs v Fishy Bite Pty Limited (No 3) [2013] NSWSC 1732, in which Rein J dealt with the question whether an order made following a hearing could be varied due to a change in circumstances. His Honour found that altering the requirement that payment be made to the receiver but rather to another entity, did not involve any re-opening of the case, or a change to the substantive decision reached, or any inconsistency by virtue of the rejection of the appeal and refusal of special leave. He added that the change was one of machinery as to how the substantive conclusion reached, namely that Fishy Bite and Mr Ajaka had to repay $400,000 plus interest to the partnership, was to be effected. His Honour confirmed that "it cannot have been intended that in the absence of payment ... as required by the Court's order there could be no enforcement of that order by anyone".
Ball J, in Despot v Registrar General of NSW [2014] NSWSC 1002, at [48], stated that, when an order for specific performance is made, it is binding on the parties and the parties are in contempt if they do not comply with it. The court, subsequently, may make further orders to give effect to the order that it has made, including vacating the order for specific performance. But whether it should do so will depend on the terms of the contract, not on the exercise of a discretion to refuse to give effect to an order the court has already made.
Section 135 of the Civil Procedure Act, relevantly, provides that the court may, by order, give directions with respect to the enforcement of its orders. Section 135(2) provides examples of the types of orders that may be made. (None of the examples provided is relevant to the facts of this case.)
Although Windeyer AJ expressed the view, at [22] of his Honour's most recent judgment, that s 135 "cannot assist the plaintiff", his Honour did not deal with the section in any detail or say that it could not found other relief. Furthermore, his Honour found it "difficult to accept that the Court is powerless to enforce an order of the type made in this action".
In my view, s 135 does not limit the court's jurisdiction to making orders with respect to the enforcement of judgments. The section specifically provides that the court may, by order, give directions with respect to the enforcement of its judgments and orders. Thus, the section extends to making orders in respect of enforcement of its orders: Australian Beverage Distributors Pty Ltd v Evans & Tate Premium Wines Pty Ltd [2007] NSWCA 57 at [138].
The power granted by s 135 is a discretion to be exercised in accordance with the dictates of justice: s 58(1)(b) of the Civil Procedure Act; Hickie v Land Enviro Corp Pty Ltd [2013] NSWSC 706, at [7].
If I am wrong about s 135, I consider that the inherent jurisdiction of the court to ensure, amongst other things, that its orders are complied with, provides a sufficient basis for what is sought by Mr McLeary.
It is also necessary to bear in mind s 56 of the Civil Procedure Act and the statutory obligation upon the court to "give effect to the overriding purpose (to facilitate the just, quick and cheap resolution of the real issues in the proceedings) when it exercises any power given to it by this Act or by rules of court and when it interprets any provision of this Act or of any such rule."
In the present case, there is no dispute that Mr Swift has not complied with the order made by Windeyer AJ, with the result that Mr McLeary arranged for the amount, required to be paid on behalf of Teffcog, to be paid to the ATO. Thus, what Mr McLeary is now seeking is no more than an order that will oblige Mr Swift to repay to him, or to one of the other identified entities, the sum of money, plus interest, which was paid because the order made by Windeyer AJ at the substantive hearing of the proceedings was not complied with by Mr Swift. He is prepared to give an undertaking to the court to pay the amount, when received from Mr Swift, to Star Mend Pty Limited.
It seems to me that, without an appropriate order, Mr Swift would not only have failed to comply with an order of the court, but would be unjustly enriched by that failure. Thus, the dictates of justice require an order to be made.
An order made in favour of Mr McLeary, upon his undertaking to the court to repay Star Mend Pty Ltd, would effectively be no more than one to prevent Mr Swift obtaining an advantage at the expense of Mr McLeary and Teffcog, which advantage, in the circumstances of the case, would be unconscionable.
Such an order does no more than enforce the operation of the order made by Windeyer AJ to take account of the subsequent change of circumstances and to enable the enforcement, by Mr McLeary, of the order previously made. The change does not constitute a major change to the obligations of Mr Swift.
Furthermore, in making such an order, Mr McLeary is not being put in any better position since, it was agreed, and Windeyer AJ noted, that the order that he had made for payment to the ATO "is made for the benefit of both [Mr McLeary] and Teffcog and, in the event of [Mr Swift's] failure to comply with [the order], it may be enforced by either the Plaintiff or Teffcog or both". Mr McLeary should be able protect the fruits of his success in the litigation by being able to pursue Mr Swift if the amount is not paid.
In all the circumstances, I am of the view that it is appropriate to make an order, Mr Swift not having complied with the order made by Windeyer AJ, for payment to the ATO ($822,595.47), that the amount should be paid to Jeffrey John McLeary, within 28 days, upon the undertaking of Jeffrey John McLeary to pay the amount received by him from Mr Swift to Star Mend Pty Ltd.
(During submissions, it was accepted that a period of 28 days to enable the payment to be made by Mr Swift was, in the circumstances of this case, reasonable. Accordingly, that is the period within which the amount should be repaid.)
Such an order will avoid the necessity of another party being joined to the proceedings and will enable Mr McLeary to enforce the order in the event that Mr Swift continues to not comply with the obligation that has been imposed upon him by order of the Court.
It seems, also, to be appropriate to order that interest should be paid, by Mr Swift, on the amount ordered to be paid, calculated from the date of any payment made by Star Mend Pty Limited to the ATO. I shall hear argument on the amount of interest to be paid and how it is to be calculated on the date to which the matter is to be adjourned for the making of final orders.
In the event that the payment by Mr Swift is not made, Mr McLeary should then be able to enforce the order, by taking such steps as he is advised.
There is no reason why Mr Swift should not pay Mr McLeary's costs of the notice of motion. It is appropriate to order him to pay Mr McLeary's costs of the notice of motion. There should also be an order that the exhibits are to be returned.
I direct the parties to bring in Short Minutes of Order reflecting these reasons. I shall stand the matter over for 7 days, or such other mutually agreed period, to enable the short minutes of order to be prepared and delivered to me. I shall adjourn the matter to a mutually convenient date, on which date, I shall hear the parties on the calculation of interest and the payment thereof. In the event that there is a dispute about the form of orders, I invite each of the parties to provide the form of orders he submits should be made.
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Decision last updated: 16 October 2014
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