Woods v Skyride Enterprises Pty Ltd - [2012] WASC 4

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: WOODS -v- SKYRIDE ENTERPRISES PTY LTD [2012] WASC 4

CORAM: EM HEENAN J

HEARD: 14 DECEMBER 2011

DELIVERED : 14 DECEMBER 2011

PUBLISHED : 6 JANUARY 2012

FILE NO/S: CIV 3040 of 2009

BETWEEN: SANDRA LEE WOODS
First Plaintiff
DIANNE VERONICA HUTCHISON
Second Plaintiff
AND
SKYRIDE ENTERPRISES PTY LTD
First Defendant
DEAN JOHN CAPELLI
First Respondent
DEBORAH WHITING
Second Respondent

Catchwords:

Enforcement of judgments - Corporation - Committal for contempt - Application for sequestration order for corporation - Applications for committal for contempt of directors - Civil Judgments Enforcement Act s 98 - Directions - Filing of witness statements or affidavits - Production of financial records - Privilege of individuals where exposed to penalties - No privilege for corporation - Need for joinder of directors

Legislation:

Civil Judgments Enforcement Act 2004 (WA), s 98

Result:

Order for joinder of directors
Order for filing of witness statements or affidavits and production of documents by corporation
No orders against directors in view of personal privilege

Category: B

Representation:

Counsel:

First Plaintiff                :     Mr J P Cook
Second Plaintiff            :     Mr J P Cook
First Defendant             :     Mr S Van Dongen SC
First Respondent           :     Mr B J Grubb
Second Respondent       :     Mr P W Van der Zanden

Solicitors:

First Plaintiff                :     Mendelawitz Morton
Second Plaintiff            :     Mendelawitz Morton
First Defendant             :     Morgan Alteruthemeyer
First Respondent           :     Metaxas & Hager
Second Respondent       :     Hotchkin Hanly

Case(s) referred to in judgment(s):

Australian Competition and Consumer Communication v J McPhee and Son (Australia) Pty Ltd (1997) 77 FCR 217
Australian Securities and Investments Commission v Mining Projects Group Ltd (2007) FCA 1620
Daniels Corp International Pty Ltd v Australian Competition and Consumer Commission (2002) 213 CLR 543
Davies v Beyond Building Systems Pty Ltd [2009] NSWSC 1282
Environmental Protection Authority v Caltex Refining Co Pty Ltd (1993) 178 CLR 477
Lewis v Pontypridd, Caerphilly and Newport Railway Co (1895) 11 TLR 203
Pattison v Bell [2007] FCA 137
R v West Australian Newspaper Holdings Ltd; Ex parte Director of Public Prosecutions (WA) (1995) 16 WAR 508
Witham v Holloway (1995) 183 CLR 525

EM HEENAN J: The plaintiffs, Sandra Lee Woods and Dianne Veronica Hutchison, issued a chamber summons on 25 July 2011 seeking orders that the defendant, Skyride Enterprises Pty Ltd, and each of its two officers and directors be declared to be guilty of contempt of court for failure to comply with a judgment in this action entered at the direction of Master Sanderson on 16 March 2010. By this chamber summons, the plaintiffs also seek an order for sequestration against the defendant corporation and orders that both directors, Dean John Capelli and Deborah Jean Whiting, be fined or imprisoned for contempt of court and that all necessary and consequential accounts and inquiries be taken. That summons, returnable today, has been listed for hearing at a special appointment before a judge on 2 February 2012.
The application today has proceeded as a directions hearing, in the course of which the plaintiffs have sought orders requiring the defendant and the two directors to file any affidavits in response by 23 December 2011, and for the defendant and the two directors to give discovery on affidavit by the same date. Discovery is sought of documents individually described but which broadly relate to the financial circumstances of the defendant company. The directions also seek orders that any deponent to these affidavits be available for cross‑examination on his or her affidavit at the hearing of the chamber summons and that outlines of submissions be filed by the parties according to a schedule specified. The first observation to make is that the only defendant and respondent to the present application named is the company itself, and that neither Dean John Capelli nor Deborah Jean Whiting is named as a respondent.
Despite this, counsel has appeared and been heard for each of Mr Capelli and Ms Whiting. Solicitors for Ms Whiting have already entered an appearance in these proceedings, which is somewhat odd in view of the fact that their client has not been named, and counsel for Mr Capelli has given an undertaking to file an appearance. This situation has occurred because of the operation of s 98(3) of the Civil Judgments Enforcement Act 2004 (WA) (CJE Act), which provides:
If a corporation [in this case referring to the defendant] disobeys a judgment to which this Division applies, the corporation is guilty of a contempt of court, and each officer of the corporation is also guilty of a contempt of court unless he or she satisfies the court:
(a)that the corporation's disobedience occurred without the officer's consent or connivance; and
(b)that the officer took all the measures to ensure the corporation obeyed the judgment that he or she could reasonably be expected to have taken having regard to the officer's functions and to all the circumstances.
By s 98(4):
A person entitled to the benefit of a judgment to which this Division applies may request the court to deal with a natural person, partner, corporation or officer guilty of a contempt under this section for the contempt.
It is, therefore, rather easy to see how all parties have assumed that because of the application of this section the court could and should deal with the alleged contempt by the two directors. Nevertheless, I consider that the proper course is that those persons should be joined as additional respondents in these proceedings. I notice that in two examples which are comparable, where proceedings were taken either for pecuniary penalties or civil penalties for noncompliance, the individuals whose liability was correlative to that of the corporation had been joined in the proceedings. The cases which I mention are, firstly, Australian Competition and Consumer Communication v J McPhee and Son (Australia) Pty Ltd (1997) 77 FCR 217, a decision of Heerey J and Australian Securities and Investments Commission v Mining Projects Group Ltd [2007] FCA 1620.
I therefore inquired whether the plaintiffs wished to apply for the joinder to these proceedings of the two directors, in recognition of the fact that the court is entitled to deal with them under s 98(4) of the CJE Act if appropriate steps are taken. A motion to that effect was made by counsel for the plaintiffs. On raising this point of procedure with counsel for Mr Capelli and counsel for Ms Whiting, each acknowledged that he and his client had proceeded on the footing that if not formally joined, those directors were already potentially bound by these proceedings, and in Ms Whiting's case an appearance had already been entered. In the second case, Mr Capelli's case, an undertaking had been given to enter an appearance, and the hearing today had proceeded on the footing that each was properly before the Court. Accordingly, I will make the order sought that Mr Capelli and Ms Whiting be joined respectively as respondents to the application for committal. I will direct that an amended chamber summons seeking relief in the terms of the summons of 25 July 2001 shall be filed naming them and complying with the provisions of the Rules of the Supreme Court 1971 (WA) O 55 r 5(1) by specifying, with reference to the contempt alleged, whether or not it is alleged to have been committed with reference to a particular proceeding, and in this case by reference to the action already instituted, and I will direct that the amended chamber summons be served upon the solicitors for Mr Capelli and Ms Whiting respectively and that all that should be done within 14 days. Should the solicitors for Mr Capelli or Ms Whiting so request, additional copies of the affidavits and other materials filed in respect of the contempt proceedings should also be served, although, as it seems that they are in possession of those and have addressed them, I will not order service unless it is demanded.
I proceed, therefore, on the footing that Mr Capelli and Ms Whiting are parties to the application for contempt and have addressed the court at this morning's hearing on that footing. The order joining them will take effect immediately.
The defendant and the two respondents raise questions of privilege in opposition to the application for the directions sought by the plaintiffs. Before dealing with them it is necessary to say something about the action. The action was commenced by a specifically endorsed writ of summons issued on 2 December 2009 in which the plaintiffs sought an order for specific performance of a contract for the sale of certain land under the terms of a contract between the plaintiffs and the defendant corporation dated 27 August 2008. A copy of that contract was subsequently produced to the court annexed to an affidavit in support of an application for summary judgment. It provides for the sale by the plaintiffs and the purchase by the defendant of a specified unit in Marine Parade, Cottesloe for a price of $1 million dollars, with a deposit of $20,000 payable within seven days, and settlement to be within 90 days. The contract did not proceed because of the defendant's refusal or neglect to complete, and the plaintiffs thereupon applied for summary judgment. By a judgment entered on that application by Master Sanderson on 16 March 2010, as I have already noted, it was adjudged that:
(1)The agreement dated 27 August 2008 (meaning the contract of sale which I have mentioned) between the plaintiffs and the defendant, whereby the plaintiffs agreed to sell and the defendant agreed to purchase the plaintiffs' interest in the fee simple estate of the property identified therein, according to the terms and conditions of the contract, be specifically performed and carried into execution.
(2) The plaintiff be at liberty to apply upon notice to the defendant for further directions as to the implementation of order 1.
(3) The defendant do pay the plaintiffs' costs of the action to be taxed.

Mode of enforcement

It has been pointed out that the CJE Act by s 7(1) provides that:
The writs, warrants and orders immediately before the commencement of this Act, which could be issued or made at common law or in equity, or under a written law -
(a)to enforce or execute a judgment of a court; or
(b)in aid of a writ, warrant or order to enforce or execute a judgment of the court,
are abolished.
That is carried forward further by s 7(2):
The rules at common law or in equity applicable to or in relation to a writ, warrant or order that is abolished by subsection (1) and that is substantially similar to an order that may be made under this Act, apply to or in relation to the order that may be made under this Act so far as they are consistent with this Act.
The CJE Act now constitutes a comprehensive code for the methods of enforcing civil judgments. It is only monetary judgments as defined in the CJE Act and which are the subject of pt 4 which will justify an order for a means inquiry. In relation to other judgments, which do not involve the immediate obligation to pay money, different provisions apply. Under pt 5 of the Act, commencing at s 94, the CJE Act deals with the methods of enforcing non‑monetary judgments, and these methods do not include a means inquiry. By s 98, which I have already mentioned, there is a provision that disobeying a judgment is a contempt of court, and by s 98(3) and s 98(4), also already mentioned, there is a liability imposed on the officers of the corporation for contempt for disobeying a judgment against a corporation, exposing the contemnors to penalties, including fines, orders for imprisonment and, potentially, other sanctions.
The position of the defendant and the two respondents is that because proceedings for contempt are now on foot, these are in the nature of criminal proceedings, or should realistically be seen as criminal in nature, requiring proof beyond reasonable doubt: Witham v Holloway (1995) 183 CLR 525. For the purposes of this application, I accept that proposition.
The next step is that because of the criminal or quasi‑criminal nature of the proceedings, and the potential exposure of the defendant and the respondents to penalties or sanctions including imprisonment, there is a privilege against incrimination or disclosure. However it is accepted that that privilege only applies in respect of natural persons, and does not arise in the case of corporations: Environmental Protection Authority v Caltex Refining Co Pty Ltd (1993) 178 CLR 477 and Daniels Corp International Pty Ltd v Australian Competition and Consumer Commission (2002) 213 CLR 543 [13]. Again, I accept that proposition. This means that the defendant as a corporation is not entitled to such a privilege, but that the two directors as respondents have that privilege. For the defendant company, it is submitted that no order requiring discovery or the disclosure of evidence should be made against it, because the only means, in practical terms, of complying with such an order would be through the testimony of one or both of the directors who each enjoy this privilege, and that to do so would encroach upon the privilege.
I do not accept that that is the only means by which the defendant corporation may provide an answer or adduce evidence in relation to the application for contempt. It is possible that another director or directors may be appointed. It is possible that some officer who would not stand in jeopardy of any liability for contempt could be appointed in order to make inquiries, assemble information, and provide evidence relevant to the matters in issue, or that an attorney may be appointed to do this on behalf of the company. It is also possible that evidence dealing with the major factual issue likely to emerge on the contempt application could be obtained from independent sources, such as bankers, financiers, accountants and similar advisers. It follows that I see no reason why suitable orders ought not be made against the company itself. Whether or not it can comply with them is another matter, and the existence of privilege by the two directors may mean that the company cannot comply with any such direction, and should not be jeopardised because of it.
In what I have just said, I have referred to factual issues which may emerge, material to the question of contempt. The affidavits before me show that the major point in issue relating to the defendant's failure to complete this contract for the sale of land has to do with the defendant's financial circumstances. In the affidavit of Ms Sandra Lee Woods sworn 18 July 2010, in support of the contempt application of the plaintiffs, there is a quantity of correspondence and other materials indicating that the defendant's position is, and I quote from a letter from the defendant dated 2 April 2009, as follows:
Skyride [the defendant] entered into these five contracts relying upon investors who held sufficient funds and had stated their intention to invest those funds. However, as a result of the financial meltdown and overwhelming media advice to hold off on investments, these investors have found their position has changed and they have withdrawn their proposed investment.
In the circumstances, Skyride applied to all the banking institutions, including Westpac, NAB, ANZ, Bendigo, PCU and mortgage brokers to raise finance for the purchases. In every case the response has been that unless all of the units in the Cottesloe complex are under contract, finance would not be provided.
The letter goes on to enlarge upon the explanation that the defendant does not have the financial means to complete this contract. That assertion is obviously contested by the plaintiffs, and in the course of submissions it was advanced that the defendant, Skyride, had the ownership of 14 other strata units, unencumbered, which would, or could, provide security to raise money to complete this contract and that no explanation about this had been put forward. Counsel for the defendant company drew my attention to a transfer of land dated 3 February 2010, that is, before the judgment, showing that a number of these properties alleged to have been owned by the defendant have been transferred to another company, apparently pursuant to a deed for the removal and appointment of trustees of a property trust. That transaction, so it was submitted, provided an answer to the allegation that the defendant owned property which could be sold or mortgaged to provide funds. I do not consider that I should investigate this issue beyond observing that all that the transfer indicates is that the probabilities are that there was a change of trustee for this land. It gives no hint as to where the beneficial interest in the properties lies. The question, therefore, of whether or not the defendant has the means of raising money on the security of other property to provide funds for this purchase is still open.
On the significance or otherwise of lack of means by the defendant to provide money to complete this purchase, the affidavit of the first plaintiff includes correspondence from the solicitors for the defendant which contains reference to authorities said to support the proposition that if the defendant does not have the means to complete the contract, then it ought not be subject to any sanction for alleged contempt. The defendant relies on the decision of Gray J in Pattison v Bell [2007] FCA 137 [33] ‑ [35], and the decision in Davies v Beyond Building Systems Pty Ltd [2009] NSWSC 1282 [22] ‑ [26] for that proposition. The defendant also alleges that the onus of proving breach, and hence susceptibility to sanctions for contempt, rests upon the plaintiff, and that this includes an obligation to show that the defaulting defendant had the means to satisfy the judgment. The plaintiffs do not accept this, submitting that if the defendant relies upon lack of funds to excuse its noncompliance with the judgment, it has the onus of demonstrating that lack of funds, relying on a judgment of Lord Esher MR in Lewis v Pontypridd, Caerphilly and Newport Railway Co (1895) 11 TLR 203.
There remains an issue between the parties as to whether there is any such onus and, if so, where it lies. It would be premature to resolve that today, but this is enough to reveal that at the eventual hearing of this application for contempt, there will be, or there could be expected to be, evidence about the financial means of the defendant or its lack of means to satisfy this judgment.
With that perspective, the effect of the directions being sought by the plaintiff for discovery and for the filing of witness statements or affidavits becomes more obvious. The purpose is to require disclosure of, or discovery of, documents bearing upon the defendant's financial circumstances and its ability to raise funds. I accept that documents of that character are relevant to the issues likely to be revealed.
I come, however, to the questions of privilege. It is enough for me to repeat here a passage in the judgment of Finkelstein J in the ASIC v Mining Projects Group. I read from pars 9 ‑ 13 of his Honour's judgment. It is a most helpful and comprehensive statement of the law:
In the case of self-incrimination privilege the defendant must establish that the provision of information or the production of documents in the civil case leads to a real and appreciable risk of a criminal prosecution before the privilege can be invoked: Rio Tinto Zinc Corp v Westinghouse Electric Corp [1978] AC 547 at 574; Rank Film Distributors Ltd v Video Information Centre [1982] AC 380 at 392; Sorby v Commonwealth (1983) 152 CLR 281, 290 and 294. That will not be difficult to show when, as here, the proceeding is aimed at proving that the directors engaged in conduct which would establish, or go a long way toward establishing, that they had also committed criminal acts.
The manner in which penalty privilege is to be claimed depends upon the type of proceeding in which the claim is made. In R v Associated Northern Collieries (1910) 11 CLR 738, Isaacs J drew attention (at 742) to the 'inherent distinction between a civil action to prevent or redress a civil injury on the one hand, and a civil action to recover a penalty on the other. In the latter case the whole and avowed object of the proceeding is the infliction of the penalty'. See also Mayor of Derby County Borough v Derbyshire County Council [1897] AC 550 at 552; Refrigerated Express Lines (A/Asia) Pty Ltd v Australian Meat and Live-Stock Corporation (1979) 42 FLR 204 at 207. In an action to recover a penalty it is not necessary for the defendant to establish that there is a risk he will be subjected to a penalty by providing information to the plaintiff. The plaintiff is seeking the information for that very purpose. It does not matter that in the proceeding the plaintiff also claims other relief: Birrell v Australian National Airlines Commission (1984) 1 FCR 526 at 530. In civil actions where no claim for a penalty is made the defendant must show that providing the information requested would tend to subject him to a penalty in separate proceedings before he can rely on the privilege.
The circumstances in which penalty privilege may be claimed are not settled. In the past penalty privilege has been raised to prevent a plaintiff obtaining an order for discovery of documents or the administration of interrogatories: see eg Naismith v McGovern (1953) 90 CLR 336 at 341‑342. It is clear, however, that the privilege has a wider scope. It will operate, for example, to prevent an order being made for the provision of witness statements (Australian Competition and Consumer Commission v FFE Building Services Ltd (2003) 130 FCR 37) or for the production of documents on subpoena (Caltex Refining 178 CLR 477, 560). In Refrigerated Express 42 FLR 204, 207‑208 Deane J said that the privilege operates to prevent a plaintiff obtaining any information that will assist in establishing the defendant’s liability to a penalty.
That the rule has a wider application than merely preventing a plaintiff from obtaining discovery or interrogatories reflects the broad object of penalty privilege. In Daniels Corporation 213 CLR 543, 559 Gleeson CJ, Gaudron, Gummow and Hayne JJ said that penalty privilege 'serves the purpose of ensuring that those who allege criminality or other illegal conduct should prove it'. That is, the plaintiff must prove his case without any assistance from the defendant: Abbco Iceworks 52 FCR 96, 129; Rich 220 CLR 129, 142. So it has been held that although in a civil action a defendant is required to deliver a defence he cannot be compelled to make any admissions in relation to the matters alleged against him. That is, penalty privilege operates to relieve a defendant from the need to deliver a defence that complies with the pleading rules if the rules would override the privilege. To the extent that pleading rules purport to impose such an obligation they must give way to the privilege: Hadgkiss v Construction, Forestry, Mining and Energy Union (2005) 146 IR 106 at 111‑112; A & L Silvestri Pty Ltd v Construction, Forestry, Mining and Energy Union (2005) 226 ALR 247 at 251.
There is a potential problem if, as in this case, a defendant wishes to run a positive case. Ordinarily a positive case must be raised in the defence. Whether it must be raised in a defence in a civil action to recover a penalty is by no means clear. The view I favour is that there can be no such requirement as it would be inconsistent with the privilege. On the other hand, if a defendant who wishes to run a positive case is required to plead his case that can be accommodated while maintaining the privilege. What should occur is that the defendant should be entitled to rely on the privilege until the plaintiff’s case is concluded. If at that point the defendant decides to run a positive case he can deliver an amended defence that will outline his case. In an exceptional case the judge may grant a short adjournment to allow the plaintiff time to prepare, if he is otherwise taken by surprise. In most cases that will not be necessary. By the time the plaintiff has closed his case the nature of the defence will usually be apparent. That is the experience of those who prosecute criminal cases. The advocate who runs a civil penalty proceeding should be equally adept at dealing with the defendant and his witnesses without knowing in advance every word they are about to say [9] - [13].

Several observations in relation to the present case are apparent. I am satisfied that the effect, if not the purpose, of obtaining orders for the filing of affidavits and discovery by Mr Capelli and Ms Whiting in this present case would, or may tend to, assist the plaintiffs in establishing liability against each of them for contempt of court, and that, consequently, each enjoys the benefit of the privilege so described. Secondly, from my earlier recitation of the material factual issues likely to emerge at the eventual hearing of this contempt application, it is apparent that either the defendant or the two respondents may well wish to adduce evidence putting forward a positive case explaining, among other potential reasons, that it is the lack of means of the defendant and its inability to raise finance which makes it impossible for the defendant to complete this contract, and hence to assuage, to some degree at least, its noncompliance with the judgment.
If that were to be established, that might lead to further steps such as an application to dissolve the decree of specific performance and an order for judgment for damages to be assessed to be entered in lieu, although I am not to be taken as suggesting that should, or necessarily would, follow.
Enough has been said to indicate that there is every probability that if the privilege is relied upon, as both respondents through their counsel have indicated that it will be relied upon, evidence in support of that positive case will not come from them, if at all, until the plaintiff has presented its case for contempt at the hearing on 2 February 2012 or whenever the matter is eventually listed for determination. The question which would then arise, if a positive case were to be presented, is whether or not the plaintiffs should be given an opportunity, if necessary by adjournment, to attempt to rebut the case so raised. I should not at this stage indicate that an opportunity for such an adjournment would necessarily be granted because, as Finkelstein J has said, the prospects may be sufficiently clear to allow the plaintiffs to anticipate the line which may be taken by the defendant and the respondents and to be in a position to answer that immediately, should it emerge, at the hearing on 2 February 2012 or whenever the matter is heard. That will be a point of procedure which, if it arises, would have to be decided according to the circumstances then prevailing and I say nothing more about it. However, the mechanism of allowing an opportunity for a person, confronted with a positive case by an alleged contemnor not previously disclosed, to obtain an adjournment has been the subject of a decision in this court - in the decision to which I was referred, R v West Australian Newspaper Holdings Ltd; Ex parte Director of Public Prosecutions (WA) (1995) 16 WAR 508. Whether such an approach should be followed in the present case if the situation arises in similar fashion would have to be decided in light of the circumstances then arising.
It therefore leaves me in the position where I conclude that because of their claim for privilege against self-incrimination or penalty privilege, no order for the filing or serving of affidavits by Dean John Capelli or by Deborah June Whiting should be made in advance of the hearing. For similar reasons no order requiring discovery by either of them should be made, and to that extent the directions sought by the plaintiffs should be refused.
That leaves the question of the company, which, as I have already said, does not enjoy the privilege. Accordingly, directions substantially as sought should be given in relation to that corporation. The subject of the affidavit of discovery will be as set out in pars (i) to (ix) of the minute. There will be an order for filing of any affidavit by the defendant in response to the chamber summons and an affidavit of discovery by 12 January 2012. In relation to the list of categories of documents to be discovered as sought in pars (i) to (ix) of the proposed minute, there will be added the following passage:
In respect of each of the foregoing categories of documents, the discovery shall be in respect of documents bearing upon, or in any way reflecting, the assets and liabilities of the defendant and its financial position from the period of the judgment on 16 March 2010 to the present date, and upon the capacity of the defendant to raise capital by loan, mortgage or other means sufficient to allow completion of the contract for the purchase of the property the subject of these proceedings.
At this stage I do not consider it appropriate to direct that any deponent be available for cross‑examination at the hearing of the chamber summons, although an application for cross‑examination of deponents may be made before 2 February 2012 on at least seven days notice to the opposing party. That applies to the defendant and to the respondents. There will be orders for outlines as sought in pars 4, 5 and 6 of the minute, without prejudice, to any privilege which the respondents may wish to assert. The costs shall be in the ultimate cause.