QFS Aust Ltd v Bailey & Parts Masters Ltd No. Scgrg-97-812 Judgment No. S6631

[1998] SASC 6631

QFS AUSTRALIA v

ANTHONY ERNEST BAILEY & PARTS MASTERS PTY

Lander J

On 13 June 1997 Millhouse J made an order in these proceedings, in the nature of an Anton Piller order.  On 20 June 1997, on the further application of the plaintiff, he made orders in the nature of Mareva injunctions. 

The particular terms of the Mareva injunctions are not important for the purpose of this application, but included in those orders were orders directing the defendants to do certain things.  Paragraph 2 of the order of 20 June provides:

“The defendants and each of them shall within 14 days of service on them of this order deliver to the plaintiff's solicitors an affidavit containing the following information:

2.1 The name and address of any bank, building society or other financial institution at which there is an account in either of their names or under the control of either of them whether or not such control is exercised in conjunction with some other person or persons, together with the number of such account and the balance therein on the date of service of this order.”

He also made further orders requiring the defendants, and each of them, to provide certain information in relation to the indebtedness to each or both of the defendants of other persons.  The order also required each of the defendants to itemise an inventory of trade stock and parts, trade assets and other property, whether real or personal, in which either of the defendants had an interest. 

The first defendant is an officer, but not a director or secretary, of the second defendant.  I must say it is a little unusual to see an order requiring a personal defendant, who is not a director or secretary, or in a position whereby that person can control the corporate defendant, to provide the information required in this order.  In any event, the order has not been challenged by either of the defendants since it was made. 

On 7 July 1997 the second defendant swore an affidavit which provided some of the information required in the order of 20 June.  On 9 July 1997 he swore a further affidavit, which provided further  information required in the order on 20 June 1997.  Neither of those affidavits disclosed any bank account operated by the second defendant. 

On 16 July 1997 the solicitors acting for the plaintiff wrote to the solicitors acting for the defendants in relation to the second affidavit sworn by the first named defendant.  They wrote:

“We note that paragraph 2 of the order required both of the defendants to deliver an affidavit containing information which included the particulars of any bank account in either of their names.  It is apparent from paragraph 2.1 of the affidavit that the only bank accounts referred to are those in the names of Anthony Ernest Bailey and Mary Willemina Bailey.  Should there be any bank account in the name of the second defendant, Parts Masters Pty Ltd, then the second defendant is in contempt of the order by failing to identify any bank accounts in its name. 

If there are any bank accounts in the name of Parts Masters Pty Ltd, we ask that paragraph 2.1 of the order be complied with in this respect forthwith.  We ask that such an affidavit sworn on behalf of the second defendant, and that all future affidavits be sworn by a director of the second defendant.   We advise that in our view it is inappropriate for affidavits of this nature to be sworn for and on behalf of the second defendant by an employee.”

That letter accurately pointed out to the solicitors acting for the defendants that the affidavit of 9 July did not include the identification of any bank account operated by the second defendant.  The letter also brought to the attention of the defendants that an affidavit sworn by Mr Bailey is perhaps not in compliance with the order made by Millhouse J.  Indeed, as Messrs Kelly & Co, solicitors for the plaintiff, wrote in their letter, it may have been inappropriate for affidavits of this nature to be sworn for and on behalf of the second defendant by an employee, namely the first defendant. 

There was no reply to that letter and on 28 July 1997 Messrs Kelly & Co wrote again, pointing out that that previous letter remained unanswered.  The letter of 28 July also complained that there still had not been disclosure of any bank account operated by the second defendant.  It also drew the solicitor's attention to a number of other matters not relevant to this inquiry.  Again, no reply was received to that letter. 

On 14 August 1997 the first defendant filed a further affidavit sworn on the 14 August, again in purported compliance with the order of Millhouse J.  That gave rise to a third letter by Messrs Kelly & Co to the solicitors acting for the defendants.   They wrote: 

“2.      The affidavit is again sworn on (sic) for and on behalf of the second defendant by a person who is not a director of the second defendant; 

3.        It is apparent from paragraph 2.1 of the affidavit that the only bank accounts referred to are those in the names of Anthony Ernest Bailey and Mary Willemina Bailey.  Should there be any bank account in the name of the second defendant, Parts Masters Pty Ltd, then the second defendant is in contempt of the order by failing to identify any bank accounts in its name.”

The plaintiff was not favoured with a reply to that letter. 

A later affidavit has been  filed by Mr Ardalich, solicitor for the defendants, in which he deposes that he brought all of those letters to the attention of Mr Bailey and received instructions from Mr Bailey that there had been a full disclosure of all of the bank accounts in compliance with the order of Millhouse J.  Indeed, it is the evidence of Mr Ardalich, and also of Mr Bailey, that Mr Bailey advised Mr Ardalich that he had disclosed a Westpac Bank account which he believed was operated by the second defendant.  It is apparently the case that it is an account which had nothing to do with the second defendant. 

Nothing much seems to have happened after the letter of 19 August 1997 until, in early 1998, an application was made, under rule 93.04, for an order of the court directing the Registrar to issue a summons, in Form 28, to the defendants, alleging that both of the defendants were in contempt of the order of Millhouse J..  That application related to other aspects of Millhouse J's order and, in particular, that part of his order which required a monthly report by the defendants. 

That application came on for hearing before Williams J who declined to make an order under rule 93.04, but ordered that the defendants pay the plaintiff's costs. On 3 February 1998 before the matter came before Williams J, the first defendant filed an  affidavit in answer to the then claim for an order of the court for the summons to issue.  In that affidavit he disclosed a bank account operated by the second defendant prior to August 1997 and a further bank account operated by the defendant after August 1997.    Prior to August 1997 the second defendant operated an account with Westpac, which it closed, and on 13 August 1997 opened a further account with the ANZ, which it operated after that date.

When the plaintiff’s solicitors became aware, by that disclosure, of the previous non-disclosure of those bank accounts in the affidavits of 9 July and 14 August, they wrote to the solicitor for the defendant complaining of that previous non-disclosure.  In that letter of 9 February 1998 they pointed out that they had written on the three previous occasions to which I have referred and concluded:

“In light of the material referred to above, we invite your client, Parts Masters Pty Ltd, to explain the apparent anomalies in the affidavits sworn on its behalf by Mr Bailey.  We ask that in the event that your client takes up this opportunity that it also addresses the basis for it ignoring our letters dated 16 July 1997 and 28 July 1997.  

We request your response to this letter by 5 p.m.  on 11 February 1998.  In the event that your client fails to adequately respond to these issues, we reserve the right to bring a further application seeking an order that the Registrar issue a summons in form 28 as a consequence of your client's contempt of the order.”

Mr Ardalich answered  that letter and sought an extension of time until 5 p.m.  on 13 February to respond to the letter.  That request was acceded to by the solicitors acting for the plaintiff and their agreement to the extension of time was recorded in a further letter, written by Messrs Kelly & Co to the defendants' solicitors on 11 February 1998.  In that further letter they wrote:

“In light of the above  [that is referring to the previous non-disclosure] our client's concern as to the non-disclosure of the bank accounts in the name of Parts Masters Pty Ltd in the affidavits sworn by Mr Bailey on 9 July 1997 and 14 August 1997 remains unresolved.  In particular our client is concerned that, in his affidavit sworn approximately 7 months after the granting of the mareva injunction, there is for the first time disclosure that a bank account in the name of Parts Masters Pty Ltd exists and that another has been closed. 

In the absence of your explanation of the concerns which we have raised, we can only assume that your clients were in contempt of the orders made by Justice Millhouse  on 20 June 1997 by failing to disclose the bank accounts held by Parts Masters Pty Ltd.  This is a serious matter, bearing in mind that it leaves open the possibility that your client has disposed of significant assets in contravention of the order.”

On 13 February 1998 Mr Ardalich replied to the two letters to which I have referred.  With that letter he enclosed a copy of the bank statement from Westpac for the period 12 August 1997 to 19 August 1997 and disclosed certain withdrawals.  In relation to the non-disclosure, he said his instructions were: 

“1....... At the time the Affidavits were filed, our clients were transferring its bank accounts from Westpac Bank to ANZ Bank and thought that this account was dormant.  There was confusion in the transition from one bank to the next bank. 

2.Subsequently, in early August 1997, it was realised that the said account still existed and that it had not been closed. 

3......... The said account was closed off by paying the expenses of the business and having a nil balance. 

4.Thereafter the account was closed. 

5......... The omission was unintentional and the withdrawal of funds was effected to pay the reasonable business expenses of Parts Masters Pty Ltd. 

6.When the omission was detected our client instructed us to include it in his Affidavit as he had nothing to hide.  If he wanted to not disclose this account then he would not have instructed us to include it in his Affidavit of 3 February 1998.”

On 16 February 1998  Messrs Kelly & Co replied to that letter, expressing dissatisfaction with the explanations given.  They required the defendants to rectify the contempt of the order of Millhouse J by filing and serving a further affidavit which disclosed the account number and balance of each bank account held by the second defendant as at 25 June 1997 and 31 July 1997 and the reasons for the non-disclosure of any bank accounts and the reasons for the failure to respond to their letters of 16 July 1997 and 28 July 1997.  In that letter they required an answer by 21 February 1998 and they advised that if there was not such an affidavit filed by that time, they would reserve the right to bring a further application for the issue of a Registrar's summons for contempt. 

On 20 February 1998 Messrs Kelly & Co advised that they had instructions to seek such an order for a Registrar's summons, but that they would delay  bringing those proceedings provided that the contempt was rectified by 5 p.m.  on 23 February 1998. 

No affidavit of the kind requested by Messrs Kelly & Co was filed and on 24 February 1998 they issued the application with which I am presently concerned seeking a summons in the form annexed to that application. 

On 25 February 1998 Mr Ardalich wrote to Messrs Kelly & Co advising them that he was relocating his office to new premises and that he was unable to prepare, file and serve the affidavit by Friday of that week.  Of course, at the time that he wrote that letter the time for the filing of the affidavit stipulated by Messrs Kelly & Co had already passed.  In any event, he sought an extension of time until 6 March 1998. 

The matter came on for hearing before me on 27 February 1998.  At that time there was no evidence in answer to the application from either of the defendants, and Mr Ardalich sought an adjournment of the application, in order to file affidavits.  I allowed the defendants time and gave directions in relation to the filing of affidavits and adjourned the matter for hearing until 17 March. 

Affidavits were filed in the interim period and the matter came on for hearing before me again on 17 March 1998.  At that time the defendants relied upon an affidavit of Mr Bailey of 6 March 1998, an affidavit of Mr Ardalich of 6 March 1998 and a further affidavit of Mr Bailey of 12 March 1998.  In that later affidavit Mr Bailey exhibited the bank statements for both the Westpac and ANZ bank accounts. 

In the first affidavit, 6 March 1998, he claimed that the non-disclosure came about by reason of the closing and opening of the two accounts.  He said the omission was inadvertent and unintentional.  In the later affidavit of 12 March, where he exhibited the bank statements in relation to both accounts, the bank statements show that the opening and closing was not as deposed to in the earlier affidavit; in fact, the ANZ account was opened on 13 August 1998 and the Westpac account was closed on 22 August 1997.  That showed that it was the day before he swore the affidavit of 14 August 1997, in which he did not disclose the existence of either account that the second defendant opened the ANZ Bank account. 

When the matter came on for hearing on 17 March, a number of matters were raised with counsel for the defendants.  In particular, he was asked whether his instructions were that Mr Bailey had been given, at any time before 3 February 1998 Messrs Kelly & Co’s two letters of July, and the third letter of August.  He was also asked whether the first defendant had been given the correspondence of February seeking an explanation for the non-disclosure. 

Counsel for the defendants sought an adjournment to take instructions in relation to those matters.  An adjournment was granted with leave to the defendants to bring in evidence in relation to those topics.

During the adjournment further affidavits sworn by the first defendant and by Mr Ardalich were filed..  In those affidavits it is clear that Mr Bailey was acquainted with the letters of July and August of 1997, and the further correspondence in February 1998. 

In those further affidavits Mr Bailey also commented upon the previous non-disclosure.  He said that the reason for the previous non-disclosure was that he inadvertently failed to disclose the Westpac account, believing that a Westpac account which had been disclosed in the affidavit of 9 July 1997, in the name of himself and Mary Willemina Bailey, was the operating account of the company. 

The matter came on for hearing before me again today.  In the first instance after argument in relation to the admissibility of  further evidence, which is irrelevant for consideration of these matters, the plaintiff pursued the application of 24 February 1998.  In response the defendants argued that whilst there had been a breach of the order of Millhouse J on 20 June1997 that breach was accidental or unintentional, and in those circumstances it would be inappropriate to make an order that  the Registrar issue a summons. 

During the defendant's argument I asked the defendant's counsel whether, if I was to accede to his argument, that the admitted non-disclosure was unintentional, what his clients said about costs.  Counsel sought and obtained an adjournment to take instructions on that matter, and on the resumption advised that his instructions were, that in the event that no order was made on the application, his clients would not resist an order for the plaintiff’s costs.  Having made that offer in open court the plaintiff then responded through its counsel advising that it still wished to pursue its application, at least to the extent that I give reasons and make a finding that the defendants had been in contumelious disregard of the order of Millhouse J.   It was also put that I should order the defendants pay the plaintiff’s costs. 

The matter proceeded and I pointed out to counsel for the defendants the terms of the order made by Millhouse J, and  inquired whether the terms of that order obliged Mr Bailey to provide any information in relation to the company, and, if it did not whether in those circumstances the terms of the order were such that Mr Bailey could ever be in contempt of them.   Counsel then argued that the terms of the order were such that Mr Bailey could not be in contempt of that order because he was not at the time a director or secretary of the company and not a person who was in a position to give any of the information required in the order of 20 June. 

That argument, of course, was consistent with the claim by the plaintiffs.  They had complained in their letters of 26 July and 28 July that Mr Bailey was not, in fact, a proper person to give this information. 

After counsel for the defendants completed that argument the plaintiff then sought an adjournment for the purpose of considering its position.  When the matter resumed plaintiff's counsel advised that it would no longer pursue the order sought, nor would it pursue any longer a finding of contumelious behaviour on the part of the defendants.  It was put that in the circumstances it had been appropriate to bring the proceedings, and appropriate to prosecute the proceedings, and it sought an order that the defendants pay their costs.   That was, of course, the same position which the defendants had previously offered and the plaintiff refused.  When that offer was put the defendants this time  refused the offer and they claimed that the matter ought to go on and that there ought to be no order for costs. 

In the event the matter boiled down to an argument whether or not the plaintiff ought to have its costs against both defendants or one or none, and whether either of the defendants ought to have any costs against the plaintiff.  

It seems extraordinary that within an hour each of the parties could put the same offer to each other and on each occasion each of the other parties refuse that offer.  However that is what happened. 

In my opinion it was appropriate for the plaintiff to investigate the non-disclosure, which undoubtedly had been made in the affidavits of Mr Bailey of 7 July, 9 July, and 14 August.   In my opinion it was appropriate, having been put on notice in Mr Bailey’s further affidavit of 3 February, for the plaintiff to investigate first, whether there had been a non-disclosure,  secondly, the extent of the non-disclosure; and thirdly, the reasons for the non-disclosure.  I believe the plaintiff’s behaviour leading up to the issue of the application for the Registrar's summons on 24 February was appropriate in the circumstances and was an appropriate reaction to the previous non-disclosure.

I believe that it was not inappropriate for the plaintiff to issue the application of 24 February having regard to the enquiries which had been made of the solicitor acting for the defendants after 3 February.  I do not believe that the plaintiff was unreasonable in continuing that application and listing the application urgently on 27 February, 1998.  I do not believe that the solicitor's moving office was a good reason to refuse to rectify what was undoubtedly a breach of the order, at least on the part of Parts Masters Pty Ltd.  In my view the second defendant at least and its solicitor were under an obligation to rectify the non-disclosure immediately, and the moving of office was not a good enough  reason to delay that. 

I believe, therefore, it was appropriate for the plaintiff to continue to prosecute this application up to the hearing before me on 17 March 1998.  Moreover, it was appropriate to prosecute that application through that hearing, which was adjourned at the behest of the defendants.  In those circumstances it follows, in my opinion, that the plaintiff’s action in prosecuting the application, at least until the time when all information was before the plaintiff, was appropriate. 

The plaintiff was provided with the second explanation in the further affidavit of Mr Bailey of 25 March.  At that time the plaintiff would have been aware that whilst there had been a non-disclosure of both the Westpac and the ANZ bank accounts, all of the transactions involved with those banks had been disclosed and the plaintiff would have then been aware that it had not suffered any prejudice in that there had not been any apparent dissipation of funds from those banks. 

In my opinion the plaintiff was obliged to come back to this court today for the resumed hearing.  In the end result the plaintiff's action in not seeking the issue of a summons was again, in my view, appropriate.   Whilst the plaintiff does not accept that the non-disclosure was inadvertent or accidental, it properly accepted that it was not in a position to establish that it was deliberate beyond a reasonable doubt.

In those circumstances, in my opinion, the plaintiff acted reasonably in the prosecution of these proceedings up to and including today.  It is true to say, as counsel for the defendants pointed out, that the plaintiff did not adopt the position it ultimately adopted at the commencement, but only about mid-morning.  It is also right to point out, as counsel for the plaintiff also has said in reply, that the defendants did not offer to pay the plaintiff's costs at any time before today and in those circumstances the plaintiff was obliged to come to this court today, at least for that purpose. 

In my opinion, if any criticism can be made of the plaintiff in its behaviour it can only be that perhaps it should have recognised an hour or so earlier during the hearing today that it would be appropriate to adopt the position that it did.  That, however, in the circumstances of this application and these proceedings generally is not such as would require the plaintiff to be mulcted in costs. 

The plaintiff's application is for costs against both defendants.  It would only be appropriate to make an order for costs against Mr Bailey if I first decided that the order of Millhouse J was such that Mr Bailey was under a personal obligation to comply.  I am not so satisfied.  In my opinion the order was expressed in general terms which, on an application for contempt, would not have satisfied me that Mr Bailey was under a personal obligation to give information in relation to the affairs of the company of which he was not a director or secretary.  There is no doubt that he had an obligation to provide information relating to the proceedings, but I am not satisfied that the order in its terms required him to provide information to which he could only be privy if he was a director or secretary.  It was pointed out to me that the order was very wide, and so it is, but its very width, in my opinion, makes it such that it is not capable of being enforced by way of contempt for non-disclosure of the information required in the order of 20 June.  Therefore, the application for costs against Mr Bailey must be refused. 

However, Parts Masters Pty Ltd was under an obligation to provide the information by virtue of the order of 20 June.  In my opinion it has failed to do so and the plaintiff in bringing these proceedings has acted responsibly.  The plaintiff will have its costs against Parts Masters Pty Ltd. 

Counsel for the first defendant made an application that he ought to have an order for costs against the plaintiff.  It was said that if the order was not in terms which required Mr Bailey's compliance, then, in those circumstances this application for contempt has been misconceived, at least against him, and he should, therefore,  have his costs. 

He is represented by the same solicitor and barrister as the second defendant, but I do not rely on that for the purpose of the decision at which I have arrived. 

At no time on 20 June 1997 did Mr Bailey take objection to the form of the order, nor did he at the time in his affidavits of 7 July, 9 July or 14 August; nor did he say in his affidavit of 3 February that he was not under an obligation to provide any information himself.   More particularly, his solicitors in response to the complaints made by Messrs Kelly & Co in February did not claim that he did not have an obligation to provide this information.  Even more particularly, after the issue of the application for the Registrar's summons, which relied upon the order of 20 June, Mr Bailey did not, by way of affidavit or argument before this morning, ever claim that the order did not oblige him to provide the information. 

The first time that he claimed that the order was not in a form which would oblige him to provide the information, and therefore he could not be guilty of contempt, was after I raised the matter with his counsel after his counsel had made  an offer to pay the plaintiff's costs. 

Having raised that matter with the defendant’s counsel, the defendant’s counsel then pursued the argument for the purpose of avoiding an order or any finding against Mr Bailey of contumelious conduct.  After the plaintiff advised it did not pursue such a finding then counsel for the first defendant used the argument for the purpose of claiming entitlement for costs. 

In the absence of Mr Bailey ever making it any part of his defence that he was not obliged to provide the information, he was not, in my opinion, especially where he is represented by the same solicitor and barrister as his fellow defendant, entitled to an order for costs.  I am reinforced in that opinion by the fact that as early as July 1997 the solicitor for the plaintiff drew to the attention of Mr Bailey that he was not the appropriate person to file an affidavit on behalf of the second defendant. 

Whilst I am not prepared to make an order for costs against Mr Bailey, I will not make an order for costs in his favour.  I dismiss the application for costs by Mr Bailey against the plaintiff.  The only order for costs that I will make is an order that the second defendant pay the costs of the plaintiff. 

It has been put to me that I ought to make an order that those costs be paid on an indemnity basis.  I must say at first I had some sympathy for that proposition, but I think, having regard to the way in which these proceedings have continued, and in particular having regard to the fact that application was made for issue of the summons against a person whom the plaintiff had already advised was not a person who might be obliged to give the information under the order, I now think it appropriate to allow costs on a party to party basis.  The order will therefore be that the second defendant pay the plaintiff's costs of and incidental to the application of 24 February 1998.  I certify for counsel. 

The second defendant has submitted that the order for costs ought to be costs in any event such that the order does not operate until the matter has been disposed of.  Counsel for the plaintiff argues that the order ought to be costs before the event, such that the order for costs operates in favour of the plaintiff immediately.

Clearly, this is a discrete matter.  The plaintiff argues that it ought to have its costs whether or not it succeeds in the action.  However, I am concerned that these costs arise out of the observance or non-observance of a Mareva injunction which, in due course, will have been found to have been appropriately made, or inappropriately made, having regard to the disposal of the whole action.

Whilst this application was brought about the defendant’s failure to observe the order, I think it would be appropriate, in the circumstances of this case, that the particular order for costs not operate until the event.

The order will be that second defendant pay the plaintiff’s costs on a party and party basis in any event.

I make no other order on the application.