(2001) ATPR 41-807
Australian Consolidated Press Ltd v Morgan [1966] ALR 387
(1965) 39 ALJR 32
(1965) 112 CLR 483
Australian Securities and Investments Commission v Michalik (No 2) (2004) 52 ACSR 115
Source
Original judgment source is linked above.
Catchwords
(1986) 66 ALR 577(2001) ATPR 41-807
Australian Consolidated Press Ltd v Morgan [1966] ALR 387(1965) 39 ALJR 32(1965) 112 CLR 483
Australian Securities and Investments Commission v Michalik (No 2) (2004) 52 ACSR 115(2004) 62 NSWLR 335[2011] NSWSC 62
Barkley v Barkley-Brown [2010] NSWSC 746
Bastion Holdings Ltd v Jorril Financial Inc [2007] UKPC 60
[2007] 11 WLUK 169
Bell v Stewart [1920] HCA 68
[2018] NSWCA 340
Fairclough v Manchester Ship Canal Co [1897] WN 7
(2008) 248 ALR 609
[2008] HCA 36
Heatons Transport (St Helens) Ltd v Transport and General Workers' Union [1973] AC 15
Hussain v Hussain [1986] 2 WLR 801
[1966] 1 WLR 986
Trade Practices Commission v CG Smith Pty Ltd (1978) 30 FLR 368
(1978) ATPR 40-059
Vaysman v Deckers Outdoor Corp Inc [2014] FCAFC 60
Witham v Holloway (1995) 183 CLR 525
(1995) ALR 401
[1995] HCA 3
Worthington v Ad-Lib Club Ltd [1965] Ch 236
Judgment (20 paragraphs)
[1]
& Co [1900] 1 Ch 487
Dentown Pty Ltd v PWI Group Pty Ltd as trustee of The Australia No. 1 Group Trust [2019] NSWSC 1032
Dowling v Prothonotary of the Supreme Court of New South Wales (2018) 99 NSWLR 229; [2018] NSWCA 340
Fairclough v Manchester Ship Canal Co [1897] WN 7; (1897) 41 Sol Jo 225
Fajloun v Khoury [2016] NSWCA 101
Furlong v Wise & Young [2019] NSWSC 1718
Harkianakis v Skalkos (No 2) [1997] NSWCA 137
Hearne v Street (2008) 235 CLR 125; (2008) 248 ALR 609; [2008] HCA 36
Heatons Transport (St Helens) Ltd v Transport and General Workers' Union [1973] AC 15
Hussain v Hussain [1986] 2 WLR 801; [1986] 1 All ER 961
In the matter of Statewide Office Furniture Pty Ltd [2018] NSWSC 1393
Infa-Secure Pty Limited v Crocker [2015] FCA 830
Kirkpatrick v Kotis [2004] NSWSC 1265; (2004) 62 NSWLR 567
Knight v Clifton [1971] Ch 700
Markisic v Keelty [2005] NSWSC 1124
Matthews v Australian Securities Investment Commission [2009] NSWCA 155
McNair Anderson Associates Pty Ltd v. Hinch [1985] VR 309
Metcash Trading Limited v Bunn (No 5) [2009] FCA 16
Microsoft Corporation v Marks (No 1) (1996) 69 FCR 117; (1996) 139 ALR 99
Pang v Bydand Holdings Pty Ltd [2011] NSWCA 69
R v Olbrich (1999) 199 CLR 270
Re Agreement of The Mileage Conference Group of The Tyre Manufacturers' Conference Ltd [1966] 2 All ER 849; [1966] 1 WLR 1137
Re Group Pty Ltd v Kazal [2017] FCA 1084
Reliance Financial Services Pty Ltd v Allyma Express Holdings Pty Ltd (No 3) [2019] NSWSC 511
Shoppe v Nathan & Co [1892] 1 QB 245; [1892] 1 WLUK 34
Spindler v Balog (1959) 76 WN (NSW) 391
Stancomb v Trowbridge Urban District Council [1910] 2 Ch 190
Steiner Products Ltd v Willy Steiner Ltd [1966] 2 All ER 387; [1966] 1 WLR 986
Trade Practices Commission v CG Smith Pty Ltd (1978) 30 FLR 368; (1978) ATPR 40-059
Vaysman v Deckers Outdoor Corp Inc [2014] FCAFC 60
Witham v Holloway (1995) 183 CLR 525; (1995) ALR 401; [1995] HCA 3
Worthington v Ad-Lib Club Ltd [1965] Ch 236; [1964] 3 All ER 674
Category: Principal judgment
Parties: Gek Tsia (Plaintiff)
Jimmy's Recipe Pty Ltd (First Defendant)
Jimmy's Recipe Gateway Pty Ltd (Second Defendant)
Alwin Chong (Third Defendant)
Norannie Chong (Fourth Defendant)
Chee Wee Seow (Fifth Defendant)
Representation: Counsel:
Mr D Smallbone / Mr WR Chan (Plaintiff)
Mr CA Lambert (Third and Fourth Defendants)
[2]
Solicitors:
Brown Wright Stein (Plaintiff)
Peter Papadopoulos & Co Lawyers (Third and Fourth Defendants)
File Number(s): 2017/200809
[3]
Judgment
This is an application by the plaintiff, Gek Tsia, for orders that the third defendant, Alwin Chong, and the fourth defendant, Alwin's mother Norannie Chong, be found guilty of and punished for contempt of court for breaching an undertaking which they each gave to the Court on 23 October 2017 to ensure that the first defendant, Jimmy's Recipe Pty Ltd, would bank each day's cash takings. Alwin and Norannie Chong accept that the undertaking was breached, and the parties agree that the unbanked cash was $137,555 over a five month period. The question is whether their actions amount to contempt and what penalty, if any, should be imposed or whether, as the defendants contended, breach of the undertaking was innocent, merely technical and explicable.
Ms Tsia, Alwin and Norannie Chong are the shareholders of Jimmy's Recipe, which operates a Malaysian restaurant in Sydney. Alwin and Norannie Chong are the directors of the company. For completeness, the second defendant is Jimmy's Recipe Gateway Pty Ltd and the fifth defendant, Chee Wee Seow, is a director and shareholder of that company: they are not concerned with this application. In the substantive proceedings, the plaintiff seeks relief from oppression in relation to Jimmy's Recipe. In particular, complaint is made that another "Jimmy's Recipe" restaurant has been established at Circular Quay through another corporate entity - Jimmy's Recipe Gateway - and the business, name, goodwill and intellectual property of Jimmy's Recipe have been appropriated to the advantage of the defendants. The plaintiff seeks, pursuant to a grant of leave under section 237 of the Corporations Act 2001 (Cth), relief for breach of director's duties. Complaint is also made in respect of discriminatory repayments said to have been made to the third and fourth defendants' loan accounts. The plaintiff seeks a compulsory purchase order in respect of her shares, an account for money taken as 'wages', or, alternatively, the appointment of a receiver or liquidator.
[4]
The charge
The amended statement of charge in respect of Alwin Chong is as follows (the charge in respect of Norannie Chong is in like terms):
[T]he third defendant, Alwin Nam Chu CHONG, is guilty of contempt of this honourable Court in that in breach of an undertaking given by him by his counsel to this Court on 23 October 2017,
Being an undertaking that he would cause the First Defendant company Jimmy's Recipe Pty Ltd, to bank each day's cash takings of that company on the same or the next day on which its bankers are open for acceptance of deposits, save that the said undertaking provided that there might be retained each day in the said company's till register a till float of $2,000 for the next day's trading,
The Third Defendant the said Alwin Nam Chu CHONG, being at all times during the period hereafter mentioned a director of the said Company,
He has suffered the said Company, in the period from 20 August, 2018 to 14 January, 2019, to fail to bank cash takings of an amount exceeding $134,000 (after allowing for the deduction of a $2,000 float).
Detailed particulars were provided, including in a spreadsheet prepared by Jia Tsia, the plaintiff's brother and a chartered accountant, based on his review of the records produced by the third and fourth defendants to the plaintiff's solicitor in accordance with orders made by the Court.
The plaintiff seeks that the third and fourth defendants be imprisoned or such punishment as the Court thinks fit. The plaintiff also seeks an order that the third and fourth defendants pay, by way of restoration, the unbanked cash together with interest. The plaintiff seeks leave to issue an examination notice to the third and fourth defendants in the name of Jimmy's Recipe; that their defences be struck out and judgment be entered against them; and for costs of the application to be paid on an indemnity basis.
[5]
Witnesses
The plaintiff relied on the evidence of three witnesses, each of whom were cross-examined. Melissa Morgan and Clement Lo are the plaintiff's solicitors and I accept their evidence. Mr Tsia was an impressive witness and I accept his evidence.
The defendants relied on the evidence of six witnesses, each of whom were cross-examined. The accountant for Jimmy's Recipe, Abbas Hammoud, had a close working relationship with Alwin Chong, who regularly came to Mr Hammoud's office and was assisted by Mr Hammoud's staff to complete record keeping. The plaintiff did not suggest any issue arose as to Mr Hammoud's credibility. The third and fourth defendants' former solicitor, Christopher Nakamura, was a perfectly straightforward solicitor and I have no reason to doubt anything that he said. His file was produced on subpoena and tendered; having reviewed it, Mr Nakamura's file confirms my impression from his evidence that he is a careful and meticulous practitioner, routinely obtaining separate confirmation from his clients of their instructions and that draft documents or proposed orders were agreed to by them.
Two suppliers to Jimmy's Recipe, Wooi (Ken) Ngu of "F&Q Express" and Veisvavathan (Nathan) Kulandaivelu of "UV Thaza Trading" were cross- examined. Three problems affected the evidence of the suppliers. First, their affidavits were identical. As I noted in Dentown Pty Ltd v PWI Group Pty Ltd as trustee of The Australia No. 1 Group Trust [2019] NSWSC 1032 at [15] to [19], the contents of identical affidavits are devalued by reason of their identity and a judge will approach the contents with caution: see Ward J in Celermajer Holdings Pty Limited v Kopas (2011) 16 BPR 30,735; [2011] NSWSC 40; Zagame v Zagame [2014] NSWSC 1302 at [65]-[69] (per Hallen J); Krajovska v Krajovska [2011] NSWSC 903 at [6] (per Black J); Macquarie Developments Pty Limited v Forrester [2005] NSWSC 674 at [89]-[91] (per Palmer J); In the matter of Colorado Products Pty Ltd (in prov liq) (2014) 101 ACSR 233; [2014] NSWSC 789 at [18] (per Black J). In these circumstances, the suppliers' oral evidence is likely to be more indicative of what actually happened than events as described in their duplicate affidavits.
Second, it became apparent that the affidavits of the suppliers did not reflect reality in two ways. First, although Mr Ngu's affidavit was affirmed without the assistance of an interpreter, he required an interpreter to give evidence. When Mr Ngu affirmed the affidavit, there was no interpreter present: Alwin Chong took him to the lawyer's office (not Mr Nakamura) and read the affidavit to him in Cantonese before Mr Ngu signed it. I note that Mr Ngu said that he asked his son to help him write the affidavit as he did not understand any English. I doubt this evidence as the affidavit is identical to that of Mr Kulandaivelu and it is more likely that both affidavits were prepared by the defendants' solicitor than by Mr Ngu's son.
[6]
Evidentiary ruling
Objection was taken by the plaintiff to the tender of four documents signed by employees on 19 March 2019 confirming that they had received payment in cash from Jimmy's Recipe on 19 August 2018, 10 September 2018, 23 October 2018 and 19 November 2018. On their face, the documents did not appear to be business records and I granted leave to the defendants' counsel to adduce further evidence from Norannie Chong to support the tender of the documents. Mrs Chong agreed that she prepared the documents on 19 March 2019 as part of what she was doing to comply with the direction made by the Court to serve the defendants' affidavits in respect of the motion for contempt. The documents being prepared in the course of legal proceedings rather than being a document that forms part of the records kept by a business, the requirements of section 48 of the Evidence Act 1995 (NSW) were not satisfied and I reject the tender of these documents.
[7]
Facts
Jimmy and Norannie Chong hail from Malaysia where their son Alwin was also born. In 2008, Jimmy's Recipe was incorporated and Jimmy and Alwin became directors. In 2011, Norannie Chong replaced Jimmy as a director and Jimmy transferred his shares in the company to Alwin. Alwin was operations manager of Jimmy's Recipe and his mother described her role as follows,
Since my appointment as a director, I have taken management duties … I also continue my duties in doing the bookkeeping, calculating and depositing daily taking, visiting the company's accountant to calculate the turnover for reporting purposes to the landlord and other administrative duties.
Mrs Chong said that she did all of the banking for the business since the company started. Thus, both Alwin and Norranie Chong had active roles in the business.
In 2010, the plaintiff became a shareholder in Jimmy's Recipe. In 2011, the registered office of Jimmy's Recipe became that of Mr Tsia Snr, who became the accountant for Jimmy's Recipe. Mr Tsia assisted his father with the accounting and his sister to manage her investment in the company.
On 3 July 2017, an Originating Process was filed commencing these proceedings. The defendants were then Jimmy's Recipe, Jimmy's Recipe Gateway and Alwin Chong. Later that day, the plaintiff's father and brother were removed as the accountants for Jimmy's Recipe and Hammoud Partners became the accountants instead. Whilst Mr Tsia Snr had been the accountant, Norranie Chong had kept a cash wages book but discontinued this practice when Mr Tsia Snr was removed. Instead, each month Alwin Chong made an entry into a Xero accounting software at Mr Hammoud's office for cash wages that he had paid although there may have been a hiatus before he began doing this.
In August 2017, the plaintiff's solicitor wrote to the defendants' solicitor requesting access to the books and records of Jimmy's Recipe and sought an undertaking from Alwin Chong that proper books and accounts would be kept and the business conducted in an ordinary manner until the proceedings were concluded. On 1 September 2017, Brereton J granted leave to the plaintiff to file an Amended Statement of Claim joining Norannie Chong as fourth defendant. The plaintiff also followed up her request for documents and an undertaking. On 4 September 2017, the plaintiff filed an Amended Statement of Claim joining Mrs Chong. On 8 September 2017, Mr Chong offered an undertaking similar to that sought, but declined one element, being to give an undertaking to restrict his wages to $1,000 a week.
[8]
The undertakings
On 17 October 2017, having apparently heard nothing further from the defendants in respect of undertakings sought, the plaintiff filed an Interlocutory Process seeking the following orders, of which prayers 1, 2 and 3 accord with undertakings later given by Alwin and Norannie Chong:
1 An Order until further order that the third and fourth defendants and each of them do all things necessary to cause the first defendant Company to keep proper books, records and accounts, and that such records shall include daily cash register rolls recording all cash takings of the Company from day to day and recording all money disbursed from the till.
2 An Order that until further order the third and fourth defendants and each of them do ensure that all cash transactions of the first defendant Company go through the Company's tills and are entered into the Point of Sales System.
3 An Order that until further order the third and fourth defendants and each of them do cause the first defendant Company to bank each day's cash takings of the first defendant Company on the same or the next day on which the Company's bankers are open for acceptance of deposits, provided that for the next day's trading a till float of $2,000 may be retained in the till register.
4 An Order that until further order the third and fourth defendants and each of them do cause the first defendant Company to provide to the Plaintiff by her solicitors at weekly intervals on Mondays, copies of the first Defendant Company's daily cash register rolls, for the preceding week, provided that the first delivery shall include copies of the daily cash register rolls for each day of trading commencing on the day of filing of this Interlocutory Process.
…
8 Costs.
In support of the Interlocutory Process, the plaintiff's solicitor swore an affidavit attaching correspondence with the defendants' solicitor to which I have already referred, noting that the plaintiff had yet to receive an undertaking from the third or fourth defendants and had not received a daily cash register roll since her father had been removed as accountant on 4 July 2017.
Mr Nakamura promptly forwarded the Interlocutory Process to his clients and requested a conference with them the next day. On 18 October 2017, Mr Nakamura met with Alwin and Norannie Chong and took instructions in respect of the prayers for relief. In cross-examination, Mr Nakamura said that he recalled meeting with Mr and Mrs Chong in relation to the proposed orders before the motion was heard and said that he would have explained the orders to his clients, "I wouldn't consent on behalf of the clients without the clients' understanding what is the order about". However Mr Nakamura could not remember the precise explanation that he gave. Mr Nakamura's file note records:
1. Agreed
2. Agreed
3. Agreed
4. No agreed - unnecessarily causing legal expenses to client and to Jimmy's Recipe
…
8. Not agreed
That is, Alwin and Norannie Chong gave instructions to agree that all cash transactions would go through the company's till and Point of Sale system, but not to agree to provide records on a weekly basis confirming that this had been done. On 22 October 2017, Mr Nakamura sent an email to Alwin and Norannie Chong referring to their appointment on 18 October 2017 in relation to the proposed orders sought in the motion, enclosed another copy of the motion and sought confirmation that they consented to prayers 1, 2 and 3 of the Interlocutory Process. Alwin and Norannie Chong separately confirmed by email that they each consented.
[9]
Cash wages
The orders made by Black J on 23 October 2017 also required the defendants to produce documents by 13 November 2017 including the general ledger for Jimmy's Recipe from January 2017 to date. On 1 November 2017, Mr Nakamura sent an email to Alwin and Norannie Chong following up production of the general ledger. On 8 November 2017, Arnold Oking of Hammoud Partners sent an email to Mr Nakamura, copied to Alwin and Norannie Chong, setting out the reasons for the delay in providing the general ledger.
The company did not have an accounting software or any source documents on hand. Our firm was required to set up a new accounting software, allocate all transactions and liaise with the client for queries to prepare financial reflecting a true and accurate portrayal of the entity.
Another reason for the delay was said to be, "[r]econciliation of wages and preparation of payment summaries". It would appear that Jimmy's Recipe did not have any existing accounting records of its activities and Hammoud Partners was 'starting from scratch'.
On 10 November 2017, Mr Nakamura prepared a file note including the following: (emphasis added)
Cash drawer - $244,843.06. This will be shown as money not deposited, but it is in fact being used to pay wages. Undeclared and no tax is being held. There is no actual cash left except the float money which is $2,000.00. No super has been paid. Advised Alwin and Norannie by telephone in relation to this matter and told them that this could be a problem with the ATO as this is essentially a tax evasion. Advised clients not to pay cash wages in the future.
As Mr Hammoud explained, the Cash Drawer was cash received less cash outgoings, or whatever the Point of Sale system designated as cash sales minus cash expenses at any particular point in time. Mr Nakamura said that the information in his file note about the amount of the Cash Drawer was obtained from Mr Oking, who said that the money would be shown as not deposited into the bank. The accountant told Mr Nakamura that the money was undeclared and that no tax was being held. Mr Nakamura raised this with Mr and Mrs Chong, "I said any cash payment for salaries should be stopped … You must comply with the legislations with the ATO, you know, to make sure that you not get in trouble". Mrs Chong and her son, Mr Chong told Mr Nakamura that the money was in fact being used to pay wages. "There was, in fact, there was no money in the till, everything has been deposited into the bank. The only money that they have in the till was $2,000 in accordance with the court order. That's my recollections …". It seems to me that the first portion of Mr Nakamura's file note records information conveyed to Mr Nakamura by Mr Oking of Hammoud Partners and the second italicised portion records a subsequent conversation between Mr Nakamura and Alwin and Norannie Chong.
[10]
Orders for disclosure
In March 2018, the plaintiff filed a motion seeking disclosure of documents and Brereton J made orders for disclosure. On 20 August 2018, Justice Brereton made further orders for disclosure by consent including:
The third and fourth defendants give disclosure on an ongoing basis once per week commencing on 29 August 2018 of the following documents with respect to the first defendant, namely its point of sales receipts summary, point of sales receipts individual cash expense records, cheque details, bank account transactions and invoices relevant to cash expenses and cheque payments.
It shall be sufficient…[compliance] with this order for copies of the documents to be served on the plaintiff's solicitors each week by email from the third and fourth defendant solicitor.
These orders for disclosure incorporated two sets of amendments proposed by Alwin and Norannie Chong through Mr Nakamura. The form of the orders had been finalised over some five months. The alleged contempt of court is said to have commenced from the date of these orders. On 29 August 2018 the plaintiff's solicitor began receiving documents from the defendants' solicitor in accordance with the orders. Mr Tsia reviewed the documents on receipt and entered the information into a spreadsheet which is now annexed to the statement of charge.
On 14 November 2018, the plaintiff's solicitor wrote to Mr Nakamura noting that, according to the documents provided each week, a considerable amount of cash had not been banked contrary to the undertaking given to the Court on 23 October 2017. The plaintiff demanded, by 5pm on 15 November 2018, an explanation as to why the cash had not been banked, where the cash was, and also demanded that the cash be banked other than the cash float of $2,000. In the early hours of the following morning, at 12.45 am on 15 November 2018, the defendants called the NSW Police reporting a break-in at which time the $2,000 cash float was said to have been stolen. The timing of the reported break-in was certainly unfortunate.
On 15 and 19 November 2018, Mr Nakamura wrote to the plaintiff's solicitor advising that he was taking instructions. On 21 December 2018, the plaintiff's solicitor wrote again noting they had not received a response to the letter of 14 November 2018 and were instructed to approach the Court to address the breach of the undertaking and to seek the costs of the application on an indemnity basis.
[11]
Contempt motion
On 4 February 2019, the plaintiff filed a motion charging the defendants with contempt of court and, on 7 February 2019, the defendants appointed new solicitors. In defending the motion, the defendants relied on the affidavit of Mr Hammoud together with identical affidavits of Alvin and Norannie Chong who each deposed:
I deny that I did or have attempted to deprive [Jimmy's Recipe] of the moneys alleged in the Statement of Charge. Rather the moneys that the Plaintiff refers to were simply used to pay for supplies and wages in the business as they arose.
[Jimmy's Recipe] has suppliers who will not deliver supplies unless they are paid cash on delivery … In paying these supplies by cash, it was never my intention to wilfully disobey or disregard the undertaking I gave to Justice Black or attempt to interfere with the administration of justice.
… Most of our staff prefer to have their wages paid by cash. In paying the staff's wages by cash it was never my intention to wilfully disobey or disregard the undertaking I gave to Mr Justice Black or attempt to interfere in the administration of justice.
… I was not present in the court on 23 October 2017 when the undertaking was given … At all times, I endeavoured to follow these Orders in accordance with how they were explained to me by my legal advisor at the time and this was how I understood them.
[Jimmy's Recipe] would usually keep the cash received by [Jimmy's Recipe] to pay bills and supplier expenses as they arose. Following a proper and more fulsome explanation of the undertaking and Orders from my present legal advisers I now ensure if I am doing the banking [Jimmy's Recipe] banks all cash takings other than $2,000 for a float and it pays any other expenses by either credit card, cheque or electronic funds transfer.
Mr Hammoud prepared a report seeking to calculate and reconcile the cash dealings of Jimmy's Recipe by reference to bank statements, Point of Sale system daily reports, additional tax invoices paid by cash, Point of Sale system generated bank deposit slips, weekly payroll employee summaries, weekly employee payslips, Instalment Activity Statements and Business Activity Statements. Mr Hammoud calculated that there was $137,555.30 cash unaccounted for when one reviewed the cash sales against cash outgoings recorded in the Point of Sale system daily reports and bank deposit slips. The plaintiff accepts this figure. The discrepancy was said to be explained by two items.
[12]
What happened to the cash?
As to whether the cash takings were, in fact, used to pay suppliers and wages, on the balance of probabilities, I accept that the monies were so spent. In the case of the suppliers, I accept the evidence of Mr Ngu and Mr Kulandaivelu that, whatever changes were made to their dockets to add ABNs or business names at the request of Alwin Chong, the essential details recorded in their dockets - being the amount which they charged for their goods and the fact that the amount was paid - were correct. Both suppliers strongly disagreed that their invoices overstated what they had delivered or what they had been paid. They denied that they created or exaggerated their invoices to help out the defendants. Mr Ngu was insistent that he delivered the vegetables recorded in the docket and received the amount recorded as having been paid and exaggerated neither. Overall, I am inclined to accept Mr Ngu's evidence on this point unless there is evidence to the contrary. Likewise, and more readily, I accept Mr Kulandaivelu's evidence that he did supply the goods described in his dockets and was paid the amounts recorded.
In respect of cash wages, the fact that Mr Hammoud has reconciled the company's payslips with Instalment Activity Statements and Business Activity Statements submitted by Jimmy's Recipe to the ATO suggests to me that the cash wages were paid by the company to the employees as detailed on the payslips. It seems unlikely that the company would submit an Instalment Activity Statement or Business Activity Statement acknowledging an obligation to remit PAYG to the ATO unless it had in fact paid wages to those employees.
Some corroboration for this is to be found in the email from Mr Oking of Hammoud Partners of 8 November 2017 and Mr Nakamura's file note of 10 November 2017, set out at [29] and [30]. At the time when the undertaking was given, it appears that not only were cash wages being paid but no tax was being withheld nor superannuation paid nor, it would appear, were the cash wages being declared as income by the employees. It appears at that time that some efforts were being made by Hammoud Partners to remedy this most unsatisfactory state of affairs and Mr Nakamura gave advice in no uncertain terms to Alwin and Norannie Chong to desist from such a practice. The period of alleged contempt commenced on August 2018 - nine months after this advice was given - and it would appear from Mr Hammoud's report that the accounts of the company are now in a better state although, obviously, the evidence at a final hearing may well be more expansive than that which was before me on this motion for contempt.
[13]
Submissions
The plaintiff accepted that, notwithstanding that the alleged contempt is a civil contempt, the burden of proof is on the plaintiff to prove the charge beyond a reasonable doubt: Witham v Holloway (1995) 183 CLR 525; (1995) ALR 401; [1995] HCA 3. It is neither necessary to show that the disobedience was contumacious, nor that he or she intended to interfere with the administration of justice: Alexander v Crawford [2003] NSWSC 426 at [15]-[17] (per Bryson J); Heatons Transport (St Helens) Ltd v Transport and General Workers' Union [1973] AC 15 at 109 (per Lord Wilberforce). It is the doing of the prohibited act and not intent that is the relevant matter: Attorney General v Times Newspapers Ltd [1992] 1 AC 191 at 217 (per Lord Oliver); Knight v Clifton [1971] Ch 700 at 721 (per Sachs LJ). Intent is however relevant to penalty: Australian Competition and Consumer Commission v Hughes [2001] FCA 38; (2001) ATPR 41-807 (per Tamberlin J); Alexander v Crawford at [15] (per Bryson J).
An undertaking to the Court is as binding and effective as an order of the Court: Hussain v Hussain [1986] 2 WLR 801; [1986] 1 All ER 961 at 963 (per Sir Donaldson MR). It is not necessary to prove that the third and fourth defendants knew they had given the undertakings: Alexander v Crawford at [33] (per Bryson J). The proper procedure for a party bound by an undertaking to vary it is to apply on notice for a release, with evidence justifying the release: Cutler v Wandsworth Stadium Ltd [1945] 1 All ER 103; (1945) 172 LT 207. There is no need to serve a minute of the undertaking with a penal notice on the party bound: Alexander v Crawford at [35]-[39] (per Bryson J).
The plaintiff submitted that there was a clear breach of undertaking (c). The defendants accepted that $137,555 was taken in cash and neither banked nor put through the Point of Sale system. Whether the monies had been spent for the proper purposes of the business were said to be a matter raised by the defendants by way of mitigation of the seriousness of the admitted breach and matters on which it was for the defendants to lead evidence and on which the Court needed to be satisfied on the balance of probabilities: R v Olbrich (1999) 199 CLR 270 at 281 (per Gleeson CJ, Gaudron, Hayne and Callinan JJ). The plaintiff submitted that the Court would not be so satisfied of the evidence on which the defendants relied. Whilst the two defendants clearly tried to blame Mr Nakamura, his file notes suggested otherwise: it was not a frank explanation by the defendants and was said to be consciously false. This cast doubt on the bona fides of their explanation as to what they did with the money. As Mr Nakamura had been told by an employee from Mr Hammoud's office that the Cash Drawer amount did not in fact exist, this casts serious doubt on the accuracy of the books and records that were being kept, and the Court would not be satisfied that the records were properly kept.
[14]
Civil or criminal contempt?
The first question is whether the charge for contempt is civil or criminal: the plaintiff says it is civil contempt whilst the defendants say that, as the punishment sought is imprisonment then it must be criminal contempt. As Ward CJ in Eq recently noted in Furlong v Wise & Young [2019] NSWSC 1718 at [94]-[95]:
94 The distinction between civil and criminal contempt is described in general terms in Witham v Holloway (1995) 183 CLR 525 at 530; [1995] HCA 3 (Witham v Holloway) as being:
… a civil contempt involves disobedience to a court order or breach of an undertaking in civil proceedings, whereas a criminal contempt is committed either where there is a contempt in the face of the court or there is an interference with the course of justice.
95 Criminal contempt includes contumacious disobedience to the court's order that exhibits defiance of the court (see Cohen v Double Bay Bowling Club [2019] NSWSC 1625, where Henry J noted (at [202]) that traditionally a criminal contempt is committed where, inter alia, a prima facie civil contempt involves deliberate defiance or is contumacious (citing Witham v Holloway at 530; Australian Consolidated Press Ltd v Morgan (1965) 112 CLR 483 at 489; [1965] HCA 21); and see her Honour's reasons at [203]).
Her Honour noted in that case that some of the charges of contempt related to alleged breaches of court orders thus falling with the traditional classification of civil contempt whilst other counts alleged that the conduct was contumacious and thus fell within the classification of criminal contempt: at [96].
In Australian Securities and Investments Commission v Sigalla (No 4) (2011) 80 NSWLR 113; [2011] NSWSC 62, White J considered whether the alleged contempt was civil or criminal in nature. His Honour gave consideration to whether the sanctions sought by the Australian Securities and Investments Commission, being imprisonment, indicated that the alleged contempt was criminal in nature, but concluded that the more important consideration was the nature of the contempt proceedings itself, being whether the charges were for breaches which were not capable of remedy and whether the purpose of the proceedings seeking to punish the contemnor for the breach was punitive rather than remedial or coercive in nature: at [79]-[81].
The statement of charge in this case does not suggest that the contempt was contumacious but rather that Alwin and Norannie Chong each breached an undertaking which they had given to the Court. On the face of the statement of charge, thus, the contempt alleged is civil contempt, not criminal. Nor does the fact that the punishment sought for civil contempt be one of imprisonment "or such other manner as the Court thinks fit" preclude it from falling within this category. Indeed, historically, the punishment for civil contempt was imprisonment: Witham v Holloway at 542 (per McHugh J) and the authorities there cited. Part 55 rule 13(1) of the Supreme Court Rules 1970 (NSW) concerns the penalties that may be imposed in respect of contempt and provides:
13 Punishment
(1) Where the contemnor is not a corporation, the Court may punish contempt by committal to a correctional centre or fine or both.
This rule expressly provides that the Court may punish a contempt, including a civil contempt, by imprisonment: Australian Securities and Investments Commission v Michalik at [40] (per Palmer J), followed by Besanko J in Vaysman v Deckers Outdoor Corp Inc [2014] FCAFC 60 at [139]. As such, the submissions of the defendants' counsel as to whether Alwin and Norannie Chong's conduct was "contumacious" do not assist as the plaintiff does not suggest in the statement of charge that their conduct fulfilled this description.
[15]
Requirements for proving civil contempt
Focusing then on civil contempt, Garling J summarised the relevant principles in Commonwealth Bank of Australia v Salvato (No 4) [2013] NSWSC 321 at [126]-[130]:
126 It is convenient if I set out the principles relating to contempt of court, which I understand I am bound to apply:
(a) Regardless of whether these proceedings are categorised in the historical sense, as criminal or civil contempt, it is clear that the charge must be proved beyond reasonable doubt: Witham at 529;
(b) A contempt of court can be constituted by the breach of an undertaking as well as by breach of an order of the court: Trade Practices Commission v C G Smith Pty Ltd (1978) 30 FLR 368; at [375]; Spindler v Balog (1959) 76 WN (NSW) 391; Circuit Finance Australia v Sobbi [2010] NSWSC 789 at [10];
(c) An undertaking must be capable of being complied with: Australia Prudential Regulation Authority v Siminton (No.7) [2007] FCA 1609 at [40]; Matthews v Australian Securities Investment Commission [2009] NSWCA 155 at [16] per Tobias JA;
(d) A person cannot be found guilty of a contempt of court for breach of an order or an undertaking where the terms of the undertaking are ambiguous: Australian Consolidated Press Ltd v Morgan [1965] HCA 21; (1965) 112 CLR 483 at 515-6 per Owen J. The ambiguity must be such that it cannot be said what it was that required compliance: Pang v Bydand Holdings Pty Ltd [2011] NSWCA 69 at [56]-[57] per Beazley JA;
(e) In construing the terms of an undertaking, the court seeks to give meaning to an undertaking if its terms so permit. The terms of the undertaking should be given a sensible meaning, consistent with its actual terms. It must be possible on the meaning given for the undertaking to be capable of being obeyed. The context in which an undertaking is given is relevant in understanding it, and giving it meaning: Pang at [57], [59] per Beazley JA.
127 Where the contempt of court consists of a failure to comply with an order of the court (or an undertaking), it must be demonstrated that the contempt was wilful and not merely casual, accidental or unintentional: Australasian Meat Industry Employees' Union v Mudginberri Station Pty Ltd [1986] HCA 46; (1986) 161 CLR 98. However, it is not necessary for the applicant to prove that the contemnor intended to breach an order of (or an undertaking to) the court: see Anderson v Hassett [2007] NSWSC 1310; Mudginberri at 111; Matthews at [16] per Tobias JA.
128 It is not necessary to prove that the contemnor was aware that his or her conduct constituted a breach of the undertaking: Microsoft Corporation v Marks (No.1) (1996) 69 FCR 117 at 143 per Lindgren J; Metcash Trading Ltd v Bunn (No.5) (2009) FCA 16 at [9] per Finn J.
129 As Brereton J said in Anderson at [6]:
The statement in Mudginberri (at 111) that a deliberate commission or omission which is in breach of an injunctive order or an undertaking will constitute such wilful disobedience unless it be casual, accidental or unintentional, does not require proof of a specific intent but permits an alleged contemnor to show by way of exculpation that the default was "casual, accidental or unintentional" ...
130 It would not be a casual, accidental or unintentional default where the party bound by an order (or an undertaking) misconstrued the terms of the undertaking. As Hodgson JA said in Athens v Randwick City Council [2005] NSWCA 317; (2005) 64 NSWLR 58 at 36:
36 It is very desirable that orders be completely self-contained and self-explanatory. However, as pointed out by Campbell J in Kirkpatrick at [55], the recipient of an order is expected to try to understand and obey it. In my opinion, in considering whether an order is expressed so that the recipient knows or plainly should know what is required, it may be appropriate to have regard to the circumstances in which the order is made, including the terms of the reasons given for the order and elements of applicable law.
37 In my opinion also, if the only ambiguity on the face of the orders is between two meanings, and the recipient is shown to have breached the order whichever of the two meanings is adopted, that may in any event be sufficient to establish contempt, at least unless it appears that the breach may have been due to uncertainty as to what steps were required.
See also Ward CJ in Eq's summary of the principles in Furlong v Wise & Young Pty Ltd at [98]-[99].
[16]
Inconsistent undertakings
As to element (ii), the defendants' counsel submitted that there could be no contempt of court in circumstances where the undertakings given by Alwin and Norannie Chong were inherently contradictory. Where the meaning of the undertaking is ambiguous or unclear, then seeking to punish a party for breaching that undertaking is likely to encounter significant difficulties. In Australian Consolidated Press Limited v Morgan, in proceedings for contempt for breach of an undertaking, Barwick CJ considered at 492:
If the order or undertaking is so expressed as to be meaningless, there is of course nothing which can be enforced. But, if it bears a meaning which the Court is satisfied is one which ought fairly to have been in the contemplation of the person to whom the order was directed or who gave the undertaking as a possible meaning, the fact that that meaning results from a process of construction and involves a choice of possible meanings does not, in my opinion, preclude the Court from enforcing the order or undertaking in the sense which the Court assigns to it.
His Honour considered that, if the Court was satisfied that the person said to be in contempt bona fide believed themselves to be bound by a construction which the Court thought erroneous, the Court may in its discretion refuse to make an order or refuse to make an order for costs against that party. But it was important that enforcement of the plaintiff's rights not be left out of account; the Court may also find the person to be guilty of contempt nonetheless.
Likewise, Windeyer J considered that a mistake in construing an undertaking could not excuse disobedience but may mitigate its consequences. At 503:
Those who give undertakings to a court are bound by the language they use. If its true meaning, although not immediately plain, can be ascertained according to ordinary rules of construction, then the person giving the undertaking is bound by it in that sense.
Owen J concluded that the undertaking in that case was so ambiguous and imprecise that a finding of contempt should not be made at all: at 516.
See, similarly, Finn J in Metcash Trading Limited v Bunn (No 5) [2009] FCA 16 at [9] and Microsoft Corporation v Marks (No 1) (1996) 69 FCR 117; (1996) 139 ALR 99 per Beaumont J (with whom Lindgren and Lehane JJ agreed) at 139-141. But as Lindgren J clarified in Microsoft Corporation v Marks at 143:
The proposition that a contempt will not be found where the terms of an order or undertaking are unclear, ambiguous or apt to mislead … does not signify that there is no breach wherever there is difficulty in the construction of the terms of an order or injunction … [n]or does it signify that contempt will not be found wherever an alleged contemnor did not understand the terms of an order or injunction according to their true meaning, much less wherever an alleged contemnor was unaware that his or her conduct constituted a breach of the order or undertaking.
[17]
Deliberate or wilful acts
As to element (vi), what is meant by a contempt being 'deliberate' or 'wilful' and not merely casual, accidental or unintentional was explained by Ball J in Barkley v Barkley-Brown [2010] NSWSC 746 at [17]-[18]:
17 … conduct is generally wilful unless it can be described as not merely casual, accidental or unintentional. So, for example, a relevant act will be wilful even if, in a case where the breach was constituted by an act of a servant or agent, the act of the servant or agent was through carelessness, neglect or dereliction of duty: Mudginberri (1986) 161 CLR 98 at 112 quoting Stancomb v Trowbridge Urban District Council [1910] 2 Ch 190 at 194. In addition, what must be wilful is the conduct giving rise to the contempt, not the consequences of that conduct. So, for example, it is not necessary for the applicant to prove that the contemnor intended to breach an order of the court: see Anderson v Hassett [2007] NSWSC 1310; Australasian Meat Industries Employees' Union v Mudginberri [1986] 161 CLR 98 at 111. It is sufficient for the applicant to prove that the contemnor engaged in wilful conduct that had that consequence.
18 As to … whether wilful conduct which is not merely casual, accidental or unintentional but which is reasonable amounts to a contempt. In general, the answer to that question is that it does. So, for example, in Re Mileage Conference Group of the Tyre Manufacturers' Conference Ltd's Agreement [1966] 1 WLR 1137, cited with approval by the High Court in Mudginberri (1986) 161 CLR 98 at 112, the court imposed substantial fines in respect of breaches of undertakings given by the contemnor, even though the contemnor acted reasonably in obtaining legal advice on the scope of the undertakings. See also Anderson v Hassett [2007] NSWSC 1310 at [7]. …
Some examples are illustrative. In Commonwealth Bank of Australia v Salvato (No 4), Mr Salvato had given an undertaking to the Court to give vacant possession of his property in Vaucluse to stay an eviction which was to take place the following day. Whilst Mr Salvato ceased to sleep at the property and took some of his clothes away, he took no steps to arrange for his wife and children or the furniture and household belongings to be removed from the property and did not tell his wife that the terms of his undertaking required him to give the bank possession. Garling J regarded Mr Salvato's conduct as consisting of positive acts and omissions to act which were deliberate and intentional, including a deliberate decision not to tell his wife, "[i]t was not something which he overlooked, or forgot about": at [173]-[174]. In any event, the holding of a reasonable but erroneous belief that conduct did not constitute a breach of the undertaking was not relevant to the question of whether a contempt had been committed: at [179].
[18]
Mitigation and penalty
The reasons why Alwin and Norannie Chong say that their conduct does not amount to contempt of court are twofold: they did not understand that what they were doing was in breach of the undertaking; it was necessary to use cash to pay suppliers who insisted on cash payment and to pay employees who preferred to be paid that way. As the plaintiff correctly submitted, these matters are not relevant to whether a contempt has been committed but go to mitigation and penalty. It is not necessary, when proving contempt, to establish that the defendants were aware that their actions constituted a breach of the undertaking or that there was no justification for breaching the undertaking. As Bryson J explained in Alexander v Crawford at [15]:
The test applied for determining whether there has been a contempt of court in disobeying an order or in not conforming to an undertaking is objective. The position was summarised in Australian Competition and Consumer Commission v. Hughes (2001) AT PR 41-807 by Tamberlin J who said:
It is not necessary to prove any subjective intent to deliberately disobey the order: see Stancomb v. Trowbridge Urban District Council [1910] 2 Ch 190 at 194. However such intent will be important in determining what is an appropriate penalty: see Attorney-General v. Times Newspapers Ltd [1992] 1 AC 191 at 217-218. An honest belief that a failure to act does not constitute a breach of an injunction is not a defence: see McNair Anderson Associates Pty Ltd v. Hinch [1985] VR 309 at 313-314.
As to whether Alwin and Norannie Chong did not understand that what they were doing was in breach of the undertaking, I do not accept this explanation. The undertakings were simply worded. The proposed orders were explained to them by their solicitor before they gave instructions to provide the undertakings. The correspondence preceding the undertakings made plain the underlying concerns of the plaintiff that all cash takings and cash expenses should be documented through the Point of Sale and till system.
Rather, it appears to me that Alwin and Norannie Chong gave the undertaking to the Court and continued to run their business without regard to it. Mrs Chong did not seem to me to take well to being told what to do by anyone and Alwin Chong seemed too busy running the business to take much interest or make any effort to change his ways. Both appeared resistant to responding to the plaintiff's requests for documents and information in the proceedings; when pressed, they agreed to orders sought but appeared immune from the import of those orders and continued with business as usual. Nor is it clear to me that they have substantially changed their ways: it does appear from the weekly disclosure made in March 2019 that at least at that time they were continuing to retain large amounts of cash which were not banked. This must stop.
[19]
Orders
For these reasons I make the following orders:
1. Alwin Nan Chu Chong is guilty of a contempt of Court in that he was in breach of his undertaking given on 23 October 2017 by failing to cause the first defendant to bank each day's cash takings on the same or next day on which the first defendant's bankers were open for acceptance of deposits, apart from a till float of $2,000.
2. Norannie Chong is guilty of a contempt of Court in that she was in breach of her undertaking given on 23 October 2017 by failing to cause the first defendant to bank each day's cash takings on the same or next day on which the first defendant's bankers were open for acceptance of deposits, apart from a till float of $2,000.
3. The third and fourth defendants to pay the plaintiff's costs of the Notice of Motion filed on 4 February 2019 and amended on 3 June 2019 on an indemnity basis, payable forthwith.
[20]
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 19 February 2020
More importantly, the suppliers' affidavits were not correct when each deposed that they made deliveries to Jimmy's Recipe "on a strict cash on delivery basis". Mr Ngu's evidence differed markedly from his affidavit in this regard. When asked when he was paid for the goods he was delivering, Mr Ngu said, "It depends. Sometimes they pay in one week's time. Sometimes in a fortnight." Mr Ngu agreed that it was not true that he received cash for the goods the same day as he delivered them. Mr Ngu said it was "no big deal for me" when he received the money as the customers were normally prompt in payment. Sometimes he delivered the goods on Wednesday and was paid on Friday and sometimes he delivered the goods in the morning and was paid in the afternoon.
Similarly, Mr Kulandaivelu agreed in cross-examination that sometimes he was paid cash on delivery and "sometime[s] I get later than that, same day".
I just oblige them that they are very long customers to me, so I give and take. Sometime I don't have time I go away and come back and collect the money. Sometime when you go to the shop it is very busy so I don't want to wait because I don't have parking time for the loading dock, so I go back and come back and get the money, then I will sign the paper, otherwise I put "not paid".
Mr Kulandaivelu agreed that every invoice annexed to his affidavit was marked "not paid", which it was his practice to write on the dockets if he had not been paid on delivery. It would thus appear that Jimmy's Recipe did not pay "on a strict cash on delivery basis" for any of Mr Kulandaivelu's deliveries to Jimmy's Recipe for the period in question.
Third, both suppliers amended their dockets at the request of Alwin Chong, apparently in the course of him compiling documentary evidence in response to the plaintiff's threat to commence contempt proceedings. Both suppliers added Australian Business Numbers (ABN) and, in Mr Ngu's case, also the name of his business. It is apparent from the original dockets that these details were added at a different time to when the docket was prepared as the handwriting is in a different colour pen. Mr Kulandaivelu explained that Goods and Services Tax (GST) is not payable on his products, he does not collect GST and so only writes the ABN on the docket if the customer asks him to, which Alwin Chong did.
Mr Ngu's evidence was slightly unsatisfactory in respect of putting these details on his business' dockets. Initially, he said that he wrote the ABN on the docket before delivery but when he was shown copies of the dockets produced on subpoena by his business which did not have the ABNs, his answers were somewhat variable. Mr Ngu said that he did not know that he had to put an ABN on the dockets as this was his first business with his son and he only began putting an ABN on the dockets some time after he began the business and became aware that he should do so. Mr Ngu also said that he only put the ABN on the original docket but not the carbon copy, an explanation which did not make sense where the ABN was also handwritten on carbon copy dockets. He later agreed that he only wrote the ABN on the docket because Alwin Chong said it was necessary for his accountant. Mr Ngu agreed that he wrote the ABNs on all of the dockets "in one sitting". As to Mr Ngu's evidence that he only began adding the ABNs sometime after the business started, no ABNs appear on the duplicates of dockets until 19 January 2019, which I note is shortly after the plaintiff's solicitor advised that she intended to bring contempt proceedings.
In terms of the credibility of the suppliers, their oral evidence suggested to me that they were being truthful when describing the nature of their payment arrangements with Jimmy's Recipe. It does, however, suggest that the justification proffered by Alwin and Norannie Chong for not banking cash - because suppliers required payment "on a strict cash on delivery basis" - may not be well-founded.
The third and fourth defendants gave evidence and were cross-examined. Their affidavits were identical to each other and I repeat what I have said at [7] about the problems this poses. Mrs Chong appeared to me to be a smart business person. However, her evidence was problematic, for example, see [27] and [31]. Mrs Chong attributed what had occurred to her lack of understanding of what she was told, as English is her second language. However, I was told by the defendants' counsel that Mrs Chong was 40 when she moved to Australia. Thus, Mrs Chong has lived in Australia for over 30 years. Mrs Chong and her son appeared fluent in English: their affidavits were affirmed without the assistance of an interpreter, neither needed an interpreter to give evidence, and a number of emails written by them to their solicitor are in evidence and of proficient English. Mrs Chong blamed what had happened on her former solicitor, Mr Nakamura, which is an unlikely explanation given the contents of Mr Nakamura's file and his oral evidence.
Mr Chong was a pleasant witness although his evidence in respect of Mr Nakamura's file note referred to at [32] was evasive. Mr Chong explained some of his difficulties by reference to language problems although he appeared to me to be reasonably fluent in English. Assuming that Mr Chong came to Australia with his mother, he has lived here since his early teens. Alwin and Norannie Chong both took pains - in unsolicited evidence - to blame their business practices in respect of cash on the former accountant of Jimmy's Recipe, Loi Tsia, being the plaintiff's father. There was no basis for this suggestion beyond their assertions, nor was it clear how the suggested advice of Mr Tsia Snr - who they removed as the company's accountant some time before they gave their undertakings to the Court or the period of alleged contemptuous conduct - would have had such continuing persuasive force as to overwhelm the terms of their undertakings. Overall, I have approached the evidence of Alwin and Norannie Chong with caution.
On 29 September 2017, the plaintiff's solicitor raised concerns about a number of discrepancies in the records of the company and sought a revised form of undertaking from Mr Chong including that he would keep proper books and accounts "particularly the daily cash register rolls" and would ensure that "all cash transactions go through the tills and the Point of Sales System". Mr Tsia explained that the Point of Sale system is an electronic system which records all transactions which run through the business tills. Further, Mr Chong was asked to undertake that he would ensure that cash at day end was immediately banked into the company's bank account. Mr Nakamura sought his clients' instructions in relation to the proposed undertaking. On 14 October 2017, Mr Nakamura again sought instructions from his clients noting that he had received no response from them.
On 23 October 2017, Black J made orders by consent as follows:
The Court notes the undertakings of the Third and Fourth Defendants to the Court and as between the parties … that each of the Third and Fourth Defendants will, until further order:
a. do all things necessary to cause [Jimmy's Recipe] to keep proper books, records and accounts, and that such records shall include daily cash register rolls recording all cash takings of [Jimmy's Recipe] from day to day and recording all money disbursed from the till;
b. do ensure that all cash transactions of [Jimmy's Recipe] go through [Jimmy's Recipe's] tills and are entered into the Point of Sale system;
c. do cause [Jimmy's Recipe] to bank each day's cash takings of [Jimmy's Recipe] on the same or the next day on which [Jimmy's Recipe's] bankers are open for acceptance of deposits, provided that for the next day's trading a till float of $2,000 may be retained in the till register ...
It is undertaking (c) to which the plaintiff's charge of contempt is directed.
Later that day, Mr Nakamura forwarded the orders made by the Court to his clients in an email stating:
Dear Alwin and Norannie,
I enclose herewith a copy of the Court Orders made today. Please read it carefully and ensure that you understand each of the Order. If you do not understand any of them or if you have any doubt in relation to the meaning of them, please contact me immediately.
You must comply with all of the Court Orders which apply to you strictly. Failure to comply with a court order is a contempt of the Court punishable by terms of imprisonment. If you are considering taking an action which may be a breach of a court order or if you are unsure whether such action would be a breach, you must inform us before taking such an action and wait for our advice. …
Mr Nakamura could not recall whether the clients contacted him in response to his email to seek a further explanation, but it is apparent that they did not.
Mr Chong agreed that he received the email from Mr Nakamura and read the attached undertaking. When asked whether Mr Chong had had discussions with Mr Nakamura about the undertaking before it was given to the Court, Mr Chong said that he had "only received email", although it appears to me that he had also met with Mr Nakamura. Mr Chong agreed that Mr Nakamura did not tell him that he could, instead of banking cash, pay staff wages with it. He agreed that he continued to pay staff wages in cash without banking the cash takings. He did not enter the wages into the Point of Sale system. Mr Chong said that he did not understand that his undertaking prevented him from doing this:
… from my understanding from reading the undertaking, it says cash expenses so I thought I can pay wages.
None of the undertakings referred to "cash expenses". Mr Chong's explanation appeared to relate to undertaking (a), which obliged Jimmy's Recipe to keep daily cash register rolls recording "all money disbursed from the till".
On receiving the orders from Mr Nakamura on 23 October 2017, Mrs Chong agreed that she did not contact her solicitor to say that she did not understand the orders, "because I thought I'm doing the right thing … All I know is I'm doing the right thing, that's it". When pressed, Mrs Chong's evidence was argumentative and non-responsive:
Q. You accept that you, after receiving these orders on 23 October 2017, continued to disburse cash from the till without putting it through the point of sale system and without banking it?
A. I don't understand about the point of sale system.
Q. You know--
A. Because I'm not a professional accountant.
Q. You know that the company has a till?
A. Yes.
Q. You know the till has a system for recording cash disbursements, don't you?
A. Yes.
Q. You know that you have caused the company to record some cash disbursements through that system, don't you?
A. I need the cash to pay the wages.
Q. You know that the company has caused some cash disbursements to be recorded in its till, point of sale system, don't you?
A. We record it in our Xero system.
Q. Do you understand I am asking you about the till and the point of sale system?
A. I don't understand so much.
Q. You've produced records showing money paid from the till for disbursements, haven't you?
A. Yes.
Q. You accept, don't you, that a lot of other cash has been disbursed which is not shown as paid from the till, don't you?
A. Yes, because we have to pay wages and cash - persons by cash.
Q. Mr Nakamura never told you that you could do that, did he?
A. I don't remember.
Q. When you say in your affidavit that you have conducted your practice in accordance with his explanation, you know that's untrue, don't you?
A. No.
Q. You knew that was untrue when you affirmed your affidavit, didn't you?
A. There's so many affidavits, how can I remember so many things?
In re-examination, Mrs Chong said that she only read Mr Nakamura's email sending the orders made but not the attached orders. However, in circumstances where Mrs Chong met with Mr Nakamura before the orders were made, received a further email from Mr Nakamura attaching the plaintiff's motion and confirmed her instructions to agree to the proposed undertakings, the suggestion that she only read Mr Nakamura's email sending the orders as made does not account for her professed lack of knowledge. Mrs Chong agreed that the undertakings were the subject of a considerable period of negotiation between the solicitors for the respective parties and she was involved in giving instructions about those negotiations to the solicitor as a director of Jimmy's Recipe. Mrs Chong said she did not understand what was meant by the undertaking but then referred to it as an order by the Court which was an apt description and demonstrated that she understood the nature of the obligation attaching to the undertaking she had given.
When asked about Mr Nakamura's file note of 10 November 2017, Mrs Chong was evasive. Mrs Chong denied that her solicitor ever talked to her about income tax or the Australian Taxation Office (ATO) and denied that he told her that it was a tax evasion. "[I]t takes time to do everything through banking because our business is a cash, partly cash business and is, you know, takeaway … we only do business during lunchtime, that's it …". Mrs Chong said "I did not talk to him about money or any cash". Mrs Chong said in re-examination "there is no such telephone conversation about this matter".
Mr Chong's recollection of the conversation with Mr Nakamura in November 2017 was also poor and his response to questions less than fulsome.
Q. Did you recall him expressing a concern to you about cash that there was some tax evasion going on?
A. No.
Q. That never happened?
A. From, sometime when I speak to Mr Nakamura, sometimes I'm trying to understand him so from my thinking I don't know if I interpret it, like if I'm listening correctly to him, or if I really gotten what his message is, so I couldn't really state that, whether that's -
In the face of a contemporaneous file note made by a solicitor, confirmed by Mr Nakamura's evidence in cross-examination given while Alwin and Norannie Chong were present in Court, I find that Mr Nakamura did tell Norannie and Alwin Chong that there was a problem in their payment of cash wages amounting to tax evasion and he advised them not to pay cash wages in the future. I do not accept Alwin and Norannie Chong's evidence to the contrary and consider that each made unreasonable denials in this portion of their evidence.
It would appear, therefore, that at the time when Alwin and Norannie Chong gave their undertakings to the Court, they had a practice of using unbanked cash takings to pay cash wages and were not withholding Pay As You Go (PAYG) tax nor complying with their obligations to make contributions to their employees' superannuation. Alwin and Norannie Chong were told in no uncertain terms by their solicitor that this practice had to stop and, I imagine, Mr Oking of Hammoud Partners was giving similar advice. The fact that delays were being experienced in providing a general ledger, including by reason of "[r]econciliation of wages and preparation of payment summaries", suggests that the accountant was trying to bring the company's affairs into some kind of order in respect of this practice.
The period of the alleged contempt of Court comes to an end on 14 January 2019. On 19 January 2019, ABNs start to appear on carbon copies of dockets prepared by F&Q Express but not on any previous dockets issued by the supplier. As mentioned at [11], Mr Ngu added the ABNs at the request of Alwin Chong, as did Mr Kulandaivelu. I infer that this was done to bring the primary record of the transaction into conformity with the requirements of the GST regime under A New Tax System (Goods and Services Tax) Act 1999 (Cth), at a time when the plaintiff was calling for documentation to substantiate unbanked cash.
First, additional cash expenses had been incurred. Mr Hammoud said these expenses were supported by tax invoices provided by UV Thaza Trading, F&Q Express and other suppliers totalling $19,654.74. Second, cash wages totalling $124,068.20 were recorded in Xero generated documents including weekly payroll employee summaries and payslips together with Instalment Activity Statements and Business Activity Statements lodged with the ATO for the relevant period. The cash wages were said to be consistent with lodgements made to the ATO; how the Xero generated documents reconciled with the Instalment Activity Statements and Business Activity Statements was not explained in Mr Hammoud's report, nor tested in cross-examination.
According to Mr Hammoud, of net wages paid over the relevant period of $170,405.26, $46,336.98 was paid by electronic funds transfer (EFT) and the balance, $124,068.28 by cash. In arriving at this figure, Mr Hammoud agreed that he deducted the amount of wages paid by EFT from the net wages payable and attributed the balance to cash wages. In addition, he looked at the payslips which relate to both EFT and cash wages, which were a record of what was actually paid. Mr Hammoud explained that Mr Chong prepared the payslips using the Xero accounting package, and the wages were then paid either by EFT or cash. For cash wages, a journal entry was made on a monthly basis to account for the cash component of wages. The payslips for wages which were paid in cash were prepared on the basis that tax had already been deducted and withheld by the company and then remitted in the company's Business Activity Statement.
Further, Mr Hammoud assumed that on 15 November 2018 there was a break in at Jimmy's Recipe and the company's cash float of $2,000 was stolen. Mr Hammoud assumed that Mr Chong replaced the cash float from his personal funds although this assumption was not made good by any evidence from Mr Chong and thus this portion of Mr Hammoud's analysis must be put to one side.
Alwin Chong deposed that the amounts referred to by Mr Hammoud as cash wages and cash expenses were ones which he had caused to be paid to satisfy the business expenses of Jimmy's Recipe. In cross-examination, Mr Chong agreed that it was he who handed over the cash wages. In this respect, the defendants' evidence rather 'put the cart before the horse' as Mr Hammoud tabulated the cash wages and cash expenses said to explain the unbanked cash and Mr Alwin Chong then deposed that he had caused these expenses to be paid. The plaintiff objected to this evidence, with justification, as the state of the defendants' evidence was deficient in many respects. But ultimately Alwin Chong gave evidence sufficient to support the assumption of Mr Hammoud that the cash wages and cash expenses tabulated by Mr Hammoud had been paid by Alwin Chong. Mr Chong said that he had paid cash wages of some $124,000 over the period in question and denied keeping the monies for himself and his mother. Mr Chong said that he continued to pay cash wages to staff but had tried to minimise this.
Mrs Chong agreed that she did not bank all of the cash takings that were received by the business after 23 October 2017 "because we need the cash to pay the wages and also pay our cash bills". She believed that she was doing the right thing by paying cash for purchases and wages. Mrs Chong agreed that some of the cash bills that she paid after 23 October 2017 were put through the company's Point of Sale system in the till. It was put to Mrs Chong that there was nothing stopping her paying suppliers by EFT, and she said "It is our company's practice that some of our suppliers will still pay cash and we are trying our best after our new lawyer advised us to slowly, you know, pay everything through the bank". Since Jimmy's Recipe's new solicitor had explained the undertaking again to her, Mrs Chong said "I did try our best to bank in as much money as we can, and also try to pay our wages through EFTPOS. … of course … through the bank because it's a cash - I mean it is partly cash". "I have just started - tried to do the correct thing at the moment. It probably takes time". Mrs Chong said "I'm not that educated, you know, and most of the notes, the message, I don't actually fully understand. I try my best to do everything properly".
Mrs Chong said that she still needed some cash to pay wages "because most of them are part time", although it is not clear to me what being part time has got to do with it. Mrs Chong agreed that, according to the records produced, some staff members had been paid wages both by EFT and by cash.
Q. There is no reason, is there, for your company to pay the same staff member some of their wages by cash and some by electronic funds transfer, is there?
A. Because some of them are part time. They only work a couple of hours a day so we have to pay them by cash. …
Q. Is [this particular employee] paid in cash and sometimes by electronic funds transfer?
A. Maybe sometimes by cash, maybe it's a bonus or whatever it is. I have to check on this record.
Mrs Chong denied that the $124,000 calculated by the company's accountant as having been paid in cash wages had just gone into her and her son's pockets.
The plaintiffs served affidavits deposing that none of the cash receipts for cash expenses listed in Mr Hammoud's report had previously been provided to the plaintiff's solicitor until they received the exhibit to Mr Hammoud's affidavit. Mr Tsia deposed that he had never heard of UV Thaza Trading or F&Q Express as suppliers when he was an accountant for Jimmy's Recipe.
1. As to the first complaint, it is reasonably apparent from the history of the proceedings that the third and fourth defendants have been reluctant to provide the documents sought by the plaintiff and have only done so after protracted correspondence and the need for the plaintiff to file interlocutory processes and obtain court orders, which Mr Nakamura seems to have done his best to endeavour to encourage his clients to comply with.
2. As to the second complaint, having reviewed all of the dockets in evidence for UV Thaza Trading and F&Q Express, the first docket issued by UV Thaza Trading is dated 18 May 2018 and, by F&Q Express, 23 October 2018. It would thus appear that the suppliers only began to provide goods to Jimmy's Recipe sometime after Mr Tsia ceased to have any involvement in accounting for Jimmy's Recipe. Both suppliers appear to have continued to supply goods to Jimmy's Recipe after the period of alleged contempt of court and I conclude that each were 'real' suppliers rather than fabricated for the purposes of these proceedings.
In respect of cash wages, it was submitted that there was no evidence of any record being kept by Mr Chong other than monthly entries in the cash journal as to what he had paid to whom. It was entirely consistent with putting a balancing entry to cover the missing cash and it was submitted that the Court would not reach an affirmative level of satisfaction that that was a genuine explanation put forward to explain the missing cash. There was said to be a direct inconsistency between what Mr Nakamura was told by the accountants and what the records showed; either the books were unreliable or Mr Nakamura was given a false explanation in respect of the missing cash being that there was a genuine purpose on which it had been spent.
It was submitted that the Court would not be affirmatively satisfied that the money was paid as wages or to suppliers; the evidence of the suppliers was said to be unconvincing and troubling, in particular, that ABNs were added later to original documents which were then photocopied and annexed to Mr Ngu's affidavit with the involvement of Mr Chong. The addition of ABNs to the invoices prepared by Mr Kulandaivelu also did not inspire confidence in the veracity of the records.
None of these matters constituted a defence to the charge of contempt but, if believed, goes only to the issue of penalty. The plaintiff submitted that the contempt was a grave contempt. One purpose of the regime put in place by the undertaking was to avoid the very situation in which the parties now find themselves, where the plaintiff is confronted with a series of alleged cash transactions and a lack of transparency and proper record keeping leading to further disputes about Jimmy's Recipe's financial transactions and trading results. The effect of the defendants' evidence was that they had unrecorded cash expenses in the form of wages and payments to suppliers which were not previously disclosed to the plaintiff. The contempt of court was said to be continuing by reference to the weekly disclosure provided for the week ending 25 March 2019. The Point of Sale daily reports, when compared with the bank statements, indicated that $9,534.05 had not been banked nor accounted for through the Point of Sale system.
The Crimes (Sentencing Procedure) Act 1999 (NSW) does not apply to these charges: Dowling v Prothonotary of the Supreme Court of New South Wales (2018) 99 NSWLR 229; [2018] NSWCA 340 at [46], [57]-[58] (per Basten JA) and at [139] (per Meagher JA agreeing); Reliance Financial Services Pty Ltd v Allyma Express Holdings Pty Ltd (No 3) [2019] NSWSC 511 at [35] (per Parker J). In the present case, it was submitted that the contempt was wilful. It tended to subvert an agreed interlocutory regime and is likely to complicate and embarrass the further conduct of these proceedings by making of the affairs of Jimmy's Recipe opaque and contentious. It involved a large proportion of the revenue of the business in the period subject of the charge. It was submitted that the appropriate penalty should involve committal for a substantial term.
In respect of restitution, In the matter of Statewide Office Furniture Pty Ltd [2018] NSWSC 1393 at [29]-[30], Brereton JA, sitting at first instance, held that the Court has summary jurisdiction to order restitution in respect of transactions knowingly entered into in breach of an order of the Court, on the basis that the dispositions were illegal. In that case, as here, it was submitted that the restitution sought (and ordered) was in favour of a third party. It was submitted that the third and fourth defendants should be ordered to make restitution of the funds to Jimmy's Recipe with leave also granted to serve an examination notice under rule 38.1 of the UCPR, within 14 days to ensure compliance.
In respect of striking out Alwin and Norannie Chong's defence, in Bastion Holdings Ltd v Jorril Financial Inc [2007] UKPC 60; [2007] 11 WLUK 169, the Privy Council upheld the decision of a trial judge to refuse to hear at trial (even by way of defensive submissions) a party that was in contempt, where the contempt was of a kind that impeded the course of justice in the cause, by making it more difficult for the court to ascertain the truth. The present case was said to be of that kind as the contempt defeated the transparency and corrupted the integrity of the company's records. In Crane Distribution Limited v Gary Van Schellebeeck [2009] NSWSC 263 at [35]-[38], Einstein J ordered that the defendant not be permitted to take any step in the proceedings unless and until he satisfied the Court that he had remedied the contempt. Here, the plaintiff submitted that the defences of the third and fourth defendants should be struck out and they should not be permitted to defend unless and until the money was repaid to the company. The plaintiff also sought an order that third and fourth defendants should pay the costs of and incidental to the motion, on an indemnity basis, assessable forthwith.
The defendants agreed with the plaintiff as to the onus of proof on the respective parties. The defendants submitted that the plaintiff's motion failed to specify the species of the alleged contempt but it followed from the proposed penalty of imprisonment that it must be criminal contempt as punitive orders may be made in respect of criminal contempt whilst orders that are essentially remedial and intended to secure compliance with the court's orders are made for civil contempt: Hearne v Street (2008) 235 CLR 125; (2008) 248 ALR 609; [2008] HCA 36 at [22] and [133]. A finding of criminal contempt requires satisfaction, beyond reasonable doubt, that the conduct involved deliberate, "contumacious" disregard of the court's order: Pang v Bydand Holdings Pty Ltd [2011] NSWCA 69 at [101], [173]-[174]; Witham v Holloway; Australasian Meat Industry Employees Union v Mudginberri Station Pty Ltd [1986] HCA 46; (1986) 66 ALR 577; (1986) 161 CLR 98 at 108 (Mudginberri). Non-compliance with orders and undertakings does not involve criminal contempt unless the non-compliance was knowingly deliberate: Australian Consolidated Press Ltd v Morgan [1966] ALR 387; (1965) 39 ALJR 32; (1965) 112 CLR 483 at 489, 492-3 and 501; Markisic v Keelty [2005] NSWSC 1124 at [22]; Mudginberri; Witham v Holloway at 530; Australian Securities and Investments Commission v Reid (No 2) [2006] FCA 700 at [18]. Contumacious contempt involves both intentional conduct and knowing defiance of the court's order and authority but not every intentional disobedience will involve such an element: Australian Consolidated Press Ltd v Morgan; Trade Practices Commission v CG Smith Pty Ltd (1978) 30 FLR 368; (1978) ATPR 40-059; Fairclough v Manchester Ship Canal Co [1897] WN 7; (1897) 41 Sol Jo 225; Worthington v Ad-Lib Club Ltd [1965] Ch 236; [1964] 3 All ER 674; Steiner Products Ltd v Willy Steiner Ltd [1966] 2 All ER 387; [1966] 1 WLR 986 and Re Agreement of The Mileage Conference Group of The Tyre Manufacturers' Conference Ltd [1966] 2 All ER 849; [1966] 1 WLR 1137.
A distinction is also sometimes made between "technical contempt" on the one hand, and wilful or contumacious contempt, on the other. The essential purpose of the distinction is to differentiate between conduct which, though constituting contempt, does not justify any punitive sanction, and conduct which does: Attorney-General (NSW) v John Fairfax & Sons Ltd [1980] 1 NSWLR 362 at 367. In drawing that distinction, the contemnor's intention is a relevant consideration: Bell v Stewart [1920] HCA 68; (1920) 28 CLR 419 at 429-32; Harkianakis v Skalkos (No 2) [1997] NSWCA 137 at [3] (per Mason P, Powell and Beazley JJA). The courts have found there are many occasions where punitive sanctions are inappropriate and the contempt is properly to be regarded as technical: Shoppe v Nathan & Co [1892] 1 QB 245; [1892] 1 WLUK 34 (clerical error leading to a demand for overpayment of judgment amount). In Australian Consolidated Press Ltd v Morgan, which relevantly concerned the misinterpretation of an undertaking, the majority found at 516 (per Owen J):
For the purpose of the present proceedings it is sufficient, I think, to refer to two cases. The first is Iberian Trust Ltd. v. Founders Trust and Investment Co. (1932) 2 KB 87…The second case is Redwing Ltd. v. Redwing Forest Products Ltd. (1947) 177 LT 387. The defendant in a passing off action had given certain undertakings which were embodied in an order of the Court. The plaintiff alleged that the undertakings had been broken and sought to have the defendant's directors attached for contempt of court and the defendant's property sequestrated. Jenkins J. refusing the application, said: "I cannot say I think that the undertakings contained in the order were clearly drawn and I cannot say I regard the questions of construction involved in them as entirely easy questions, but in my judgment, a defendant cannot be committed for contempt on the ground that upon one of two possible constructions of an undertaking being given he has broken his undertaking. For the purpose of relief of this character I think the undertaking must be clear and the breach must be clear beyond all question" (1947) 177 LT, at p 390.
In cases of civil contempt, the court is primarily concerned with remedying the error or non-compliance and therefore provided the alleged contemnor has taken appropriate remedial action, the court may merely accept an apology and order the costs of the enforcement proceedings against the contemnor: Commissioner for Fair Trading v Youngdown Pty Ltd [2003] NSWSC 646 (per Grove J). Provided the alleged contemnor has taken appropriate remedial action the court may make no order as to costs: Adam Phones Ltd v Goldschmidt [1999] 4 All ER 486; [1999] 7 WLUK 204; Australian Consolidated Press Ltd v Morgan at 492 (per Barwick CJ).
It was submitted that the undertaking was inherently contradictory. Undertaking (a) provided that the third and fourth defendants were to record "all money dispersed from the till" and undertaking (b) provided that third and fourth defendants were to "ensure that all cash transactions of [Jimmy's Recipe] … are entered into the Point of Sale system." The capacity to disburse money from the till as well as to conduct cash "transactions" which, in and of itself, cannot be limited to simply sales was said to be in direct conflict with the requirement in undertaking (c) to "bank each day's cash takings … on the same or next day." The undertaking was also said to be in direct conflict with the orders made by Brereton J on 20 August 2018 requiring third and fourth defendants to give disclosure on an ongoing basis of "individual cash expense records … and invoices relevant to cash expenses". The third and fourth defendants' evidence that they had endeavoured to follow the undertaking and disclosure orders to the best of their understanding was said to be understandable. The defendants accepted that they breached the undertaking but they honestly understood from the undertaking that they were able to pay cash; the orders still made provision for the payment of monies by cash.
Mr Hammoud had reconciled the amounts that the defendants had not banked: after deducting cash wages and cash paid to suppliers, the Cash Drawer balance was -$6,167. That is, rather than depriving Jimmy's Recipe of monies, the defendants were required to contribute their own monies to the company in order to meet the company's expenses. The evidence given by the suppliers reflected poorly on their business practices but not on Mr Chong. It was submitted that it would be an extraordinary result to find the third and fourth defendants intended to contumaciously disregard the orders of the Court when the evidence shows that they contributed their own monies to ensure Jimmy's Recipe was able to meet its debts as and when they fell due.
Having regard to the factors listed by Palmer J in Australian Securities and Investments Commission v Michalik (No 2) (2004) 52 ACSR 115; (2004) 62 NSWLR 335; [2004] NSWSC 1259 at [28]-[29] (per Palmer J), it was submitted that a finding that the third and fourth defendants intentionally and contumaciously defied the order of the Court in the form of the undertaking given 23 October 2017 had not been proven beyond reasonable doubt or even on the balance of probabilities. Their conduct did not rise above technical contempt. Given the inherent conflict in the undertaking and the conflict between the undertaking of 23 October 2017 and the orders of 20 August 2018, the court should find in accordance with Australian Consolidated Press Ltd v Morgan at 516 (per Owen J), that the third and fourth defendants "cannot be committed for contempt on the ground that upon one of two possible constructions of an undertaking being given he has broken his undertaking. For the purpose of relief of this character I think the undertaking must be clear and the breach must be clear beyond all question". The Court should dismiss the motion and, as the plaintiff bought the charges without any evidence of either intentional and contumacious disregard and therefore had no reasonable prospect of success, order the plaintiff pay the costs of the third and fourth defendants forthwith on an indemnity basis.
In reply, the plaintiff submitted that this was a civil contempt. It was submitted that the suggested problems with complying with the undertaking were illusory: undertaking (b) did permit cash expenses to be paid out of the till if they were put through the Point of Sale system. There was no evidence that it was impossible to comply with undertaking (c) and, if compliance with the provision made undertaking (b) was difficult - as to which there was little or no evidence - the simple remedy was to bank the monies, pay it by EFT or cheque or any other usual method of payment.
More recently, Adams J set out the elements to be proved in a civil contempt in Bellerive Homes Pty Ltd v FW Projects Pty Ltd [2019] NSWSC 193 at [38]:
The elements to be proved beyond reasonable doubt
[38] There was no dispute as to the matters which needed to be established beyond reasonable doubt to establish a civil contempt based on a failure to comply with a court order. Perram J set out the relevant elements to be established in Re Group Pty Ltd v Kazal [2017] FCA 1084 ("Re Group") at [73]. Before doing so his Honour noted that the purpose of the law of civil contempt is to compel obedience rather than punish disobedience, which, by contrast, is the domain of criminal contempt. Both types of contempt must be proved beyond reasonable doubt. His Honour cited (at [74]) the decision in Hearne v Street (2008) 235 CLR 125; [2008] HCA 36 at [133] per Hayne, Heydon and Crennan JJ as authority for these general principles. His Honour went on to summarise the elements to be proved beyond reasonable doubt for a civil contempt as follows:
"In a case of civil contempt, the Plaintiff must prove that:
(i) an order was made by a court;
(ii) the order was sufficiently clear such that one can be sure beyond reasonable doubt that the order was not complied with;
(iii) the order was served on the alleged contemnor or that service was for some reason dispensed with under some lawful order;
(iv) the alleged contemnor had knowledge of the terms of the order;
(v) the alleged contemnor breached the order; and
(vi) the alleged contemnor took a deliberate step which, even if not intended to, breached the order. What is necessary is not that the alleged contemnor intended to breach the order but rather that the order was breached and that the action constituting the breach was intended. Hence, casual, accidental or unintentional acts which breach an order are excluded."
In this case, it is only element (ii) and (vi) which are seriously contested. The defendants' counsel did refer to the fact that Alwin and Norannie Chong were not present in Court when the undertakings were given but I do not think it can be seriously suggested that Alwin and Norannie Chong had not given instructions to their legal representatives to give the undertakings on their behalf and in their absence. Further, as Bryson J noted in Alexander v Crawford, although reported judgments repeatedly refer to the fact that the party giving an undertaking was personally present in court when it was given, there is no suggestion in any judgment that it was essential for enforcement that the parties should have been present in court when the undertaking was given: at [39] citing D v A & Co [1900] 1 Ch 487 per Cozens-Hardy J and Callow v Young (1886) 55 Law Times NS 543.
Likewise, in Anderson v Hassett [2007] NSWSC 1310, Brereton J cautioned at [7]:
As the High Court pointed out in Mudginberri, in Re Mileage Conference Group of the Tyre Manufacturers' Conference Ltd's Agreement [1966] 1 WLR 1137, 1161-2; [1966] 2 All ER 849, 861-2, a breach of an undertaking which was not merely non-contumacious but was committed reasonably on legal advice was punished as a contempt. Another, recent, illustration that misconstruction of an order by a party bound by it is not an excuse for failing to comply with it is Athens v Randwick City Council (2005) 64 NSWLR 58.
The defendants did not submit that undertaking (c) was ambiguous according to its own terms but that it was potentially at odds with other undertakings given in respect of which no motion for contempt is brought. It could be said that the undertakings were potentially contradictory in that undertaking (a) required Alwin and Norannie Chang to keep daily cash register rolls recording all cash takings and "all money disbursed from the till" whilst undertaking (c) required them to ensure that Jimmy's Recipe banked "each day's cash takings". The obligation to bank each day's cash takings may be thought to be inconsistent with the possibility envisaged by undertaking (a) that money might be disbursed from the till. It was also suggested that the undertakings given were somewhat inconsistent with the orders for disclosure made on 20 August 2018 which obliged Alwin and Norannie Chong to provide ongoing disclosure of "point of sales receipts individual cash expense records" and "invoices relevant to cash expenses" which rather assumed that they were entitled to make cash payments.
As to whether the reference to records of "money disbursed from the till" in undertaking (a) may be considered to render undertaking (c) meaningless or ambiguous, Campbell J's remarks in Kirkpatrick v Kotis [2004] NSWSC 1265; (2004) 62 NSWLR 567 assist, at [55]:
In my view, the court approaches the question of whether the order is ambiguous with the caution appropriate to a type of litigation which could result in the defendant being punished - if an order is really not clear, it is unjust for someone to be punished for not obeying it. As well, though, the court approaches the question of whether the order is ambiguous on the basis that the recipient is expected to try to understand it and obey it. If a person taking that approach to the order could be in real doubt about what it meant, in a respect which is relevant to the particular charge of contempt which is brought, the charge will fail.
As such, errors of grammar or syntax, for example, would not render an undertaking unenforceable where any resulting ambiguity had no real risk of misleading.
Similarly, in Pang v Bydand Holdings Pty Ltd Beazley JA (with whom McColl JA and Lindgren AJA agreed), noted at [56]:
[56] … various phrases have been used when seeking to determine whether the terms of an undertaking are ambiguous. These include: whether its terms were really not clear; whether the terms were such that a person reasonably trying to obey them would know what they meant; whether the person required to comply with the undertaking could be in real doubt as to what the undertaking meant: see Kirkpatrick v Kotis at [55]; whether the terms of the undertaking could mislead the person bound upon a plain reading of its words: see Spokes at 48-49.
[57] It is clear on the authorities that if the terms of an undertaking are truly ambiguous, there can be no contempt, because it cannot be said what it was that required compliance. It also appears to be common ground on the authorities that regardless of how the question is formulated, the terms of an undertaking are to be given a sensible meaning, consistent with its actual terms. It must be possible on that meaning for the undertaking to be capable of being obeyed.
Whilst her Honour observed that the terms of the undertaking in that case left something to be desired, the context in which the undertaking was given was relevant to its proper construction. The correspondence between the parties indicated that the appellant knew the undertaking was required to allay the respondent's concerns that he would deal with a property, and also cast doubt upon the appellant's explanation of his non-compliance. Her Honour held that no one could reasonably have been misled as to the proper meaning of the undertaking.
Further, as Hodgson JA noted in Athens v Randwick City Council [2005] NSWCA 317; (2005) 64 NSWLR 58 at [37]:
… if the only ambiguity on the face of the orders is between two meanings, and the recipient is shown to have breached the order whichever of the two meanings is adopted, that may in any event be sufficient to establish contempt, at least unless it appears that the breach may have been due to uncertainty as to what steps were required.
Undertaking (c) was capable of being complied with: it simply required all cash takings to be banked. If complied with, there would be no need to maintain any record of cash disbursed from the till as there would be no such disbursements. It is noteworthy that Alwin and Norannie Chong did not suggest that their failure to comply with undertaking (c) was because they were complying with undertaking (a) or (b); rather, they used the unbanked cash without creating the records called for by those undertakings either. Indeed, if Alwin and Norannie Chong had paid wages or suppliers with cash but put each transaction through the Point of Sale system and generated the records required by undertaking (a) or (b), it seems unlikely that a motion for contempt would have been brought: although not all of the cash takings would have been banked, there would have no consternation as to why not as the records would be available to see precisely what the cash had been used for.
And that was clearly the purpose of the undertakings given by Alwin and Norannie Chong on 23 October 2017. Each of the undertakings focussed on the cash transactions of Jimmy's Recipe. Each undertaking was directed to ensuring that all cash receipts and all cash payments were recorded through the company's till and Point of Sale system. The context in which the undertakings were sought, and the terms of the undertakings, readily acknowledged that cash formed a significant part of Jimmy's Recipe's operations but, more importantly, put in place a clearly worded and repetitive regime obliging Alwin and Norannie Chong to record all cash received and all cash paid through the till, enter it into the Point of Sale system and bank it. These undertakings - first requested on 29 September 2017 - had been discussed by Alwin and Norannie Chong with Mr Nakamura on 18 October 2017 and instructions given that the form of the undertakings was "Agreed", such instructions confirmed by emails from each of Alwin and Norannie Chong on 22 October 2017. The undertakings were not ambiguous: the terms of each undertaking were clear and repetitive. The plaintiff's concern that all cash transactions of Jimmy's Recipe should be accounted for through the till and the Point of Sale system was abundantly clear. To the extent that the undertakings were potentially contradictory, I do not think there was any operative uncertainty as to what they were obliged to do with the cash, and in any event, they didn't comply with any of the undertakings. I consider that element (ii) has been established.
In Infa-Secure Pty Limited v Crocker [2015] FCA 830, Ms Crocker asserted intellectual property in a child restraint product being sold by Infa-Secure, which sought an injunction to restrain her from continuing to make representations to that effect to retailers who purchased the product. Ms Crocker gave an undertaking to the court to desist from making further representations but proceeded to send a series of emails to retailers doing just that. Proceedings were brought for contempt. Reeves J considered that Ms Crocker's conduct involved a deliberate act. When the undertaking was given, the judge was at pains to ensure that Ms Crocker understood the seriousness of giving an undertaking to the court and the dire consequences that may follow if she breached the undertaking, which explanation was at odds with Ms Crocker's subsequent attempts to justify her conduct by claiming that the undertaking did not extend to her actions. The extravagance of language used by Ms Crocker in her emails manifested a deliberate attempt to harm Infa-Secure. Ms Crocker ignored the warnings received from Infa-Secure's lawyers that she was breaching the undertaking. No reasonable person could have genuinely interpreted the judicial remarks in the way which she did in her emails. Finally, some statements made in her emails indicated that Ms Crocker was aware that her conduct was probably in breach of her undertaking.
In Circuit Finance Australia v Sobbi [2010] NSWSC 789, Ball J found contempt for breach of an undertaking to deliver a motor vehicle to an auctioneer. Mr Sobbi was found to be conscious of his undertaking and, indeed, had made an application to White J to be released from it. That application was refused but Mr Sobbi nonetheless chose not to comply with the undertaking he had given. Mr Sobbi had also given an undertaking on behalf of his wife, Ms Chahili. His Honour did not accept that it was necessary to establish actual knowledge on the part of the wife before she could be guilty of contempt. At [16]:
… In my opinion, Ms Chahili was bound by the undertaking that she gave to the court. She is not relieved from the consequences of giving that undertaking because she permitted someone else to give that undertaking on her behalf and did not make enquiries to find out what had been done on her behalf. I do not think that that conduct could be described as merely casual, accidental or unintentional. It was a wilful failure to find out what had been done on her behalf. In substance, the position is no different from cases where the contemnor is not aware that his or her conduct constituted a breach of the order … Were it otherwise, the practice by which the court accepts undertakings given by legal practitioners on behalf of their clients would be unworkable.
However his Honour accepted that it was not within Ms Chahili's power to deliver up the motor vehicle and dismissed the application for contempt against her but made no order in respect of her costs as she had taken no steps to comply with the undertaking.
Similar orders to the defendants' undertakings given in these proceedings were breached in Fajloun v Khoury [2016] NSWCA 101 where a dispute had arisen concerning the operation of several BP service stations. By consent, orders were made that the protagonists would deposit all cash takings of the businesses save that the order did not prevent them "from paying creditors (including employees) in cash, if required, on the proviso that the payer retains full records of such payments". Mr Fajloun, however, caused cash takings of two BP service stations to be paid into his own bank account and Black J found him guilty of contempt of court. Mr Fajloun had defended the charge of contempt on the basis that he was an employee and thus a creditor of the companies and that the payments were "required" to be paid in cash. On appeal, Meagher JA and Emmett AJA considered that it was by no means clear that Mr Fajloun was an employee of the companies at the relevant time but, either way, the companies were not "required" to pay him in cash. Per Meagher JA at [8]-[9]:
8 The effect of the consent orders is to impose controls on the receipt and payment of monies, in part to ensure that there are records maintained of payments made from the funds of each business. The above exception permits departure from the primary position that cash takings should be paid into the bank account. It does so focussing on whether, from the perspective of the payer as operator of the business, payment in cash is required. That focus does not mean that no account can be taken of the position of the proposed payee. That is obviously relevant, but only to the extent that it can be said that from the payer's perspective payment in cash to that payee is "required".
9 Such a requirement may arise where a contract for supply provides for payment in cash and the supplier insists on that payment being made; or where a service provider has made clear that, irrespective of the terms of any contract, the services will not be provided or continued if payment is not made in cash. In each of these cases, from the perspective of the payer and the operation of its business, it can be said that the payment in cash is necessary. (The word "required" is used in a similar sense in orders 2 and 3, which are reproduced by the primary judge at [5].) The position would be different if the payee indicated a preference for payment in cash, was not entitled to insist on that form of payment and was not threatening to withhold supply to achieve that outcome.
The evidence did not establish that Mr Faljoun "required" payment in cash: there was no agreement that his wages by paid in cash nor did the Fair Work Act 2009 (Cth) require that he be paid in cash. Thus, Black J did not err in concluding that Mr Faljoun was guilty of contempt.
Here, Alvin and Norannie Chong accept that they breached the undertaking which they each gave to the Court as they did not bank cash takings of Jimmy's Recipe but, rather, used unbanked cash to pay wages and suppliers. The question, therefore, is whether their failure to comply with their undertaking was deliberate or wilful and not merely casual, accidental or unintentional, remembering that it is not necessary to prove that they intended to breach their undertaking nor were aware that their conduct constituted such a breach. I do not think it can be said that failing to bank daily cash takings can be described as "casual, accidental or unintentional". Both Alwin and Norannie Chong gave evidence that they did not bank the cash as they needed to use it for other purposes, that is, each chose to retain the cash so that it could be used for those purposes. In particular, it was Norannie Chong's role to calculate and deposit the daily takings and attend to the banking while Alwin Chong, who was operations manager, used the unbanked cash takings to pay staff wages and some suppliers. Their respective acts and omissions were 'deliberate' or 'wilful' in the sense in which these words are used in the relevant case law. Their acts and omissions were not merely casual, accidental or unintentional. I consider that element (vi) has been established and find beyond reasonable doubt that Alwin and Norannie have committed a civil contempt of court.
As to whether it was necessary to use cash to pay suppliers and employees, , I do not accept this explanation either. Mr Tsia agreed that, whilst he was the accountant for Jimmy's Recipe, a portion of salaries and suppliers were paid in cash. But Mr Tsia also said that it was possible to enter all cash transactions into the Point of Sale system by making a manual entry and disagreed that it was cumbersome to do so. If there was a problem with complying with the undertakings, then it was always open to Alwin and Norannie Chong to raise the matter with the plaintiff or, if no reasonable accommodation would be made by the plaintiff, with the Court to amend or withdraw their undertakings on the basis of evidence as to the difficulties which observance of the undertaking was causing.
The duplicate affidavits of the suppliers did suggest that the suppliers' insistence "on a strict cash on delivery basis" justified not banking cash. On closer examination, this was not so: both suppliers were flexible as to when they were paid and, although both were clearly used to being paid in cash, did not suggest that they would not have accepted payment by electronic funds transfer. There was no evidence from any employee or other business record which suggested that employees insisted on being paid in cash.
The fact that the monies were used for Jimmy's Recipe is, however, relevant to penalty. It does appear on the evidence before the Court on the contempt motion - which may well differ from evidence adduced at final hearing - that the unbanked cash was spent on expenses of the business and thus I am not prepared to make an order for restoration. Nor am I prepared to make an order for imprisonment as the contempt does not appear to me to be sufficiently serious to warrant such a heavy punishment. Nor will I strike out defences. I will, however, without hesitation make an order that the third and fourth defendants pay the plaintiff's costs of the motion on an indemnity basis payable forthwith.