Universal Music Australia Pty Ltd v Sharman License Holdings Ltd

[2005] FCA 1587

FEDERAL COURT OF AUSTRALIA

Universal Music Australia Pty Ltd v Sharman License Holdings Ltd [2005] FCA 1587

PRACTICE AND PROCEDURE – Mareva order – orders ancillary to Mareva order – order made requiring disclosure of assets by way of affidavit – principles for making Mareva and ancillary orders – principles for granting leave to cross examine deponent of disclosure affidavit – whether leave to cross examine deponent

Federal Court of Australia Act 1976 (Cth) s 23

Babanaft International Co SA v Bassatne [1990] 1 Ch 13 cited
Bax Global (Australia) Pty Ltd v Evans [1999] NSWSC; (1999) 47 NSWLR 538 referred to
Bayer A G v Winter (No 2) [1986] 1 WLR 540 cited
Cardile v LED Builders Pty Ltd (1999) 198 CLR 380 followed
CBS United Kingdom v Perry [1995] FSR 421 cited
CSR Ltd v Cigna Insurance Australia Ltd (1997) 189 CLR 345 referred to
Den Norske Bank v Antonatos [1999] QB 271 referred to
Deputy Federal Commissioner of Taxation v Hickey (1996) 33 ATR 453 cited
Hospital Products Ltd v Ballabil Holdings Pty Ltd [1984] 2 NSWLR 662 referred to
House of Spring Gardens v Waite [1985] FSR 173 discussed
Jackson v Sterling Industries Ltd (1987) 162 CLR 612 referred to
Kodak (Australasia) Pty Ltd v Cochran (unreported, Supreme Court of New South Wales Equity Division, Brownie J, 4 April 1996) cited
Motorola Credit Corp v Uzan (No 2) [2004] 1 WLR 113 cited
Planet International Ltd v Garcia (No 2) [1991] 1 Qd R 426 referred to
Turner v Universal Home Loans Pty Ltd [2004] NSWSC 200 cited
Yukong Line Ltd of Korea v Rendsburg Investments Corporation of Liberia (unreported, Court of Appeal (Civil Division), Kenny and Phillips LJ, 17 October 1996) referred to

Peter Biscoe QC Mareva and Anton Pillar Orders: Freezing and Search Orders, LexisNexis Butterworths 2005

UNIVERSAL MUSIC AUSTRALIA PTY LTD (ACN 000 158 592) AND FESTIVAL RECORDS PTY LTD (ACN 000 111 197) AND MUSHROOM RECORDS PTY LTD (ACN 005 594 043) TRADING AS FESTIVAL MUSHROOM RECORDS AND EMI MUSIC AUSTRALIA PTY LTD (ACN 000 070 235) AND SONY MUSIC ENTERTAINMENT (AUSTRALIA) LTD (ACN 000 033 581) AND WARNER MUSIC AUSTRALIA PTY LTD (ACN 000 815 565) AND BMG AUSTRALIA LTD (ACN 004 157 564) v SHARMAN LICENSE HOLDINGS LTD AND SHARMAN NETWORKS LTD AND LEF INTERACTIVE PTY LTD (ACN 099 675 242) AND NICOLA ANNE HEMMING

NSD 110 OF 2004

MOORE J
17 NOVEMBER 2005
SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD 110 OF 2004

BETWEEN:

UNIVERSAL MUSIC AUSTRALIA PTY LTD
(ACN 000 158 592)
FIRST APPLICANT

FESTIVAL RECORDS PTY LTD (ACN 000 111 197) AND
MUSHROOM RECORDS PTY LTD (ACN 005 594 043) TRADING AS FESTIVAL MUSHROOM RECORDS
SECOND APPLICANT

EMI MUSIC AUSTRALIA PTY LTD
(ACN 000 070 235)
THIRD APPLICANT

SONY MUSIC ENTERTAINMENT (AUSTRALIA) LTD
(ACN 000 033 581)
FOURTH APPLICANT

WARNER MUSIC AUSTRALIA PTY LTD (ACN 000 815 565)
FIFTH APPLICANT

BMG AUSTRALIA LTD (ACN 004 157 564)
SIXTH APPLICANT

AND:

SHARMAN LICENSE HOLDINGS LTD
FIRST RESPONDENT

SHARMAN NETWORKS LTD
SECOND RESPONDENT

LEF INTERACTIVE PTY LTD (ACN 099 675 242)
THIRD RESPONDENT

NICOLA ANNE HEMMING
FOURTH RESPONDENT

JUDGE:

MOORE J

DATE OF ORDER:

17 NOVEMBER 2005

WHERE MADE:

SYDNEY

THE COURT ORDERS THAT:

1.The applicants have leave to cross examine the fourth respondent on the affidavits filed and served by her in response to Order 5 of the orders of Wilcox J made on 22 March 2005, on such matters as the Court may later direct.

2.The fourth respondent file and serve, within such time and the Court may specify, an affidavit that discloses with particularity the description and value of all the assets of the second respondent (and its subsidiaries within the meaning of section 9 of the Corporations Act 2001 (Cth) that are wholly owned) wherever situated and specifying whether those assets are held by the second respondent (or such wholly owned subsidiaries) beneficially or in trust for any other person or entity and further specifying:

a.in the case of any bank accounts which the second respondent (or such wholly owned subsidiaries) controls, the name of the bank in which the account is held, the name of the branch, the name of the account, the name of a person in whose name the account is held, the account number, and the balance of the account as at the date of service of the orders;

b.the name and address of any person or entity who holds any assets on trust or as nominee for the second respondent (or such wholly owned subsidiary);

c.details of any trust or arrangement pursuant to which such assets are held;

d.details of any charge, mortgage or other security grouped in relation to any asset; and

e.details of any contracts entered into for the sale, mortgage, charge or other disposition of the assets or any part thereof or interest therein.

3.Order 1 made by Wilcox J on 22 March 2005 is varied by inserting before the words "other than" the following words:

"(and, as to the second respondent, be restrained from causing or permitting any wholly owned subsidiary to dispose of, to remove from Australia or to deal with in any way any of that subsidiary's money, property or other assets in or outside Australia)"

4.The second and fourth respondents pay the costs of the applicants on the notice of motion.

5.The application otherwise be stood over for directions at 4.30 pm on 24 November 2005.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD 110 OF 2004

BETWEEN:

UNIVERSAL MUSIC AUSTRALIA PTY LTD
(ACN 000 158 592)
FIRST APPLICANT

FESTIVAL RECORDS PTY LTD (ACN 000 111 197) AND
MUSHROOM RECORDS PTY LTD (ACN 005 594 043) TRADING AS FESTIVAL MUSHROOM RECORDS
SECOND APPLICANT

EMI MUSIC AUSTRALIA PTY LTD
(ACN 000 070 235)
THIRD APPLICANT

SONY MUSIC ENTERTAINMENT (AUSTRALIA) LTD
(ACN 000 033 581)
FOURTH APPLICANT

WARNER MUSIC AUSTRALIA PTY LTD (ACN 000 815 565)
FIFTH APPLICANT

BMG AUSTRALIA LTD (ACN 004 157 564)
SIXTH APPLICANT

AND:

SHARMAN LICENSE HOLDINGS LTD
FIRST RESPONDENT

SHARMAN NETWORKS LTD
SECOND RESPONDENT

LEF INTERACTIVE PTY LTD (ACN 099 675 242)
THIRD RESPONDENT

NICOLA ANNE HEMMING
FOURTH RESPONDENT

JUDGE:	MOORE J
DATE:	17 NOVEMBER 2005
PLACE:	SYDNEY

REASONS FOR JUDGMENT

Introduction

1. This judgment concerns a notice of motion of the applicants, filed on 24 May 2005 in its most recent amended form, seeking relief in three respects.  The first is orders granting leave to cross examine the deponents of certain disclosure affidavits filed pursuant to Mareva orders made by Wilcox J on 22 March 2005.  The second is orders that further disclosure affidavits be filed, one by a Mr Simon John Myers and another by Ms Nicola Anne Hemming, the fourth respondent, on behalf of the first and second respondents.  The first respondent is Sharman License Holdings Ltd ("Sharman Holdings") and the second respondent is Sharman Networks Ltd ("Sharman Networks") (collectively "the Sharman companies").  The third is an order varying the Mareva orders made by Wilcox J on 22 March 2005.

   Procedural history

2. On 4 March 2005 the applicants sought Mareva orders against the first to third, fourth, sixth to eighth respondents and Mr Myers and Ms Beverley Bermeister from the duty judge.  That application was stood over before Wilcox J on 22 March 2005. Wilcox J is the docket judge in the principal proceedings in which the applicants have claimed, amongst other things, breach of copyright arising from file to file sharing of music on the Internet.  Judgment on the question of liability, substantially in favour of the applicants against most respondents, was given by Wilcox J on 5 September 2005: see Universal Music Australia Pty Ltd v Sharman License Holdings Ltd [2005] FCA 1242.

3. On 22 March 2005, Wilcox J heard submissions on the application for Mareva orders while hearing closing submissions in the principal proceedings (and shortly before reserving judgment in the principal proceedings on 23 March 2005).  His Honour proceeded to make Mareva orders restraining the first, second, third and fourth respondents from dealing with their assets and noted the undertaking of Mr Myers to not dispose of a Castle Cove property and money, property or other assets of the first to third respondents.  The precise legal effect and scope of those orders was raised in this interlocutory application by the fourth respondent.  His Honour made ancillary orders requiring each of the first, second and third respondents to file and serve an affidavit by 8 April 2005 and the fourth respondent to file and serve an affidavit by 1 April 2005, disclosing with particularity the description and value of all assets, specifying, amongst other things, whether those assets were held beneficially or in trust for any other person or entity.  Those affidavits were to include bank account details, name and addresses of persons holding assets on trust or as a nominee for the respondent, details of any trust or arrangement under which assets were held, and details of any charge, mortgage or other security in relation to assets, contracts entered into for the sale, mortgage or charge or disposition of assets or part of interest.  His Honour later extended time for the fourth respondent to file and serve an affidavit to 8 April 2005.  The Court noted that the affidavits to be filed by the first, second, third and fourth respondents were to be used for the purposes of those proceedings only, including for any investigative purposes that arise from the material contained within the affidavits, and that the contents of those affidavits shall not be made public.  On 4 April 2005 a disclosure affidavit was filed by the fourth respondent and on 11 April 2005 a further disclosure affidavit was filed by the fourth respondent. 

4. On 8 April 2005, a duty judge refused an application by the first and second respondent to stay the orders requiring disclosure affidavits be filed until 14 days after the handing down of the reasons for judgment in proceedings then recently commenced in the Supreme Court of the Republic of Vanuatu.  Those proceedings concerned the first and second respondents and s 125 of the International Companies Act of Vanuatu:  see Universal Music Australia Pty Ltd v Sharman License Holdings Ltd [2005] FCA 406.

5. On 12 April 2005, the applicants filed a notice of motion, an affidavit in support and a statement of charge, that the first and second respondents be found guilty of contempt as the first and second respondents had not then filed and served the disclosure affidavits as ordered by Wilcox J on 22 March 2005.  On 15 April 2005, Wilcox J stood over that notice of motion generally. 

6. On 12 April 2005, the first and second respondents filed an application seeking an extension of time in which to seek leave to appeal and leave to appeal from the order of Wilcox J making the Mareva orders.  On 15 April 2005, the first and second respondents applied for a stay of the Mareva orders until further order and following a determination by a Full Court of the first and second respondents' application for an extension of time to file and serve an application for leave to appeal against the Mareva orders.  Wilcox J dismissed that application:  Universal Music Australia Pty Ltd v Sharman License Holdings Ltd [2005] FCA 441.

7. On 18 April 2005, the proceedings in the Supreme Court of Vanuatu, relied on earlier by the first and second respondents, were discontinued.  On 20 April 2005, an order was made staying, temporarily, the disclosure order directed at the first and second respondents on the condition the affidavits were filed and served but would remain confidential and could be read only by named counsel and solicitors acting for the applicants.  Then in issue was whether a Full Court or a single judge should hear the application for an extension of time for leave and the application for leave.  On 28 April 2005 an application to stay the Mareva orders of Wilcox J in the court's appellate jurisdiction was dismissed:  Sharman License Holdings Ltd v Universal Music Pty Ltd [2005] FCA 505. On 17 June 2005, the application for an extension of time in which to seek leave to appeal was dismissed: Sharman License Holdings Ltd v Universal Music Aust Pty Ltd [2005] FCA 802.

8. On 19 April 2005 Mr Gee swore two disclosure affidavits, one on behalf of the first respondent and the other on behalf of the second respondent. On 19 April 2005, the applicants filed a notice of motion seeking an order requiring the fourth respondent and Mr Myers to file and serve an affidavit disclosing with particularity (in terms similar to the particulars set out in the disclosure orders and set out in summary at [3] above) the description and value of all assets of the first and second respondents. That notice of motion was stood over by Wilcox J for directions before me on 26 April 2005.

9. On 27 April 2005, leave was granted to the applicants to amend the notice of motion of 19 April 2005. That amended notice of motion sought additional orders for leave to cross examine the deponent of the disclosure affidavits filed on behalf of the first and second respondent and the fourth respondent on her disclosure affidavits.  On 28 April 2005, consent orders were made, including that the matter be stood over for hearing on 24 May 2005. 

10. On 24 May 2005, a further amended notice of motion was filed. In substance, the further amended notice of motion sought orders that required the disclosure affidavits filed by the first and second respondents include the value of all assets (including those of its subsidiaries within the meaning of s 9 of the Corporations Act 2001 (Cth) that are wholly owned) and varying the orders of Wilcox J so as to restrain the first and second respondent from causing or permitting any wholly owned subsidiary to dispose of, remove from Australia or deal with in any way the subsidiary's money, property or other assets in or outside Australia, and that the affidavits disclose the bank account numbers where assets are held.

11. On 10 June 2005, orders were made requiring the applicants to provide the first and second respondents with what information or classes of information were said to have not been sufficiently disclosed to date and that any further affidavit or affidavits the first and second respondents may wish to make to give effect to the Mareva orders of Wilcox J of 22 March 2005 be filed by 17 June 2005.  In addition, the applicants were to inform the first and second respondents of the topics they seek to cross examine the deponent or deponents of the affidavits filed on behalf of the first and second respondents.  I also made orders that Mr Myers file and serve a disclosure affidavit by 23 June 2005 in relation to the assets of the first and second respondents.  The further amended notice of motion was stood over for further directions on 24 June 2005. 

12. On 17 June 2005 two copies of further disclosure affidavits of Mr Gee (sworn on 16 June 2005), one on behalf of the first respondent and the other on behalf of the second respondent, were filed and served (the originals were filed on 4 July 2005).  On 22 June 2005 a disclosure affidavit was filed and served by Mr Myers.  On 25 July 2005 a direction was made that any further disclosure affidavit by the fourth respondent be filed within 7 days.  On 1 August 2005, Ms Hemming filed a further disclosure affidavit.

    Factual background

13. During the hearing of this notice of motion, the parties spent a good deal of time analysing a considerable number of documents which were said to establish, on the one hand, or not establish, on the other, facts concerning the circumstances in which various respondents held and dealt with property and whether the orders requiring the filing of the disclosure affidavits had been complied with completely.  I do not consider that it is necessary to traverse all of this material and resolve many of the issues of detail addressed by the parties.  It is sufficient to summarise the general import of this material, and a convenient way of doing so is to adopt the analysis of Lindgren J (with which I agree) in Sharman License Holdings Ltd v Universal Music Aust Pty Ltd [2005] FCA 802. I also reviewed this material, though in less detail, in Sharman License Holdings Ltd v Universal Music Pty Ltd [2005] FCA 505. Lindgren J's analysis commenced at [7]:

    Each of the Sharman Companies is an international company limited by shares incorporated under the International Companies Act No 32 of 1992 of the Republic of Vanuatu.  Sharman Networks Ltd (‘Sharman Networks’) was incorporated on 15 January 2002.  It has two issued shares, one of which is held by Global Nominees Ltd and the other by Credit Facilities Ltd.  Those companies hold the shares on behalf of Trustees International Ltd (‘TIL’), formerly called ‘Vanuatu International Trustee Co Ltd’ (‘VITCO’), as trustee of ‘the Sharman Trust’.
    TIL is a company owned and controlled by BDO Barrett & Partners, Chartered Accountants and Business Advisers of Port Vila, Vanuatu (‘BDO’).  One of the services provided by BDO is to assist in the formation of discretionary trusts in Vanuatu and the provision of TIL as a ready-made trustee for the purpose.
    Sharman License Holdings Ltd (‘Sharman Licence Holdings’) was incorporated on 6 June 2003 and also has two issued shares.  They are both held by Sharman Networks, but the beneficial owner of them is, again, TIL as trustee of the Sharman Trust.
    The instrument constituting the Sharman Trust is not in evidence, notwithstanding efforts by Universal to compel production of it, but evidence referred to below reveals some aspects of the Sharman Trust.
    The director of each of Sharman Networks and Sharman License Holdings is Worldwide Nominees Ltd.
    Global Nominees Ltd, Credit Facilities Ltd and Worldwide Nominees Ltd are all incorporated in Vanuatu and are all ‘BDO companies’.  Each of Global Nominees Ltd and Credit Facilities Ltd has declared that it holds its shareholding in Sharman Networks on behalf of TIL as beneficial owner.
    [Wilcox J] accepted that the Sharman Companies were controlled by Ms Hemming by reason of a ‘client services agreement’ between her and TIL dated 8 April 2002.  By that agreement Ms Hemming purported to appoint TIL, ‘the principals of the firm of BDO and any entities owned or controlled by them, together with the officers and employees of the firm’, to provide certain services as requested by ‘the Principal’ from time to time.  The expression ‘the Principal’ was defined to mean Ms Hemming, but also to include her ‘nominees, successors and assigns as well as any companies or trusts created upon the instructions of such a person or persons and his or their nominees, successors and assigns, including those entities specified in Schedule A [to the client services agreement]’. In Schedule A appeared the names of Sharman Networks and the Sharman Trust.  By the client services agreement, TIL undertook at its discretion to act on the instructions given or purporting to have been given by the Principal.  The client services agreement provided that the agreement might be terminated by either party giving 14 days’ prior written notice.
    The payment of $1,116,405.63 referred to earlier [see [14] below] was made to TIL by being transferred from Australia into TIL’s bank account in Vanuatu.  There was in evidence before his Honour a letter dated 3 February 2005 from TIL (signed by Mr Barrett of BDO) to Greenstein Shakenovsky, the solicitors who acted for Ms Hemming and Dr Kilmer-Barber as vendors on the sale, to the effect that that was the amount required to pay out ‘the loan due by Nicola Hemming and Dr Richard Kilmer-Barber to Trustees International Limited on Friday 4 February’.  An attachment to the letter showed an original loan of US$ 810,000.00 on 15 March 2003 and interest from that date to 4 February 2005 of US$ 53,651.40, none of which had been paid.
    As noted earlier, the Sharman Companies were ultimately beneficially owned by TIL as trustee of the Sharman Trust, and, notwithstanding the reference to ‘discretion’ and the right of termination, the client services agreement provided evidence before his Honour that TIL, including TIL as trustee of the Sharman Trust, was likely to act at the direction of Ms Hemming.  Since TIL, as trustee of the Sharman Trust was the ultimate beneficial owner of all the issued shares in the Sharman Companies, there was evidence before his Honour to show that they were also likely to act at her direction.

1. One specific matter of detail addressed by Lindgren J, concerned the sale of a house by the fourth respondent.  As to that matter, his Honour said (at [4]):

   On 4 February 2005, Ms Hemming and Richard Kilmer-Barber settled a sale of their home at Castle Cove in Sydney to John Simon Myers for $2,100,000.  Title was transferred on 16 February 2005.  Ms Hemming and Dr Kilmer-Barber continued to occupy the property.  Ms Hemming’s interest in the home was apparently her only substantial asset within the jurisdiction.  There was evidence before his Honour that Mr Myers occupied some role such as accountant or bookkeeper of the Sharman Companies.  Ms Hemming was the Chief Executive Officer of the Sharman Companies. Out of the proceeds of sale, $1,116,405.63 was transferred to a bank account in Vanuatu…, which is where the Sharman Companies are incorporated.  LEF is incorporated in Australia, and Ms Hemming is an Australian resident.

   Before considering the background, it is convenient to set out the principles informing the exercise of the power to make a Mareva order, to order disclosure affidavits and to grant leave to cross-examine deponents of such affidavits.  I do so, perhaps in unnecessary detail, to identify the context in which, in particular, the application to cross-examine certain deponents should be considered.

   Power to make Mareva orders

2. This Court has power to make Mareva orders, and any ancillary orders in aid of those orders, under s 23 of the Federal Court of Australia Act 1976 (Cth) ("the Act"). That power is restricted to the making of "kinds" of orders that are capable of being seen as "appropriate": see Cardile v LED Builders Pty Ltd (1999) 198 CLR 380 at 400-401 and more generally CSR Ltd v Cigna Insurance Australia Ltd (1997) 189 CLR 345 and Jackson v Sterling Industries Ltd (1987) 162 CLR 612 per Deane J. While s 23 confers a broad power, the High Court in Cardile at 405 approved a statement of Deane J in Jackson v Sterling Industries Ltd to the effect that "orders made pursuant to that section (and under the general power) must be capable of properly being seen as appropriate to the case in hand."

3. It is convenient to note the passage from the judgment of Brennan CJ, McHugh, Gummow, Kirby and Hayne JJ in Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia (1998) 195 CLR 1 at 32, quoted with approval in a joint judgment of four members of the High Court (Gaudron, McHugh, Gummow and Callinan JJ) in Cardile (at 400-401):

   …In a later passage of the judgment of Deane J in Jackson v Sterling Industries Ltd, his Honour said a power to prevent the abuse or frustration of a court's process should be accepted `as an established part of the armoury of a court of law and equity' and that `the power to grant such relief in relation to a matter in which the Federal Court has jurisdiction is comprehended by the express grant to that Court by s 23 of the Federal Court of Australia Act'. But, his Honour observed, orders must be framed `so as to come within the limits set by the purpose which [the order] can properly be intended to serve'.  The Mareva injunction is the paradigm example of an order to prevent the frustration of a court's process but other examples may be found. The moulding of an interlocutory injunction must depend upon the circumstances of each case. As Brennan J observed in Jackson v Sterling Industries Ltd: `A judicial power to make an interlocutory order in the nature of a Mareva injunction may be exercised according to the exigencies of the case and, the schemes which a debtor may devise for divesting himself of assets being legion, novelty of form is no objection to the validity of such an order.' The general principle which informs the exercise of the power to grant interlocutory relief is that the court may make such orders, at least against the parties to the proceeding against whom final relief might be granted, as are needed to ensure the effective exercise of the jurisdiction invoked. The Federal Court had jurisdiction to make interlocutory orders to prevent frustration of its process in the present proceeding.
   (References omitted)

   The four members of High Court in the joint judgment in Cardile went on to say (at 401):

   … the attention of the Court [in that passage from Patrick Stevedores Operations No 2] was directed to orders against parties to the proceedings and against whom final relief was sought. In that situation, the focus is the frustration of the court's process. If relief is available against non-parties, the focus must be the administration of justice.

4. In Jackson v Sterling Industries Ltd Deane J, with whose reasoning Mason CJ, Wilson, Dawson and Brennan JJ agreed, referred, at 623, to the statement of Lord Denning M.R., in Rahman (Prince Abdul) v Abu-Taha [1980] 3 All ER 409 at 412:

   As a general proposition, it should now be accepted in this country that ‘a Mareva injunction can be granted … if the circumstances are such that there is a danger of [the defendant’s] absconding, or a danger of the assets being removed out of the jurisdiction or disposed of within the jurisdiction, or otherwise dealt with so that there is a danger that the plaintiff, if he gets judgment, will not be able to get it satisfied’.
   (Emphasis added)

5. While the following comments were made by the four members of the High Court in Cardile in relation to Mareva orders directed to non-parties to proceedings, they touch upon the power to make Mareva orders more generally. Their Honours said (at 403-404):

   As [the respondent] submits, the development of this ancillary jurisdiction to grant Mareva orders has been an evolving process and the courts have approached the different factual situations as they have arisen "flexibly". There is a temptation to use the term "flexible" to cloak a lack of analytical rigour and to escape the need to find a doctrinal and principled basis for orders that are made. There are significant differences between an order protective of the court's process set in train against a party to an action, including the efficacy of execution available to a judgment creditor, and an order extending to the property of persons who are not parties and who cannot be shown to have frustrated, actually or prospectively, the administration of justice. It has been truly said that a Mareva order does not deprive the party subject to its restraint either of title to or possession of the assets to which the order extends. Nor does the order improve the position of claimants in an insolvency of the judgment debtor. It operates in personam and not as an attachment. Nevertheless, those statements should not obscure the reality that the granting of a Mareva order is bound to have a significant impact on the property of the person against whom it is made: in a practical sense it operates as a very tight "negative pledge" species of security over property, to which the contempt sanction is attached. It requires a high degree of caution on the part of a court invited to make an order of that kind. An order lightly or wrongly granted may have a capacity to impair or restrict commerce just as much as one appropriately granted may facilitate and ensure its due conduct.
   We agree with the tenor of what was said with particular respect to Mareva relief before judgment by the Court of Appeal of New South Wales (Mason P, Sheller JA, Sheppard A-JA) in Frigo v Culhaci:

   "[A Mareva order] is a drastic remedy which should not be granted lightly. ...
   A [Mareva order] is an interlocutory order which, if granted, imposes a severe restriction upon a defendant's right to deal with his or her assets. It is granted at the suit of a plaintiff whose status as a creditor is in dispute and who need not be a secured creditor. Its purpose is to preserve the status quo, not to change it in favour of the plaintiff. The function of the order is not to `provide a plaintiff with security in advance for a judgment that he hopes to obtain and that he fears might not be satisfied; nor is it to improve the position of the plaintiff in the event of the defendant's insolvency' ... Many authorities attest to the care with which courts are required to scrutinise applications for [Mareva orders]. The leading decision in this State is Patterson v BTR Engineering (Aust) Ltd."

   (References omitted)

6. In the present case the Mareva orders have been made and the challenge to them by the first and second respondents has been unsuccessful.  It can be assumed that the orders were made consistent with these principles.

   Affidavits disclosing assets in aid of Mareva orders

7. Ancillary orders can be made to make the Mareva order more efficacious.  One such order involves directing the party bound by the Mareva order, to file an affidavit disclosing assets on which the Mareva order operates:  see generally the judgment of Conti J in Kuan Han Pty Ltd v Oceanview Group Holdings Pty Ltd [2003] FCA 1063 at [45] and following. The reasons why such an affidavit can render the Mareva order more efficacious are helpfully described by Peter Biscoe QC in Mareva and Anton Pillar Orders: Freezing and Search Orders, LexisNexis Butterworths 2005 at [3.3]:

   There are several reasons why an assets disclosure order is important to the efficacy the other freezing order.  First, disclosure of the assets upon which the freezing order operates makes it more difficult for a respondent surreptitiously to disobey the freezing order.  Secondly, disclosure identifies third parties such as banks who have custody of the assets and enables notice of the order to be given to them so as to bind them to the order, for third parties will be guilty of contempt of court if they knowingly assist a respondent to breach the order.  Thirdly, disclosure may enable the freezing order to be framed by reference to specific assets rather than as a maximum some order, thereby minimising oppression to the respondent, and unnecessary exposure of the applicant to risk under its undertaking as to damages.  Fourthly, disclosure assists an applicant to make a rational decision whether to continue its undertaking as to damages

   It was noted in Hospital Products Ltd v Ballabil Holdings Pty Ltd [1984] 2 NSWLR 662 at 669:

   …Mareva injunctions are granted to preclude the disposal of assets designed to render a defendant judgment proof.  An affidavit of discovery of assets may be ordered in every case where the information in such affidavit will further the court's purpose in defeating such a stratagem.  …  The object must remain throughout to prevent disposal of assets in furtherance of the illegitimate aim of making oneself judgment proof and of stultifying the order of the court.  Whatever needs to be done to achieve that objective, the court has power to order as part of its inherent jurisdiction.

   However, disclosure affidavits will not be ordered whenever a Mareva order has been made.  An example is the judgment of Austin J in Turner v Universal Home Loans Pty Ltd [2004] NSWSC 200 at [16]. His Honour concluded that the disclosure orders were sought to demonstrate breach of the orders rather than make the asset preservation orders more effective.

8. In an earlier judgment, Austin J discussed the rationale for disclosure orders.  His Honour said in Bax Global (Australia) Pty Ltd v Evans [1999] NSWSC at [23]; (1999) 47 NSWLR 538 at 544-545:

   Now that Cardile's case has defined more precisely the source of the jurisdiction of make the Mareva orders themselves, some inferences can be drawn as to the Court's jurisdiction to make ancillary disclosure orders.  Since the source of the jurisdiction to make Mareva orders is the Court's inherent power to prevent abuse of its processes and stultification of the administration of justice by the removal of assets from the plaintiff's reach, the Court must also have the power to order disclosure of the nature and location of particular assets or assets of a class so that the Mareva relief is effective and not oppressive.  As Robert Goff J pointed out in A v C…, if the plaintiff does not know the number and location of (say) the defendant’s bank accounts, a Mareva order in respect of bank accounts generally could be oppressive both to the defendant and to the bankers who are required to act in accordance with it, especially where there is more than one account or several defendants.  Without information about the nature and location of the defendant’s assets, the plaintiff may be unable to make the risk assessment which is necessary in order to give the undertaking as to damages, or if the undertaking is given, it may lead to an unexpected exposure.  Robert Goff J concluded, as do I, that considerations such as these point to the conclusion that in the special cases where the court decides to make Mareva orders, it may make such disclosure orders as are necessary to ensure that the Mareva jurisdiction is properly and effectively exercised.  While the power to do so does not depend upon the statutory discovery and interrogatory procedures, Cardile indicates … that these procedures should be considered as alternative methods of compelling disclosure, where they are available.

   See also his Honour's discussion in Turner v Universal Home Loans Pty Ltd at [12]-[13]. However there is a comparatively settled practice, which was followed in the present case, of framing a Mareva order to avoid the possibility that third parties abroad, such as banks, might be viewed as being in contempt for engaging in conduct which, within the jurisdiction, might be lawful: Babanaft International Co SA v Bassatne [1990] 1 Ch 13.

9. Again, as the ancillary disclosure orders to the Mareva orders have been made and the challenge to them by the first and second respondents has been unsuccessful, it can be assumed that the disclosure orders were made consistent with these principles.

   Cross examination of deponents

10. There is authority that an order for the cross examination of a deponent of a disclosure affidavit will not usually be made:  Kodak (Australasia) Pty Ltd v Cochran (unreported, Supreme Court of New South Wales Equity Division, Brownie J, 4 April 1996) and Den Norske Bank v Antonatos [1999] QB 271 at 290 though that view has been doubted: see Planet International Ltd v Garcia (No 2) [1991] 1 Qd R 426 at 427. English authorities suggest that an order for cross examination will be made where such an order is "the only just and convenient way of ensuring that the defendant would not deal with his assets so as to deprive the plaintiffs of the fruits of their judgment": see generally House of Spring Gardens v Waite [1985] FSR 173 at 181, and applied by the trial judge as noted by the Court of Appeal in Den Norske Bank v Antonatos [1999] QB 271 at 280 and also Yukong Line Ltd of Korea v Rendsburg Investments Corporation of Liberia (unreported, Court of Appeal (Civil Division), Kenny and Phillips LJ, 17 October 1996).  The emphasis is on whether making such an order is "just and convenient" rather than whether the order is the "only" just and convenient way to elicit the missing information:  see the Court of Appeal in Yukong Line Ltd of Korea v Rendsburg Investments Corporation of Liberia with Phillips LJ noting an order for cross examination was an exceptional measure but rejected the submission it may only be ordered where there is no alternative relief available. 

11. It may not be appropriate to order cross examination where a deponent is prepared to provide a further affidavit without the need for cross examination:  see Planet International Ltd v Garcia (No 2) at 427. Where the assets disclosed within the jurisdiction are sufficient to satisfy the claim and in circumstances where the cross examination of the deponent cannot be said to be necessary for the protection of the applicant's rights, an order for cross examination may be refused: Deputy Federal Commissioner of Taxation v Hickey (1996) 33 ATR 453 at 456. It may be doubted that it is apt to speak of "rights" being protected by Mareva order, but the logic of refusing leave to cross examine when the assets are sufficient is fairly obvious.

12. In addition, courts should be astute to guard against a roving cross examination of the deponent and the use of the Mareva process to discover facts that will assist the applicant in the action and ensure that fishing exercises are prevented:  see generally Planet International Ltd v Garcia (No 2) at 427, CBS United Kingdom v Perry [1995] FSR 421 at 426, Yukong (supra) and Cobra Golf Inc v Rata [1998] Ch 109.

13. It may be appropriate to order cross examination were the deponent has disclosed assets in a piecemeal, late, untruthful and manifestly incomplete manner may justify an order for cross examination:  Motorola Credit Corp v Uzan (No 2) [2004] 1 WLR 113 at 154. In Planet International Ltd v Garcia (No 2) (at 427) an order for cross examination was made where it was shown the deponent had

    … provided a collection of some untruthful statements, non-disclosures and qualifications, and it seems to me that it would be futile to direct the preparation of a further affidavit.
    The history shows disclosure of a little at a time followed by further explanations when that information is falsified.  I do not consider [the deponent] has made a serious attempt to comply with the order of the Court.  There is a prima facie case that relevant moneys have been used for gold or gem trading transactions in which [the deponent] has an interest or at least relevant knowledge.
    In the context of an application such as the present one, I find nothing repugnant in the prospect that [the deponent] be required to face cross-examination on the matters as to which he was ordered to file an affidavit in the first instance, when he has failed to file an adequate affidavit."

    As it turned out and as appears in the editor's note, the defendant failed to turn up for cross examination and the defence was struck out. 

14. The limits of cross examination were noted in Bayer A G v Winter (No 2) [1986] 1 WLR 540 (at 544) (a case concerning an Anton Pillar order requiring the disclosure of certain information), Scott J warning against cross examination in civil proceedings resulting in a process analogous to a star chamber interrogatory procedure which, as his Honour observed, had no part in the judicial process. His Honour's concerns centred, in part, on the possible use of the respondent's answers by the applicant to commit the respondent to prison for contempt. An order should not be made which allows an applicant to determine whether it has a claim against a respondent. Waller LJ said in Den Norske Bank ASA v Antonatos (at 290):

    … An order should not be made which allows a plaintiff to interrogate a defendant so as to discover whether the plaintiff has a claim against the defendant.  A fortiori an order to discover whether the plaintiff has a claim against a defendant which would constitute a criminal offence risks falling foul of the principles relating to the granting of Anton Piller and Mareva orders … unless there is a clear machinery for protecting the defendant. 

    See also Yukong Line Ltd of Korea v Rendsburg Investments Corporation of Liberia.

15. However, ultimately the cautionary words of the four members of the High Court in Cardile set out at [18] above must be heeded. Orders made in the Court's ancillary jurisdiction must be founded on a doctrinal and principled basis. A Mareva order is protective of the Court's processes, including the efficacy of execution of those orders. Orders concerning disclosure affidavits and cross examination can, in turn, be made to render the Mareva order more efficacious. This is the touchstone for determining whether leave should be given to cross examine. A relevant consideration in determining whether leave should be given might, in an appropriate case, be the failure of the deponent of a disclosure affidavit to disclose assets completely or promptly or both. In such a case, leave might be given because doubts might arise about whether the deponent had understood and accepted the obligations and burdens imposed by the Mareva order and the ancillary order requiring the disclosure affidavit. Cross examination might be appropriate to test whether the disclosure affidavits fully revealed all assets on which the Mareva order operated and which might be available to satisfy any judgment. However, in other cases, other more significant factors might support the granting of leave to cross examine. I now turn to consider the circumstances arising in this matter.

    The present application

1. It is convenient first to consider the position of the second respondent and its relationship with the fourth respondent.  The fourth respondent is Chief Executive Officer ("CEO") of the second respondent, Sharman Networks.  The position of the fourth respondent and her relationship with the second respondent, is illuminated by findings made by Wilcox J in his judgment of 5 September 2005.

2. There was a question raised about the use to which I could put the findings and reasons of Wilcox J.  These proceedings are ancillary to the principal proceedings and involve the same parties.  These proceedings will not finally determine the rights of the parties.  They are, in substance, to determine whether further evidentiary material should be put before the Court and the means by which that can occur.  That, in turn, would be done to render more efficacious the Mareva orders earlier made.  In my opinion, it is open to me to act on the findings of Wilcox J about the various respondents and associated actors.

3. One issue addressed by Wilcox J in his judgment of 5 September 2005 was whether the fourth respondent should be held to have authorised the Kazaa users' infringements of copyright for the purposes of s 101 of the Copyright Act 1968 (Cth). That required his Honour to address the relationship between the fourth and second respondent. Wilcox J said at [442] and following ("Sharman" is a reference to Sharman Networks):

   The answer to interrogatories of Ms Hemming (…)suggests her relationship to Sharman might be more than simply a CEO supplied under a management services agreement.  Ms Hemming recounted how Mr Bermeister told her that ‘Kazaa BV was looking to sell its assets’.  She said Mr Bermeister spoke about the nature of the Kazaa system and the relationship between Kazaa BV and Altnet.  She went on:

   ‘He offered to introduce me if I was interested in buying any assets.  In a subsequent conversation I asked him to introduce me to Kazaa BV.’

   In the absence of any explanation from Ms Hemming, I interpret this answer as indicating that Ms Hemming sought the introduction because she was interested in buying Kazaa BV’s assets; that is, the Kazaa system.  In other words, she wished to be a principal, not a mere consultant or employee.  The inference that Ms Hemming was herself the purchaser of the Kazaa system (either alone or with others) is supported by her claim, in the answer to interrogatories, that ‘there were no investors’.
   In their submissions in reply, counsel for the applicants submitted I should adopt the Performing Right Society test.  However, they recognised the relevant question will always be the extent of the involvement of the particular company director (or officer) in the infringing conduct.  The thrust of counsel’s submission is that liability has been imposed on individual directors or officers who have been shown to have been personally involved, in a deliberate and continuing way, in the company’s authorisation of infringing conduct.
   In the present case, it may be open to the Court to do more than find that Ms Hemming, having the power to control what was happening, did nothing at all.  A combination of the two possible inferences suggested above would lead to a conclusion that Ms Hemming (alone or with others) purchased the Kazaa system from Kazaa BV and then caused, or allowed, its structure to be changed away from the use of a Kazaaserver; presumably, to enable Sharman to argue (as it has done in this case) that it has no control over the copyright infringing conduct of Kazaa users.
   In the absence of rebutting evidence on either of the points, I am inclined to the view that I should reach that conclusion.  However, it is not necessary to determine that matter.  At the very least, the case is on all fours with Jain.  See also Auschina Polaris at 246 and Metro at 593.
   LEF and Ms Hemming should be held to have authorised the Kazaa users' infringements of copyright in the applicants' sound recordings.

   His Honour had earlier found that the fourth respondent was, in relation to the second respondent, "the boss" and had always been in charge of its day-to-day activities.  His Honour also found that she formulated or least approved the second respondent's policies.  It can be seen that Wilcox J indicates that he would be inclined to infer from the evidence and his primary findings, that the fourth respondent had purchased the Kazaa system, but it was unnecessary for that inference to be drawn.  A resolution in evidence purporting to limit the fourth respondent's authority as CEO should be given little or no weight.  The circumstances in which the resolution was passed have not been revealed nor was the purpose for which it was passed.  The resolution has the appearance of artifice.  That it will have any practical or substantive operation may be doubted.  Similarly, that it is immune from variation or revocation may also be doubted.

4. In relation to Mr Gee (and Mr Barrett, the accountant principal of BDO Barrett & Partners) Wilcox J concluded at [95] that, in relation to their directorship of the corporate directors of the Sharman companies, he (and Mr Barrett) was probably acting on behalf of others.

5. I am satisfied that the fourth respondent should be required to swear a disclosure affidavit in relation to the second respondent in aid of order 6 made by Wilcox J on 22 March 2005.  It is clear from material before me together with the conclusions of Wilcox J that she has had a central role in relation to the business of the second respondent.  Mr Gee, the deponent chosen by the first and second respondents, is only in form an appropriate person.  In substance he is not.  He gains his information from others.  It would not be inapt to describe him as a cipher.  While progressively he has made disclosure as required by the order, the disclosure was not immediate nor, when first made, was it complete.  It is not possible to be affirmatively satisfied that it is now complete.  The affidavit of Mr Myers filed in response to an order I earlier made, does not provide sufficient assurance that Mr Gee's affidavits can, on their face, be accepted as constituting a full disclosure.

6. Additionally, for the same reasons, little purpose would be served in ordering that he be made available for cross examination.  To that can be added the considerable uncertainty that attends compliance with any such order.  While such an order would bind the first and second respondent, observations made by their counsel left me doubting whether they would be able to secure the attendance of Mr Gee in Australia for the purposes of cross examination on his affidavits.  I do not propose to order his cross examination.  It is plainly premature to consider whether the fourth respondent should be cross-examined on affidavits she files on behalf of the second respondent.

7. I do not propose to make an order requiring the fourth respondent to make a disclosure affidavit in relation to the first respondent.  The relationship between the fourth respondent and the first respondent, Sharman Holdings, is unclear (as is its role more generally).  The Mareva order of Wilcox J made on 22 March 2005, as it applied to the Sharman companies, did not differentiate between the position of the first and second respondent.  An application to dissolve the Mareva injunction against the first respondent has been foreshadowed, but not yet made.  Nonetheless, the applicants failed to establish any liability on the part of the first respondent before Wilcox J, and accordingly it would be inappropriate to make further orders in aid of the Mareva order as it applied to the first respondent.  Indeed the proceedings against the first respondent have been dismissed.

8. This leads to a consideration of whether the fourth respondent should be cross examined on her affidavits concerning disclosure of her assets.  In my opinion, such an order should be made. The evidence points clearly to the structure reflected in the Sharman trust and the arrangements in Vanuatu more generally, having been established by the fourth respondent.  Counsel for the applicants described that structure as opaque.  This is in an apt description.  However, it is, in my opinion, unnecessary for me to resolve some specific issues concerning that structure which were the subject of argument.  One was whether the fourth respondent has a beneficial interest in the Sharman trust or at least has an interest which should have been identified in her disclosure affidavit.  Not only is the evidence on this issue likely to be incomplete (the fourth respondent has proffered no evidence and almost certainly the applicants do not have all relevant records - they do not even have the trust deed) but it is also by no means clear to me how the law of Vanuatu would operate on the arrangements revealed, to this point, by the evidence.  It would be unsatisfactory, dealing with the type of issues presently under consideration, to proceed on the basis that the law in that country can be presumed to be the same as the law of Australia:  see The Parchim [1918] AC 157 at 161. The findings of Wilcox J set out at [31] above point towards a conclusion that she does have such an interest. If this issue is explored in cross examination then the Court will be left with a greater measure of certainty about whether she does.

9. The transfer of the property by the fourth respondent to another (referred to at [14] above) has several unusual features. It occurred at a time when final submissions were being made in the primary proceedings. Registration of the transfer occurred five days after the applicant's final submissions were served on the respondents. One can infer that the strengths and weaknesses of the respective cases would have been apparent to the parties and those advising them. The transferee was to a person associated with the fourth respondent. He was an accountant who had work for the Sharman companies. A significant part of the proceeds of the sale were paid to Trustees International Ltd ("TIL") (see [13] above for background of the relationship between TIL, the Sharman companies and BDO Barrett & Partners). This was in settlement of what was said to be a loan. While some of the documents in evidence can be viewed as supporting the existence of a loan, they nonetheless suggest a loan was made after the property was purchased. That, itself, is unusual, though one must accept there may be an explanation for this including, as counsel for the fourth respondent pointed out, that the funds lent replaced bridging finance. But the evidence suggests that a loan was not secured by a mortgage. In all, real doubts arise about, and uncertainty surrounds, the reason why this transaction took place when it did and whether the moneys transferred to TIL were, in truth, in satisfaction of a loan or continues to constitute an asset of, and requires disclosure by, the fourth respondent. Greater clarity about this matter may arise from the cross examination of the fourth respondent.

10. I have, to this point, not dealt with an argument advanced by the respondents which would result in none of the orders sought by the applicants being made.  The respondents sought an order that the notice of motion be dismissed as an abuse of process.  The gravamen of the submissions made in support of that order was that the orders sought by the applicants were for a collateral purpose, namely to endeavour to ascertain the real and effective controllers of the Sharman companies.  That this is the applicants' purpose is evident, it was said, from the character of the alleged breaches of the disclosure order as it applied to the first and second respondents (effectively that the breaches were, at best, insubstantial and inconsequential), the evidence of Mr Speck, manager of Music Industry Piracy Investigations Pty Ltd who was responsible for much of the investigation leading to the applicants commencing the principal proceedings and investigations thereafter concerning the proceedings as well as the position taken by the applicants in the proceedings more generally.

11. I accept that the applicants would wish to ascertain who are the real and effective controllers of the Sharman companies.  I also accept that this may become a matter about which questions might be asked if the orders sought by the applicants are made.  However if that becomes a legitimate area of cross examination (bearing in mind that any cross examination will be subject to the control of the Court) it will be for a legitimate purpose and not an illegitimate and collateral one.  I do not accept the criticisms of the way the applicants identified and characterised the breaches of the disclosure order.  In particular, the first and second respondents elected to provide the disclosure affidavits required of them from a person appropriate in form but not in substance.  The applicants, who necessarily cannot be certain from their own knowledge of the matters to which the disclosure affidavits related, were entitled to review critically the affidavits proffered by the first and second respondents.  All the more so given the opaque structure reflected in the Sharman trust and the arrangements in Vanuatu more generally and referred to above.  While some of the criticisms were not significant, they included the failure to disclose significant sums held by lawyers on trust.  I am not satisfied that the application should be dismissed for the reasons advanced by the respondents.

12. The last matter to be considered is whether the orders of Wilcox J of 22 March 2005 should be varied to extend the scope of the Mareva injunction to assets not only of the first to third respondents but also assets of any wholly-owned subsidiary.  In view of his Honour's conclusions concerning the liability of Sharman Holdings, no such order should be made concerning that company.  The third respondent, LEF Interactive Pty Ltd, has not appeared to oppose the variation order.  That company was described by Wilcox J as wholly owned and controlled by the fourth respondent.  In his Honour's words (at [421]), it was "a "one woman" company, Ms Hemming's alter ego".  The second respondent (together with the first respondent) opposed the variation on the basis that there was no evidence to suggest any danger of dissipation of the assets of the wholly-owned subsidiaries.  However it can be assumed the orders made by Wilcox J on 22 March 2005 were appropriately made.  I do not think that the subsidiaries can, as suggested by counsel for the first and second respondent, be treated as third parties in the sense discussed by the High Court in Cardile:  see more generally Rio Tinto Ltd v Commissioner of Taxation [2005] FCA 1335. In any event, the proposed order is intended to bind existing respondents and prohibiting them from "causing or permitting any wholly-owned subsidiary" from dealing with its assets subject to the exceptions in the order as originally formulated. This appears to me to be an appropriate extension of the original Mareva order and will ensure that assets of the respondents held, indirectly, through wholly-owned subsidiaries, will be controlled in the same way and for the same purpose as assets directly held to which the Mareva order presently applies.

13. An order will be made requiring the fourth respondent to attend for cross examination on her affidavits concerning her assets.  The scope of the cross examination will be the subject of subsequent directions.  She will also be directed to file a disclosure affidavit on behalf of the second respondent.  The orders made on 22 March 2005 will be varied in the way proposed by the applicants to deal with the position of the wholly owned subsidiaries.  The second and fourth respondent should pay the applicants' costs of the motion.  I will hear the parties on what cost order should be made in relation to Mr Myers.  My present view is that Mr Myers should bear his own costs of opposing the orders sought against him.  It is not apparent to me why he opposed the order being made given that it concerned a disclosure affidavit about the assets of the first and second respondent and not his own assets.  However there may be, in point of principle, a basis for costs concerning him being dealt with differently.  In any event, the parties may be able to reach agreement about that issue.

I certify that the preceding forty-one (41) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Moore.

Associate:

Dated:             17 November 2005

Counsel for the Applicants:	AJL Bannon SC, MR Speakman SC, S Balafoutis and JM Hennessy
Solicitor for the Applicants:	Gilbert + Tobin
Counsel for the First and Second Respondents:	JC Kelly SC with AP Coleman
Solicitor for the First and Second Respondents:	Piper Alderman
Counsel for the Fourth Respondent:	AJ Meagher SC with NR Murray
Solicitor for the Fourth Respondent:	Clayton Utz
Counsel for Mr John Simon Myers:	RS Hollo
Solicitor for Mr John Simon Myers:	Minter Ellison
Date of Hearing:	24 and 25 May, 8 June, 25 July 2005
Date of Judgment:	17 November 2005