Sterling Industries Ltd v Nim Services Pty Ltd - [1986] FCA 193

LIMITED	CIRCULATION	ONLY	NOT	APPROPRIATE	FOR	REPORTING
-

CATCHMORDS

Practice and Procedure

application for adjournment of contempt

proceedlngs - breach of order that respondent provide sgcurity

leave to appeal granted but no stay of order allowed

effect of

pendlng crlmlnal proceedlngs

question arising as to continuing

effect of order after consent judgment entered.

STEPLING

INLVJSTRIES LTD. V. NIM SERVICES PTY. LTD. & ORS.

!Io. G281 of l984

bbodward J.

m:	33 May 1986

PLACE: Sydney

IN THE FEDERAL COURT OF AUSTRALIA

)

NEM SOUTH WALES DISTRICT REGISTRY )

No. G281 of 1984

GENERAL DIVISION

BEThTEEN:

STERLING INDUSTRIES LIMITED

Applicant

AND :

NIM SERVICES	PTY. LIMITD AND OR5
Respondents

MINUTES OF ORDER

: Woodward J.

: 22 May 1986

PLACE : Sydney

THE COURT ORDERS THAT:

The notices of motion filed on 9 May 1986 be adjourned until the determmation of the appeal against orders of Sheppard J. made on 22 April 1986.

Liberty to apply

be reserved.

Costs be reserved.

( N O T E :

Settlement and entry

of orders is dealt

with In 0.36 of

the Federal Court Rules.)

IN THE FEDER.=

COURT OF AUSTRALIA )

NEW SOUTH WALES DISTRICT REGISTRY )

No. G281 of 1984

GENERAL DIVISION

STERLING INDUSTRIES LIMITED

Applicant

AND:

NIM SERVICES PTY. LIMITED AND ORS

Respondents

m: 22 May 1986

REASONS FOR JUDGMENT

WOODWARD J.

This 1 s an application for an adjournment of the hearing

of two notices of motion,

filed on 9 May 1986, which arise from

orders made by Sheppard J. on 23 April 1986. The central orders made by his Honour on that occasion were directed to the second respondent, John Wllllam Jackson, and were in the following terms:

"1.

The Second Respondent provide security in the sum of $3,000,000 in such manner and form as

the

parties

may

agree

or, In

default of

agreement,

the Court or its Registrar may

approve.

.....

10.

In the event that Order 1

not complied

with, the Second Respondent file and serve

the Appllcant's rolicitors at or before 1O:OO a.m. on 9th May, 1986 an affldavit deposlng to his present assets and liabilities, whether

such assets are owned by himself alone or jomtly with any company trust or indivldual, and whether such liabilities are his alone or

for which he is ~ointly

and severally liable.

This order is made without

pre~udice to or

effect on the Applicant's rlght to take such

proceedings for the enforcement of Order 1 as

It may be advised."

2 .

The notices

of motion before me seek orders that the

second respondent be committed for contempt for failing to comply

with Order 1 and be required to submit to cross-examination on his

affidavit filed 9 May 1986 in purported compliance with Order

10.

(I have been informed that Order 1

has since been varied, in a way

not material to the present motion, to clarify

how security might

be given.

)

There

are

two

substantial

grounds

upon

which

the

application for adjournment is based.

The

first is that a

Full

Court has given leave to appeal against those orders

of Sheppard

and certain subsidiary orders.

The second is that the second

respondent is facing criminal proceedings in Queensland, arising from the same clrcumstances which led Sheppard J. to make his

orders, and

to force him to comply

with the first order would

amount to compelling him to admit possesslon of a large sum of money, and thus to confess his guilt, while cross-examination on

his affidavit

would

requlre

him

either

to refuse

answer

questions on the ground of self-incrlminatlon or to enter upon hls defence to the crlminal charge, for which he is not yet prepared.

The underlying facts in thls case are fully set out in

the judgment of Sheppard	T.	and I shall only summarlze the key
polnts here.

The applicant brougnt

proceedmgs against the flrst

respondent and others, under

5.52 of the Trade Practices Act 1974,

3 .

arising out of allegedly

false representations made in connexion

with the sale

of two taverns by

the flrst respondent to the

applicant. The second respondent was a director, and effectively In control, of the first respondent:

The applicant had a strong case for recovery

of damages

in the order of $3m. It came to the notice

of the

applicant that

the

first

and

second

respondents

appeared

be divesting

themselves of assets

that they would be unable

to meet any

~udgment aqalnst them. Sccordmgly, on 12 November 1985, on the appllcant's instigation, undertakings were given to the Court by

counsel for the respondents associated with

Jackson

("the

Jackson interests") that they would not further dispose of assets

pendlng

the

hearlng

of the

appllcation.

Later

information

concerning cash amounting	to $4.3m (see below) suggested a breach
of these undertak~ngs.

It was in these clrcumstances that Sheppard J. was,

effect, asked to make orders

to protect the posltlon

of the

appllcmt.

Havlng heard the evidence of the appllcant, and In the

3b:ence of

any contradictory evldence from the respondents, his

Honour

was

satlsfied,

first, that

the

appllcants

had "good

prospects of

obtaining 3 ;udgment against the flrst and second

respondents ... In a

sum of

approximately $3m". Hls Hcnour

further found that, after	receiving advice from solicitors and
accountsnts "there began a	wholesale divestiture of assets owned

by the Jackson interests", and that thls divestiture

was

still

continuing, "but had

a large

degree

apparently

been

accomplished" by	the time the undertakings were given	to	the
Court.

The next fact found by his Honour was that, in November

1985, some $4.3m was borrowed, apparently by

a company called

Jackson Holdings Ltd.,

from two finance companies.

There is no

evidence as to what securities were provided in order to obtain

these loans.

In February 1986, after the money had apparently

passed through other hands, it came into the possession of

Jackson in the form

of cash and was placed in three safe deposit

boxes at a bank.

Later, his Honour found,

Mr Jackson removed all

this money from the safe deposit boxes and took it to his

home.

He subsequently Informed the police that he had been swindled out of this money by a confldence trickster. After lnvestlgating the

matter, the police apparently did not believe the story, and	Mr
Jackson was charged with the following offence:

"That between 20th February

1986 and 29th

March 1986 at Brisbane Ln the State of Queensland, John Wllllam Jackson dlshonestly

applled to his

own use and the use of another

person property, namely moneys totalllng $4.3

million belonglng to Jackson Holdin9-s Pty.

Llmited.

It was against thls background that Sheppard

J. made his

orders.

HP said that, in the absence of evidence to the contrary,

it should be

inferred that

Mr Jackson still has control

of,

access to, the $4.3m

which he previously held as cash. For the

purposes of these proceedings, his Honour rejected the story	of
the swindle.

In deciding that

he had power to make the orders sought,

Sheppard J. referred to a number of authorities. It is*clear that he recognized that, in extendlng the principle underlying the

Mareva injunction to cover such orders

he was,

to some extent,

breaking new ground, and that such orders should be reserved for

the most extreme circumstances. Hi5 Honour considered carefully

the question whether he should exercise his discretion in favour

of making the orders sought. In doing so, he considered at length

the question of

self-incrlmination In light

of the charge laid,

and determined that provlsion of security in the sum

of $3m, as by

way of a bank guarantee, would not provlde any evidence

of the

source of the moneys concerned

- which could well come from other

assets over which

Mr Jackson had control. There was some evldence

before his Honour to suggest that	Mr Jackson had access to assets
exceeding $llm in value.

In determlning to exercise his discretion In favour of

the applicant,

Sheppard J. was

conscious of the

fact

that

lmprlsonment for contempt might result. His Honour sald:

"The only sanction

f o r

breach of the order

sought will be

punishment for contempt. It

would

today be only

very

exceptlonal

clrcumstmces that 9 court would vlsit a fallure to pay money or provlde securlty with Imprisonment. The law does not authorize the

mprisonment of

debtors. That was long ago

abolished.

If the appllcant now had ~udgment,

the court would not imprison Mr. Jackson

for

non-payment of the judgment debt. Why, it may

be asked,

should

take

the

course

exposing

hlm

the

risk

imprisonment

before

judgment has

been

recovered.

The

answer given by the applicant, whose counsel acknowledges the drastic nature of the order sought, is that no other relief which thg

Court can provide will be likely to safeguard assets that ought in conscience be available

for

the

satisfaction

the

judgment

the

applicant expects to recover.

the

very

extraordinary

and

unusual

circumstances of

the

cas

and

the

systematically	and	blatently	fraudulent
conduct of	Mr.	Jackson which the applicant

submits call for an order

of the extreme kind

here claimed.

He went on to say

that he was satisfied the applicant's

fears were well founded and that

" o refuse the order is to stand

and see

the

Court's

processes

frustrated

fraudulent

conduct".

I think I have said enough to indicate, in summary

form,

why Sheppard J. thought it necessary to make the two orders which

I am asked, in effect, to enforce. There was no discussion in his

Honour's reasons for judgment of the purpose behind Order

10, but

clear enough that it was designed to give the second

respondent an opportunity to explain why he could not comply with

Order 1 (if he failed to

c'.o s o ) , and a corresponding opportunity

for the applicant to test that explanation	and, perhaps, seek
alternative orders.

Two things have happened since

23 April, when

his Honour

made his order, which require me to exercise

my own discretion as

to whether I should grant the adjournment sought.

The first is,

as I have stated,

that

Full Court has given

the

second

respondent leave to appeal against the relevant orders. A notice

of appeal was filed on

May, and

I am informed

that

appolntment has been made	to settle the appeal book contents on	2
June.

The second event is that the original

action has been

settled and, on 1

May, judgment by consent In the sum of

$3.25m

and costs was entered in favour of the applicant against the flrst

and second respondents, as well

as two other respondents

Mrs

Jackson and an

employee of the first respondent.

cross-clam

against Jackson and others by other respondents also resulted in

judgment by consent in the sum of

$0.25m and costs.

Mr Jackson asserts that by reason

these and other

debts he

1 s now insolvent.

He has sought to file a debtor’s

petitlon in bankruptcy

one of the admitted reasons for thls

actlon being to escape the effects

of Sheppard J . ’ s orders, slnce

he obvlously could not comply

with Order 1 if hls estate were In

the hands of

a trustee.

?his

attempt to achleve bankruptcy has

been reslsted by the applicant, whlch alleges that It

1s an abuse

of process because

of Sheppard J.’s order, and further alleges

that Mr Jackson

1s not in

fact insolvent because he has hidden

assets.

decision

thls

matter

currently

reserved

. . . -. .

Burchett J. The applicant has also succeeded in deterring other possible petitioning creditors from lodging their petitions.

The first

matter

I must

decide

is whether

the

applicant's notlces of motion should be adjourned until*after the

second respondent's appeal to the Full Court has been heard and

determined.

I have decided that they should. A Full Court having

glven leave to appeal,

I must assume that it is possible that the

appeal could be upheld

either because the orders made were

beyond power or because there was

a miscarriage of the exercise of

discretion.

A further question which the Full Court may

wish to

consider is whether the orders continued in effect after the entry

of judgment in

the action. Apparently because of the terms

settlement, counsel for the second respondent does not

wlsh

raise this questlon, but the Full Court which granted leave to

appeal nevertheless took the view that the appeal book should

lnclude documents necessary

to enable the issue to be determined.

In these circumstances, there are obvlous and strong

arguments ayalnst embarking upon

a course which is quite likely to

lead to the second respondent's imprisonment for failure to comply

with the first order

now appealed against. Slmllar considerations

apply to any attempt to conpel useful answers to cross-esaminatlon

of Mr Jackson about his current assets.

Senior counsel for the applicant argued strongly against

such an ad~ournment. The chlef ground he relled upon was that the

Full Court, in granting leave

to appeal on 2 May, refused to stay

Sheppard J.'s order.

He said, in effect, that this amounted to

implied approval of the course which the applicant was now

taking

of	seeklng the second respondent's committal for contempt of

court,

The Full Court gave

no reasons for refusing

a stay but,

having studied the transcript of the short hearing before it,

think it would be quite unsafe to assume that it

had considered

the possibility of the present course belng taken and approved it.

One member of the

Court, at an early stage

the hearing,

asking senor counsel for

Mr Jackson why he needed

a stay,

referred to ' I . . .

the contempt proceedings, which

no doubt would

not be determlned before the appeal". Counsel replied

hope

not" and went

on to argue the other possible drawbacks from

his

client's point of view if

a stay were not granted. Counsel for

the appllcant were not called upon, and thus had nu opportunlty to

foreshadow the present appllcation.

The refusal to

grant a stay meant that, for the first

tune, the

second

respondent

was

obliged

comply

with the

relevant orders of Sheppard

J. whlch, until then, had had their

tmes for compliance estenc'ed by separate orders. The Full Court could not be sure that elther Order 1 or Order 10 twlth whlch

there was a purported compliance on May

9th) would not be observed

in some proper way.

was this posslblllty whlch was left open

by the refusal to grant the stay and	no	Intention beyond thls
should be attributed to the Court.

10.

In these circumstances I

believe I must treat the Full

Court's refusal of

stay as being,

at best, neutral from the

applicant's point of view. All the applicant's counsel could urge

on me, by way of discretionary factors, was that the longer the

contempt

proceedings

were

delayed

the

weaker

would

the

presumption that the $4.3m

was still available to the second

respondent, and the colder would be the trail

of that money.

Three months have already passed since it was known to be in

Jackson's possession.

These are

valid

important

considerations, but they could be alleviated If a speedy hearing

of the appeal can be arranged. In any event there is

no doubt In

my mind that the proposed attempt o enforce Sheppard

J.'s orders

must at least await the outcome

of the appeal.

I note in passing that, in the passage from

his judgment

quoted above, Sheppard J. himself said:

"If the applicant

now had judgment, the court

would not imprison Mr.

Jackson for non-payment

of the judgment debt.

Why, it may be

asked,

should it take the course of exposlng him

the risk of imprisonment before	~udgment has
been recovered?"

His Honour's answer

to that question, In the passage

cited, leaves open, in

my m m d , the further questlon as to whether

he intended that his Orders 1 and 10 should be enforceable after

Judgment, when

other

traditional

(though probably

less

effective) methods of achieving the same results	would become
available.

. ..

11.

The next question which I have to consider is whether

should adjourn

the notices of motion even

further, until

after

crlminal proceedings agalnst Mr Jackson have been finallzed.

have decided that I should not

do so because, in obtaining leave

to appeal, senior counsel for Mr Jackson made clear &at

one

his chief arguments on appeal would be that Sheppard

J.'s exercise

of discretion miscarried in that he

departed from the

prmclple

against self-incrmination illustrated by cases such

as Rank Film

Distributors Ltd. v. Video Information Centre	C19823 A.C.	380 .
The notice of appeal now confirms that approach.

In these circumstances

I think it would

be Inappropriate

for a single Judge to embark upon

a consideration of matters fully

dealt wlth

by Sheppard

J. and about to be reviewed by a

Full

Court.

could not exercise a

discretlon in the matter wlthout

going over those questlons

of princlple in order

to determine how

they should be applied to the present situatlon.

The order whlch I propose to make is that the notices of

motlon flled 9

May 1986 be adjourned until after the appeal for

which leave was granted on 2 May 1986 has been determined.	I
shall reserve liberty to apply and, slnce the adjournment of the

notices of

motlon

amounls

an indulgence of the

second

respondent, I shall reserve costs.

12 .

I certify that the eleven (11) precedmg pages are a true and

accurate copy

of the Reasons for

Judgment herein of the Hon. Mr

Justice Woodward.	.
Associate

Dated:

22 May 1986

Date of hearing:

20 May 1986

Counsel for the appllcant:

Mr L. Gruzman QC, Mr P. Stone and

Mr P.J. Laniqan

Solicitors: Watson Eavey

Counsel for the respondent Jackson: Mr	G.P. Seqal
Solicitors: Gilshenan & Luton