Admark Property Group Pty Ltd (in liq) v GJ Building and Contracting Pty Ltd

Background facts

1. I will not repeat the factual findings which I reached in the earlier judgment in detail and this judgment should be read together with the earlier judgment. I should, however, set out my findings of facts, arising from the earlier judgment and the evidence led in this hearing. I proceed on the basis that the imposition of a penalty for a contempt is sufficiently analogous to the sentencing process in a criminal matter that facts adverse to the interests of Mr Pennimpede should not be taken into account unless they have been established beyond reasonable doubt: NCR Australia Pty Ltd v Credit Connection Pty Ltd [2005] NSWSC 1118; Anderson v XLVII [2015] FCA 19; (2015) 319 ALR 139 at [35].
2. Mr Pennimpede was the holder of all ordinary shares in Admark at all relevant times and was also the sole director of Admark. Admark and GJ Building and Contracting Pty Limited ("GJ Building") were party to a contract for the construction of units at Campbelltown, NSW. A dispute arose between Admark and GJ Building over payment for the project by the time that work on the property was completed and an occupation certificate was issued in late 2015. On 15 December 2015, Admark commenced proceedings seeking orders that GJ Building, its servants and agents be prevented from entering the property so as to facilitate the completion of sales of units in the property. On 18 December 2015, in the course of a hearing before Bergin CJ in Eq, sitting as Equity Duty Judge, upon Admark's undertaking as to damages, GJ Building undertook to the Court that it would not enter the relevant property except to attend to its obligations under the Home Building Act 1989 (NSW), and would not hinder Admark's, its servants' or agents' access to the property. The Court also noted Admark's undertaking that: "… [Admark] undertakes to the Court that until further order the amount of $606,595 from the proceeds of the sale from units of the Property will be paid into the controlled money account and held in trust for [Admark] and [GJ Building] by the solicitor for [Admark]." Mr Pennimpede had knowledge of the orders made by the Court and the undertaking given by Admark on that date and had instructed Admark's solicitors that he agreed to that undertaking being given.
3. Between 18 December 2015 and 18 January 2016, Admark sold, or alternatively settled the sales of, units at the property and received or became entitled to the proceeds from the sale of those units and monies in respect of the proceeds for the sale of those units were deposited into the trust account of its conveyancing solicitors, CVC Law.
4. On 21 December 2015 and again by letter dated 22 December 2015, the solicitors for Admark advised Mr Pennimpede of the orders and undertakings made on 18 December 2015 including the relevant undertaking. That letter also stated that: "The Court did not impose a time by which that money had to be paid into trust, however the first available funds after payment of secured creditors should be paid into trust. Failure to do so would be a breach of the undertaking and is punishable as a contempt of a Court. …"
5. On or about 23 December 2015, Mr Pennimpede directed CVC Law to complete the sales of the units at the property and disburse the sale proceeds to pay out the first mortgagee, Commonwealth Bank of Australia; deduct legal expenses and agent's commission; repay an associated entity, Janadele Pty Ltd under its unregistered mortgage; and repay another associated entity, Manbead Pty Ltd ("Manbead"), in the form of a cheque payable to Westpac Banking Corporation ("Westpac") for $2 million and the balance as directed by Mr Pennimpede. On or about 31 December 2015, Mr Pennimpede gave further instructions to CVC Law to transfer the amount of $2 million to an account at Westpac for the benefit of Manbead from the proceeds of sales of units at the property and, on or about that date, CVC Law transferred that amount to Westpac for the benefit of Manbead.
6. By letter dated 12 January 2016, Admark's solicitors again wrote to Mr Pennimpede reminding him of the undertaking given to the Court and asking for instructions. By a further letter dated 13 January 2016, Admark's solicitors reminded Mr Pennimpede that a failure to deposit the amount of $606,595.50 into the controlled monies account may be a contempt of Court, and also advised Mr Pennimpede that the Court had broad powers including powers of imprisonment in respect of a contempt of Court and that the matter should be treated as of the utmost seriousness.
7. On or about 18 January 2016, Mr Pennimpede gave instructions to CVC Law to make a telegraphic transfer in the amount of $2,731,571.33 to an account in the name of his wife in Croatia (which, on Mr Pennimpede's evidence in this hearing, was to fund a development project there) and to make an electronic funds transfer in the amount of $80,000 to a liquidator who was then appointed to Admark, which was placed in voluntary liquidation. By that point, Admark had not complied with the undertaking to the Court and its assets had been dissipated.
8. Mr Pennimpede subsequently sought to use the proceeds of the sale of unit 23 in the property, which he had previously caused Admark to transfer to his wife without receiving a money payment, to satisfy Admark's obligations under the undertaking. That course had the difficulty, to which I referred in the earlier judgment, that Admark's liquidator had identified a claim against Mrs Pennimpede in that respect and that payment of that amount to the liquidator could not, and did not, bring about compliance with the undertaking to the Court. On 20 May 2016, GJ Building brought a Notice of Motion seeking Mr Pennimpede's committal for contempt.
9. I held, in the earlier judgment, that: "I am satisfied beyond reasonable doubt, that Mr Pennimpede knew of the terms of the undertaking, since he gave instructions to give the undertaking and was subsequently advised of its terms by the letter dated 22 December 2015 … and the subsequent correspondence to which I have referred above. The evidence does not provide any basis for any inference that Mr Pennimpede had an honest, but mistaken, belief as to the meaning or operation of the undertaking which, if correct, would mean that his conduct would not be an interference with its operation. Admark's solicitor had repeatedly and clearly drawn Mr Pennimpede's attention to Admark's obligations under the undertaking and the risk that it would be held liable for contempt for breach of them, and on any reasonably arguable view of when payment was due to be made by Admark to the controlled monies account, and even if Mr Pennimpede had wrongly believed that the debts that have been established as due to secured creditors could be paid first, the conduct that he caused Admark to take would still have breached the undertaking."
10. I also observed that, between late December 2015 and the appointment of a liquidator to Admark, Mr Pennimpede took no steps to cause Admark to comply with its undertaking and caused Admark to make payments to third parties which placed it in a position that it was impossible for it to comply with its undertaking at the point that it was placed in liquidation. I noted that steps later taken by Mr Pennimpede, or his wife, after Admark was placed in liquidation, did not in fact secure compliance with the undertaking, and were not capable of displacing a finding that Mr Pennimpede did not intend to bring about compliance with Admark's undertaking and intended to impede compliance with that undertaking, throughout the period until a liquidator was appointed to Admark and beyond. I concluded that: "I am satisfied, beyond reasonable doubt, that Mr Pennimpede's conduct, coupled with his knowledge of the undertaking, on any available construction of it, involved steps that he knew would prevent or impede the undertaking given to the Court achieving its intended object. I more readily reach that finding where that conduct involved, over a short time period, his authorising the giving of the undertaking by Admark, his receipt of repeated and clear advice from Admark's solicitor drawing attention to Admark's obligations under the undertaking and the risk that it would be held liable for contempt for breach of them, Admark's receipt of substantial funds and Mr Pennimpede's causing those funds to be paid away in a manner inconsistent with the undertaking, including to offshore accounts, and then causing Admark to be placed in voluntary liquidation with no assets beyond an amount to fund the liquidator's fees."
11. Mr Pennimpede, of course, had not given the undertaking in his personal capacity and it was Admark that had not complied with that undertaking. However, I found that Mr Pennimpede was liable in contempt by knowing obstruction or interference with the course of justice, which had been proved beyond reasonable doubt, and concluded (at [60]) that: "In summary, I am satisfied, beyond reasonable doubt, that Mr Pennimpede had the requisite knowledge and intent to be liable in contempt; that his conduct, coupled with his knowledge of the undertaking, involved taking steps that he knew would prevent or impede the undertaking given to the Court achieving its intended object; that he thereby flouted the Court's authority; and that the mens rea necessary to a finding of contempt is established. I therefore find that the charge of contempt against Mr Pennimpede is established beyond reasonable doubt."

The evidence led in this hearing

1. By his affidavit dated 9 December 2016, Mr Pennimpede sought to provide an explanation of his involvement in the conduct which constituted the contempt. Mr Pennimpede's evidence, in explanation of the conduct, is that he was experiencing marital difficulties (Pennimpede [6]); that he was under stress in respect of the sale of units in the property (Pennimpede [7]); that he was devoting attention to the arrangements to place Admark in liquidation, as he says he had intended prior to giving the undertaking (Pennimpede [8]ff); and that he experienced stress in respect of the proceedings brought by GJ Building (Pennimpede [14]). There are significant difficulties with Mr Pennimpede's evidence that his ability to make business judgments was impeded by the difficulties with his marriage in December 2015 and January 2016, which were emphasised by his cross-examination. These include that Mr Pennimpede was able to give instructions to lawyers, including in respect of the commencement of proceedings by Admark against GJ Building, during that period and also to give instructions to his conveyancing solicitors about the distribution of monies from the proceeds of sale of the units and to implement the liquidation of Admark at that time. Those steps each involved apparently rational actions, notwithstanding that the transfers of funds were inconsistent with the undertaking, and undermine his evidence that his capacity to make business decisions was significantly affected by the matters to which he referred.
2. Mr Pennimpede accepts that his former solicitor had informed him, including by letters dated 12 and 13 January 2016, of the importance of complying with the undertaking and the consequences of not complying with it. Mr Pennimpede's evidence is that: "[A]t that time, and in the light of the other difficulties and stresses I was experiencing, I did not take these warnings as seriously as I now appreciate that I should have. It did not register in my mind and I did not see it as a reality that should I not comply with the undertaking, I would be in contempt of Court and the seriousness of what that meant." That evidence does not suggest that Mr Pennimpede did not appreciate the content of the obligations that arose under the undertaking, so far as Admark was concerned, as distinct from failing to appreciate the consequences that would arise from a failure to comply with that undertaking.
3. Mr Pennimpede's evidence is also that it was not until March 2016, after a conversation with his solicitor, that Admark's obligations under the undertaking and the seriousness of not complying with it "sunk into [his] head". I have noted above that Mr Pennimpede's solicitor had properly drawn the importance of compliance with the undertaking and the potential consequences of not complying with it to Mr Pennimpede's attention on several previous occasions. Mr Pennimpede's evidence is, in effect, that he had not recognised the import of the matters which his solicitor had previously clearly drawn to his attention.
4. I have referred above to the fact that, after Admark was placed in voluntary liquidation, Mr Pennimpede sought to use the proceeds of sale of unit 23 in the property to satisfy Admark's obligations under the undertaking. Mr Pennimpede's evidence is that he believed that the transfer of the amount of $606,595 to the liquidator, following the sale of that unit, had brought about compliance with the undertaking. There was a factual dispute at the hearing as to whether Mr Pennimpede was led, by a conversation with an employee of the liquidator of Admark, Ms Hindson, to a belief that the sale of the unit 23 and a consequential payment of part of the proceeds to the liquidator could both satisfy the liquidator's claim against his wife in respect of that unit and bring about compliance with the undertaking. Mr Pennimpede's evidence, which he maintained in cross-examination, was that Ms Hindson had led him to believe that a payment of the sale proceeds of unit 23 to the liquidator would comply with the requirements of the undertaking (T20). Mr Pennimpede's evidence in cross-examination was also that he had been advised by Admark's conveyancing solicitor, Mr Cuomo, that the payment to the liquidator would meet the requirements of the undertaking, although his evidence in cross-examination was equivocal as to whether he had sought or obtained such advice from the solicitor acting for Admark in the proceedings in which the undertaking was given (T23).
5. Mr Pennimpede's evidence is that it was not until the hearing of a later motion brought by the liquidator to be released from the undertaking, after the Court had given its earlier judgment in respect of the contempt application, that Mr Pennimpede fully appreciated that the liquidator disputed that the funds paid from the sale of unit 23 could be used to satisfy the undertaking (Pennimpede [28]-[31]). I afforded the parties the opportunity to provide further submissions as to whether the history of proceedings was consistent with Mr Pennimpede's evidence in that respect, and Mr Pennimpede provided detailed further submissions in that regard. I am satisfied, for the reasons set out in those submissions, that there was a lack of clarity in the liquidator's position over a period, at least until the application for release from the undertaking was pressed by the liquidator, and that the history of the proceedings is not inconsistent with Mr Pennimpede's evidence in that respect. It should be recognised, of course, that this issue arose after the contempt had already been committed by Admark, and by Mr Pennimpede, by Mr Pennimpede's failure to cause Admark to comply with the undertaking at any time before he placed it in voluntary liquidation.
6. Mr Pennimpede supplemented his affidavit evidence by making a statement, in oral evidence in chief at the hearing on 19 December 2016, that: "I'd like to apologise to the Court for my actions. At the time, my head was clouded with other things that were going on in my life. Sincerely I'd like to apologise to the Court for those actions."
7. Mr Pennimpede also relies on an affidavit of Admark's conveyancing solicitor, Mr Cuoco, dated 9 December 2016, which refers to Mr Cuoco's attempt to negotiate an arrangement with the liquidator of Admark by which the proceeds of sale of unit 23 in the property, which (as I noted above) had been transferred by Admark to Mr Pennimpede's wife without a monetary payment, could be used to meet the undertaking and, implicitly, at the same time to satisfy the liquidator's claim that the transfer of that property to Mrs Pennimpede was a voidable transaction. Mr Cuoco refers to a conversation with Mr Pennimpede in April 2016, after Mr Pennimpede had spoken with Ms Hindson, in which Mr Pennimpede expressed the belief that a payment of the proceeds of sale to the liquidator was "the same as paying it to the Court as the liquidator is the agent of the Court" and to Mr Cuoco having, in effect, confirmed that belief.
8. Mr Cuoco acknowledges that, on 19 April 2016, he received an email from the liquidator which made clear that the liquidator claimed that unit 23 was Admark's property and that the entire proceeds of sale, less certain expenses, were to be paid to Admark. Mr Cuoco's evidence is that he did not send a copy of that email to Mr Pennimpede and that he was at that time confident that he would be able to negotiate with the liquidator to use the funds from the sale of unit 23 to meet the undertaking. Mr Cuoco sought to achieve that result in subsequent email correspondence with the liquidator, in late April 2016 and early June 2016, to which I referred in the earlier judgment. Mr Cuoco's evidence (Cuoco 9.12.16 [17]) is that: "I did not inform Mr Pennimpede at any time that the Liquidator would not permit the proceeds of sale of Unit 23 to be used for the purposes of meeting the Undertaking. I continued to be of the view that I would be able to negotiate such an outcome with the Liquidator and for that reason I did not wish to trouble Mr Pennimpede any further with the matter."
9. Mr Cuoco's evidence on cross-examination was, at best, confusing as to how the amount initially offered to the liquidator from the sale of unit 23, after Mr Pennimpede's wife sought to hold back funds on account of tax, could have amounted to compliance with an undertaking to pay a larger amount into a controlled monies account to be held in trust for Admark and GJ Building by Admark's solicitors (T35-36). The statements he attributes to Ms Hindson are also not reflected in, or recorded in, contemporaneous or subsequent email correspondence between the parties, which recorded Mr Cuoco's proposals as to how the funds should be treated, rather than recording any agreement by the liquidator to that matter.
10. Mr Pennimpede also relied on the report of a consulting psychologist, Mr Dragutinovich (Ex D2). Mr Dragutinovich's evidence, based, inter alia, on his interviews with Mr Pennimpede, was that it was likely that Mr Pennimpede was suffering a "major depressive episode" at the time of the conduct that the Court has held amounted to a contempt of Court. Mr Dragutinovich was not cross-examined. However, I am not persuaded that he is in a position to draw reliable inferences, from interviews conducted in the recent past and in the course of a contempt proceeding, as to the mental state of Mr Pennimpede at a significantly earlier point in time. Mr Pennimpede also relied on the report of Associate Professor Edward Vogl dated 5 December 2016 (Ex D3) which related primarily to his physical, as distinct from mental, health.
11. Mr Pennimpede also relied on the report of Dr Olav Nielssen dated 6 December 2016 (Ex D4), based on a review of Mr Pennimpede's medical records and on a further interview with Mr Pennimpede. Dr Nielssen concluded that Mr Pennimpede did not meet the accepted criteria for the diagnosis of any psychiatric disorder; recorded Mr Pennimpede's position that problems in his physical health, the breakdown of his marriage and the complexity of the legal proceedings "affected his ability to give proper consideration to all of the details of the case" and that his emotional reaction to those matters "is likely to have affected his decision-making" at the time of the relevant events; and otherwise made the modest recommendation that Mr Pennimpede was likely to derive some benefit from speaking to a qualified counsellor. It does not seem to me that Dr Nielssen's report provided any substantial support for the contention that Mr Pennimpede's conduct in respect of the matters in issue in this hearing had been significantly impacted by his earlier physical or mental health condition.
12. GJ Building relied on the affidavits of Ms Hindson (who is, as I noted above, an employee of the liquidator to Admark), dated 26 September 2016 and 19 December 2016, which took issue with aspects of Mr Pennimpede's evidence in his affidavit dated 9 December 2016 and Mr Cuoco's evidence in his affidavits dated 23 September 2016 and 9 December 2016. There is a difference in evidence between Ms Hindson, on the one hand, and Mr Pennimpede and Mr Cuoco on the other, as to whether the transfer of unit 23 to Mr Pennimpede's wife was discussed at an initial meeting in January, or was an issue that subsequently arose in March 2016 when the liquidator lodged a caveat over that property at about the time that Mrs Pennimpede was selling that property. I accept there is a possibility that Ms Hindson's recollection of the meeting in mid-January may be in error, in circumstances where she did not take a contemporaneous file note of that meeting, and was seeking to recall what had occurred nearly a year later in giving her affidavit evidence.
13. Ms Hindson accepted in cross-examination that she would have said something to Mr Pennimpede, in mid-March 2016, to the effect that he could not give the money from the sale of unit 23 to the Court, presumably because of the liquidator's claim in respect of that unit; she also accepted that she would have told Mr Pennimpede that the liquidator was an agent or officer of the Court; and she accepted that the liquidator was in charge of Admark from the date of her appointment, although not necessarily that she had advised Mr Pennimpede of that matter (T44). Ms Hindson's evidence was that her position was that the proceeds of sale of unit 23 should be paid to the liquidator (T44). Ms Hindson did not accept that she told Mr Pennimpede that a payment to the liquidator could be made for the purpose of meeting the undertaking. It seems to me that that statement, if made, would plainly have been inconsistent with the liquidator's claim that the sale of unit 23 was an uncommercial transaction, by then reflected in its caveat over the property. It does not, however, follow that Mr Pennimpede was aware of that inconsistency, given the uncertainty as to what he was told by Ms Hindson, the limits to what he was told by Mr Cuoco and the fact that he appears not to have sought specific advice from the solicitor acting for Admark in the litigation as to that matter.
14. It did not seem to me that the documentary evidence assists in reaching a determination whether the evidence of Ms Hindson on the one hand or the evidence of Mr Pennimpede and Mr Cuoco on the other should be accepted and their cross-examination did not provide any reliable basis for preferring the evidence of one to the evidence of the others. In the absence of objective evidence to support one version of events over the other, or any basis to reach a finding of credit, it seems to me to be preferable that I not reach a finding as to this matter, where it does not seem to me to be necessary to do so in order to reach a decision as to penalty. I will assume, without deciding, that there was a misunderstanding as to Mr Pennimpede's ability to achieve compliance with the undertaking by making a payment to the liquidator.
15. Mr Dick (who appears with Mr Dawson and Ms Bathurst for Mr Pennimpede) submits, and I will also assume without deciding, that that misunderstanding provides an explanation for the fact that Mr Pennimpede did not move more promptly to take other steps to bring about a payment into Court or other substitute for compliance with the undertaking. On that assumption, Mr Pennimpede's delay in taking such steps, after the payment of the sale proceeds of unit 23 to the liquidator, should not be treated as exacerbating his contempt and I should accept that he sought to take steps, by procuring that sale, to resolve the issue. That does not, however, provide any real explanation or mitigation of Mr Pennimpede's conduct in the period from the giving of the undertaking to the point at which he caused Admark to be placed in voluntary liquidation.

Subsequent payment of monies into Court

1. After the delivery of the earlier judgment, Mr Pennimpede took steps to ameliorate the effect of Admark's and his contempt, by depositing into Court the amount of $606,595 which the undertaking had required be deposited into a controlled monies account, which he sourced from the proceeds of the sale of the property owned by Manbead (Pennimpede 9.12.16 [32]-[35]). That payment was not, of course, made in the manner contemplated by the undertaking, nor could it be after Admark had been placed in voluntary liquidation. The payment into Court was ultimately only made on the day of the penalty hearing, although I accept that events outside Mr Pennimpede's control had delayed that payment to some extent.
2. It seems to me that the payment which Mr Pennimpede has now caused to be made into Court is of considerable significance. I also recognise that it took place long after Admark was required to pay the amount required by the undertaking into the controlled monies account, and only after GJ Building had been exposed to non-compliance with that undertaking over that long period and to the risk that the undertaking would never be complied with. I also accept that that payment, from the date on which it was made, was practically equivalent to compliance with the undertaking, so far as GJ Building is concerned. I will return to the significance of this matter in respect of penalty below.

The applicable legal principles

1. I now turn to the principles applicable to the imposition of a penalty for contempt. Part 55 r 13 of the Supreme Court Rules in turn provides that, where a contemnor is not a corporation, the Court may punish contempt by committal to a correction centre or fine or both and may make an order for punishment on terms. That rule is declaratory of the Court's power of punishment and does not exhaust that power: Registrar of the Court of Appeal v Maniam (No 2) (1992) 26 NSWLR 309 at 314; Menzies v Paccar Financial Pty Ltd [2016] NSWCA 280 at [14]. Proceedings for contempt in respect of a breach of an order or undertaking have the effect of vindicating the Court's authority as well as having a remedial or coercive effect, and the purposes of punishment for contempt include deterring the contemnor and others in the future from committing similar contempts and denunciation of the conduct: Registrar of the Court of Appeal v Maniam (No 2) above at 314; Witham v Holloway [1995] HCA 3; (1995) 183 CLR 525 at 533. In Australasian Meat Industry Employees Union v Mudginberri Station Pty Ltd [1986] HCA 46; (1986) 161 CLR 98 at 106, the plurality in the High Court identified the underlying reason for the existence and exercise of a power to punish for contempt as to uphold and protect the effective administration of justice.
2. In Australian Securities and Investments Commission v Michalik (2004) 52 ACSR 115; (2005) 23 ACLC 188 at [29], Palmer J also identified several matters relevant to determining the penalty for civil contempt, including the seriousness of the contempt proved; whether the contemnor was aware of the consequences to himself of what he proposed to do; the actual or potential consequences of the contempt on the proceedings in which the contempt was committed; the reason or motive for the contempt; whether the contemnor had received, or sought to receive, a benefit or gain from the contempt; whether there has been any expression of genuine contrition by the contemnor; the character and antecedents of the contemnor; what punishment was required to deter the contemnor and others of like mind from similar disobedience to the orders of the Court; and what punishment was required to express the Court's denunciation of the contempt.
3. In NCR Australia Pty Ltd v Credit Connection Pty Ltd above at [23]-[25], Campbell J (as his Honour then was) noted that punishments for contempt of Court should take into account the same principles as are applicable to punishment for a crime and that, in principle, a contempt of Court can be punished by anything within the range of penalties that can be imposed for a crime under the Crimes (Sentencing Procedure) Act 1999 (NSW). His Honour summarised (at [68]) the considerations to be taken into account on issues of punishment for contempt as follows: "A sentence for crime is arrived at as a result of an instinctive synthesis of multiple factors. It is, nonetheless, a judicial decision, because principles of law determine the factors that can properly be taken into account, and a judicial judgment can be made by an appellate court of whether the way in which those factors have been taken into account is within the range of legally permissible outcomes. The same applies to sentencing for contempt."
4. Relevant matters in respect of the penalty for contempt were also identified in Louis Vuitton Malletier SA v Design Elegance Pty Ltd [2006] FCA 83; (2006) 149 FCR 494 at [25] as including the contemnor's personal circumstances; the nature and circumstances of the contempt; the effect of the contempt on the administration of justice; the contemnor's culpability; the need to deter the contemnor and others from repeating contempt; the absence or presence of a prior conviction for contempt; the contemnor's financial means; whether the contemnor has demonstrated genuine contrition and made a full and ample apology; whether the conduct falls within the most serious category of criminal contempt cases such as to warrant the imposition of a term of imprisonment; and whether or not imprisonment is a "last resort" penalty in the circumstances of the case. Those principles were approved and applied in Anderson v XLVII above at [51].
5. The relevant principles were also helpfully summarised by Rothman J in Paccar Financial Pty Ltd v Menzies [2015] NSWSC 1622. His Honour there noted the historical distinction between civil and criminal contempt, and that civil contempt involving a breach of a court order or undertaking and criminal contempt related to conduct that obstructed the administration of justice. His Honour noted (at [10]-[11]), with reference to authority, that a deliberate defiance of an order of the Court or undertaking given to the Court is considered to be criminal in nature and that that the purpose of imposing a punishment for such wilful disobedience to a Court order is to discipline the offender and vindicate the Court's authority. In sentencing Mr Pennimpede for contempt, I must impose a sentence that is appropriate to the gravity of the offence that was committed and his circumstances: Paccar Financial Pty Ltd v Menzies above at [12].
6. In The Prothonotary of Supreme Court of New South Wales v Battye [2017] NSWSC 48 ("Battye"), a decision delivered after I had reserved judgment, as to which I invited further submissions from the parties, Schmidt J observed (at [41]) that: "The punishment which the Court may impose for a contempt of the kind here in question is unlimited. The punishment imposed on Mr Battye must be that considered to be necessary and appropriate in the exercise of the Court's inherent jurisdiction to safeguard the administration of justice and uphold the rule of law (see Registrar of Court of Appeal v Maniam (No 2) [above] at 314). The sentence imposed must also be such as to denounce his contemptuous conduct, in an appropriately emphatic way."
7. Mr Dick submits, and I accept, that the sentencing considerations prescribed by the Crimes (Sentencing Procedure) Act apply when the Court is exercising its contempt jurisdiction: Australian Securities and Investments Commission v Michalik above at [26]; Ryan v Wright (No 2) [2004] NSWSC 1019 at [21]. Section 3A of the Sentencing Procedure Act identifies the purposes of sentencing as ensuring that an offender is adequately punished for the offence; deterring the offender and other persons from committing similar offences; protecting the community from the offender; promoting the rehabilitation of the offender; making the offender accountable for his or her actions; denouncing the conduct of the offender; and recognising the harm done to the victim of the crime and the community. The Sentencing Procedure Act indicates the range of sentences which the Court may impose for contempt, including imprisonment under s 5, although the Court must not sentence an offender to imprisonment unless it is satisfied, having considered all possible alternatives, that no penalty other than imprisonment is appropriate; home detention under s 6; intensive correction orders under s 7; community service orders under s 8; good behaviour bonds under s 9; dismissal of the charge and a conditional discharge of the offender under s 10; deferral of a sentence under s 11; a suspended sentence under s 12; and a fine under ss 14 and 15. Section 21A of the Sentencing Procedure Act deals with aggravating and mitigating factors in sentencing.
8. There are several decisions in which a Court has either imposed a prison sentence and suspended that sentence subject to a condition of community service or ordered the performance of community service as an alternative to imprisonment for contempt of court: Ryan v Wright (No 2) above; NCR Australia Pty Ltd v Credit Connection Pty Ltd above; Bydand Holdings Pty Ltd v Pineland Property Holdings Pty Ltd [2009] NSWSC 959. In NCR Australia Pty Ltd v Credit Connection Pty Ltd above at [95], Campbell J (as his Honour then was) drew an analogy between a contempt committed by withdrawals from bank accounts for the contemnor's personal benefit and contrary to a freezing order, which had reduced the amount available to the plaintiff to meet its judgment by a substantial amount (where, by contrast with this case, that reduction was not later undone) and crimes involving offences against property without violence. His Honour there imposed penalties on the contemnor totalling 320 hours of community service.
9. There are also decisions in which a fine has been imposed. In Crane Distribution Ltd v von Schellebeeck [2009] NSWSC 263, the Court made declarations of contempt in respect of breach of an asset freezing order, and imposed a monetary fine of $10,000, as well as restricting the defendant from taking further steps in the proceedings until the contempt was purged. In CC Containers Pty Ltd v Lee (No 9) [2015] VSC 595, the Supreme Court of Victoria imposed a fine of $10,000 in respect of a contempt committed by withdrawals made in breach of a freezing order and a fine of $2,000 in respect of further withdrawals from a different account, where the Court had found a deliberate breach of the freezing order, there had been an apology from the defendants and the defendant had no prior conviction for contempt.
10. Mr Sulan, who appears for GJ Building, also refers to several decisions in the United Kingdom which have recognised that imprisonment may be appropriate for breach of an asset freezing order and ancillary disclosure order. Mr Dick submits, and I accept, that those decisions have limited application where I am required to exercise a sentencing discretion in accordance with the Sentencing Procedure Act. In any event, as Mr Dick points out, the decision in JSC BTA Bank v Solodchenko (No 2) [2011] EWCA Civ 1241; [2012] 1 WLR 350, which involved a contempt of a larger scale than that involved in this case, provides support for the proposition that the purging of a contempt tends against the imposition of a custodial sentence.

Consideration of relevant factors as to penalty

1. As I noted above, the nature and circumstances of the contempt and the contemnor's culpability are relevant to penalty. I have regard, in determining the penalty to be imposed on Mr Pennimpede, to the nature and circumstances of the contempt, which I have set out above. Mr Pennimpede accepts, in his submissions, that the nature and circumstances of the contempt were serious. He acknowledges that the effect of the Court's findings in the earlier judgment is that he knew of the terms of the undertaking and, rather than causing Admark to comply with it, caused it to divert $4,731,571 (I interpolate, to entities associated with him) and then placed Admark in voluntary liquidation. Mr Pennimpede also acknowledges the seriousness of that conduct, although he also relies on his explanation for that conduct in his affidavit evidence. It seems to me that the matters to which I referred in the earlier judgment, including Mr Pennimpede's causing Admark's continued non-compliance with the undertaking, and the several transfers of substantial funds to associated entities without compliance with the undertaking, where Admark's solicitor had emphasised the significance of the matter, indicates that his conduct was intentional and serious in character.
2. It seems to me that Mr Pennimpede was necessarily aware of the advantages to Admark and associated entities of its failing to take steps to cause it to comply with the undertaking and transferring the funds subject to the undertaking to associated entities, including the fact that Admark and associated entities would have access to those funds which would otherwise not be available to it or them, and that GJ Building would be deprived of those funds which would otherwise be available to satisfy a claim against Admark and would at best be left to pursue any personal guarantee against Mr Pennimpede. I accept, however, that Mr Pennimpede had not necessarily appreciated the risk to himself of the course which he adopted, notwithstanding that his former solicitor had taken proper steps to bring that risk to his attention. It seems to me that Mr Pennimpede received, at least indirectly, a benefit or gain from the contempt, so far as funds subject to the undertaking were retained by Admark and associated entities for a considerable period, which would otherwise have not been available to it or them. But for the steps that were subsequently taken by GJ Building, over an extended period, in this application, there was every prospect that the steps that Mr Pennimpede caused Admark to take would have left GJ Building without access to the funds that were to be paid into a controlled monies account in compliance with the undertaking.
3. I also have regard to Mr Pennimpede's culpability, and to the matters on which he relies as mitigating that culpability. I accept that there is evidence that the breakdown of Mr Pennimpede's marriage, the fact of which was not contested at the penalty hearing, was a matter which caused distress, and possibly depression, for Mr Pennimpede. I am not persuaded that that distress or depression had any substantial impact upon Mr Pennimpede's conduct in respect of the undertaking. As I noted above, Mr Pennimpede's distress or depression, and the other matters to which he refers, do not appear to have had a substantial impact upon his ability to take steps in the proceedings or other business matters that would advance Admark's or his interests.
4. Mr Dick submits that the subsequent sale of unit 23 and payment of some of the sale proceeds to the liquidator are relevant to Mr Pennimpede's state of mind although he acknowledges that they would not have objectively satisfied the undertaking. Mr Dick also submits that those matters tend against any conclusion that Mr Pennimpede's conduct was wilful in character. I am not persuaded by that submission, where Admark's non-compliance with the undertaking and the steps taken and not taken by Mr Pennimpede in that regard existed for a considerable period before any steps were taken in respect of the sale of unit 23. Mr Dick also submits that Mr Pennimpede's mistaken belief that he had satisfied Admark's obligations by the payment from the proceeds of the sale of unit 23 to the liquidator is a "strong mitigating factor". I do not accept that submission. As I noted in paragraph 27 above, such a mistaken belief does not provide any real explanation or mitigation of Mr Pennimpede's conduct in the period from when Admark gave the undertaking, on his instructions, to when he caused Admark to be placed in voluntary liquidation. Mr Pennimpede's conduct in that period caused Admark to breach the undertaking, and occurred for an extended period before any steps were taken to sell unit 23. I do accept, as I noted in paragraph 27 above, that such a mistaken belief would have the result that Mr Pennimpede's delay in taking other steps to mitigate Admark's non-compliance with the undertaking, from the payment of the sale proceeds of unit 23 to the liquidator until it became clear that that payment did not have the same practical effect as compliance with the undertaking, would not be treated as exacerbating his contempt.
5. As I also noted above, the effect of the contempt on the administration of justice and the need to deter the contemnor and others from repeating the contempt are relevant to penalty. Mr Pennimpede accepts that the contempt has had an adverse effect on the administration of justice, but emphasises that he has now taken steps which, in substance, purge the relevant contempt. As I noted in the earlier judgment, it seems to me that Mr Pennimpede's conduct had the capacity to undermine the utility of undertakings and, if parties were no longer prepared to accept such undertakings, significantly to undermine the administration of justice. In Pisano v Dandris (No 4) [2015] NSWSC 1689 at [24], a case concerning a freezing order, McDougall J noted that an important aspect of the penalty for contempt is: "the need to vindicate the authority of the Court, to deter others from taking the view that Court orders may be disregarded without any real sanction, and to impose upon [the contemnor] some real punishment for [its] knowing and unjustifiable breach of the Court's orders." It seems to me that the Court's ability to accept an undertaking is a similarly important aspect of its ability to deal with civil cases, which may operate to the advantage of both the party which gives and the party which receives the benefit of an undertaking to the Court, and of the community, and (adopting the language of McDougall J in Pisano v Dandris (No 4) above) the value of such undertakings: "will be very severely diminished if there exists a perception, particularly in the commercial world, that people may disobey them without sanction." That emphasises the significance of vindication and deterrence in respect of the penalty for breach of an undertaking, and in respect of a contempt committed, in the case of Mr Pennimpede, by causing Admark to breach that undertaking.
6. As I noted above, the absence or presence of a prior conviction for contempt is relevant to penalty. Mr Dick submits, and I accept, that the Court should take into account Mr Pennimpede's previous good character and the absence of previous convictions for contempt, and I have had regard to character evidence led in respect of him. I accept that it is unlikely that Mr Pennimpede will reoffend, in circumstances that, quite apart from any penalty imposed upon him, this application will undoubtedly have exposed him to significant stress as well as significant legal costs. The contemnor's financial means are relevant to penalty, and, as Mr Sulan submits, Mr Pennimpede's ability to pay a fine should be taken into account under s 6 of the Fines Act 1996 (NSW): Circuit Finance Australia (recs and mgrs apptd) (in liq) v Sobbi [2010] NSWSC 912 at [7]; Re Mycorp Pty Ltd [2014] NSWSC 1180 at [8]. Mr Pennimpede recognised, in submissions, the possibility that a fine may be imposed as an alternative to a custodial sentence and made no submission that any fine should be reduced by reason of any limitation on his financial resources.
7. As I noted above, any contrition and apology is relevant to penalty. Mr Dick submits that Mr Pennimpede has shown contrition, by an apology to the Court (Pennimpede [16]-[17], [39]-[41]) and submits that, although he has lodged an appeal from the earlier judgment, he is remorseful and accepts full responsibility for his actions. It is difficult to form a view as to the genuineness of that contrition, in circumstances that Mr Pennimpede is plainly now aware of the risks of a custodial sentence arising from his conduct. I also note that the apology offered by Mr Pennimpede, like that offered in NCR Australia Pty Ltd v Credit Connection Pty Ltd above at [79], is directed to the Court and does not involve any substantial acknowledgement of the risk to which Admark's conduct, under Mr Pennimpede's control, had exposed GJ Building or the costs which GJ Building has incurred in pursuing this application.
8. It seems to me essential that the sentence imposed on Mr Pennimpede should have an adequate punitive element, notwithstanding that Mr Pennimpede has now, after a substantial delay, taken steps which amount to a substitute for Admark's compliance with the undertaking. It seems to me that there is also a need to make Mr Pennimpede accountable for his actions and to denounce his conduct, and to recognise that the non-compliance with the undertaking exposed GJ Building to significant risk and costs, over an extended period, and exposed the community to the risk that confidence in undertakings given to the Court would be undermined. There is also a need for deterrence, so that directors and shareholders of a company subject to an undertaking should not be left to think that they need not cause the company to comply with an undertaking to the Court or may cause it not to do so; may put the other party to proceedings to substantial risk, delay and costs in bringing a proceeding for contempt, when that undertaking is not complied with; and then avoid any significant sanction by, after long delay, causing compliance with the undertaking or taking steps which have a substantively similar effect. In the absence of appropriate punishment or deterrence, there would be an incentive for a director or shareholder of a company bound by an undertaking to cause its non-compliance with that undertaking, in the hope that the other party to the proceedings would not have the resources or the commitment to incur the costs involved in pursuing that breach. It seems to me that the punishment required to deter Mr Pennimpede and others of like mind from similar disobedience to the orders of the Court must be at least sufficient that a person, in a similar situation, would not calculate that the benefits of causing non-compliance with the undertaking, combined with the possibility that the other party may not take further action in respect of it, outweigh the risks of the penalty imposed by the Court if a contempt is found.
9. Mr Dick submits, and I accept, that the purging of a contempt is relevant to the imposition of a penalty and may in some circumstances have the result that a fine would be appropriate for conduct which might otherwise have attracted a prison sentence: JSC BTA Bank v Solodchenko (No 2) above at [55]; Anderson v XLVII above at [50]. I accept that Mr Pennimpede's causing the payment of the relevant monies into Court, although it does not amount to compliance with the undertaking by Admark, has purged the contempt involved in his previous failure to cause Admark to comply with that undertaking. After Mr Pennimpede has purged his contempt, at least in the sense of making a payment into Court which is substantively equivalent to the undertaking with which Admark cannot now comply, coercion has no further part to play in fixing an appropriate penalty although retribution and deterrence remain important considerations: Anderson v XLVII above at [50]. Mr Dick also submits, and I accept, that the fact that an order for indemnity costs will be made against Mr Pennimpede, as he accepts is appropriate, is a matter that is relevant to the penalty that should be ordered against him.
10. I have also had regard to the implications of the recent decision in Battye for the penalty to be imposed in this case and, as I noted above, I requested further submissions as to that decision. In that case, Schmidt J sentenced a contemnor who had acted to deprive a plaintiff of shares that were the subject of a charging order to 375 hours of community service, where that contempt was exacerbated by the fact that it was committed by a solicitor and officer of the Court, but there were also mitigating factors including the transfer of the shares to the person entitled to them, an early guilty plea and sincere contrition and regret. There was a degree of common ground in the further submissions made by Mr Dick, Mr Dawson and Ms Bathurst on behalf of Mr Pennimpede and the submissions made by Mr Sulan on behalf of GJ Building in respect of that decision. Both parties recognised that there were both comparable and distinguishing features between these proceedings and Battye. These proceedings (on my findings in the earlier judgment) and Battye both involved the diversion of property to third parties, rather than compliance with a charging order in Battye and an undertaking in this case, although Mr Battye directly breached the Court order whereas Mr Pennimpede caused Admark to do so. Mr Pennimpede submits that, in both cases, the contemnor was regretful of his conduct and, in both cases, steps were subsequently taken which, in substance, purged the contempt.
11. Both parties also recognised distinguishing features between this case and Battye, including that Mr Battye was a solicitor and therefore an officer of the Court. Mr Pennimpede also recognised that Mr Battye had entered a plea at an earliest opportunity, and Mr Pennimpede had contested the charge of contempt and has lodged an appeal as to the finding of contempt, which, as he points out, is not an aggravating factor but has the result that he is not entitled to a discount on sentence for an early plea of guilty. Mr Pennimpede submitted that, while Mr Battye's conduct was found to be deliberate and pursued for a personal benefit, the Court would not reach that finding where, it is suggested, Mr Pennimpede would have been liable for Admark's liability to GJ Building under a personal guarantee. As I have noted above, it seems to me that Mr Pennimpede did benefit from Admark's contempt, where Admark and entities which were associated with Mr Pennimpede had the benefit of the monies that were not paid into Court for a lengthy period, and that benefit was obtained irrespective of any potential future liability of Mr Pennimpede under a personal guarantee. Mr Pennimpede also points out that he gave evidence in explanation for his conduct at the penalty hearing.
12. Mr Pennimpede notes a question of compliance with r 40.7 of the Uniform Civil Procedure Rules 2005 (NSW) which had arisen in Battye, and notes that he does not seek to take that point further and accepts that the Court could exercise a discretion under r 40.7(5) of the Uniform Civil Procedure Rules to dispense with the service requirements of that rule, should it consider it necessary to do so. Mr Pennimpede had not pressed matters relating to the service and form of the undertaking and enforcement process at the earlier hearing as to liability. I would dispense with the service requirements of that rule if the parties consider it necessary for me to do so where Mr Pennimpede takes no point as to that matter.
13. In his further submissions as to Battye, Mr Pennimpede indicates that he accepts the seriousness of his actions and does not seek an order dismissing or conditionally dismissing the charges against him under s 10 of the Crimes (Sentencing Procedure) Act, but maintains his submission that imprisonment is not an appropriate penalty. He notes that Battye had addressed the possibility of a community service order, which was imposed in that case, in circumstances that a pre-sentence report had been prepared and had assessed Mr Battye as suitable for such an order. Mr Pennimpede points to the fact that such a report was not prepared for the purposes of this hearing, and maintains his submission that the appropriate penalty is a declaration of contempt, a fine and an order for indemnity costs.
14. Mr Sulan in turn submitted that in Battye, as in this case, the non-compliance with the Court order (or in this case, the undertaking by Admark) had caused serious interference with the proper administration of justice and put the innocent party to considerable trouble and expense to remedy that non-compliance. Mr Sulan also submitted that the amount of monies involved in this case is substantially larger than the amount at issue in Battye. It seems to me that the seriousness of a contempt, whether by breach of an order or undertaking or by interference with the administration of justice, will not necessarily increase or decrease with the size of the amount involved. Mr Sulan also points out that, while Mr Battye's work as a solicitor was likely to be affected by a conviction, there is no suggestion that Mr Pennimpede is subject to such professional standards. Mr Sulan maintained the submission that the payment of GJ Building's costs would not be sufficient punishment in this case, but did not submit that an order for community service was likely to be preferable to a substantial fine imposed upon Mr Pennimpede.

Decision as to penalty

1. As I noted above, s 5 of the Sentencing Procedure Act provides that the Court must not sentence an offender to imprisonment unless it is satisfied, having considered all possible alternatives, that no penalty other than imprisonment is appropriate. Mr Dick also submits, and I accept, that the evidence that Mr Pennimpede suffers from some coronary risks is a matter that tends against the imposition of a custodial sentence. It seems to me that, having regard to the matters to which I have referred above, the Court could not be satisfied that no penalty other than imprisonment is appropriate, at least after the continuing effect of the contempt has been ended by a payment of funds into Court. Mr Dick submits that, if the Court was minded to impose a custodial sentence, that should be suspended from the time of completion of the steps taken to purge the contempt. It is not necessary to address that submission since I do not consider that a custodial sentence should be imposed in the relevant circumstances.
2. The parties did not advance substantive submissions supporting a sentence such as home detention, an intensive correction order, a community service order or good behaviour bond, and the Court was not asked to order a pre-sentence report to be obtained, as would likely have been necessary before imposing a sentence of that kind. I have considered whether a sentence of that kind is necessary, recognising that community service orders were made in both NCR Australia Pty Ltd v Credit Connection Pty Ltd above and Battye, in circumstances that that have some analogy with this case. However, the plaintiff in the former case was permanently deprived of a substantial amount by the relevant conduct and the contempt in the latter case was exacerbated by the fact that it was committed by an officer of the Court. Neither case involved the possible misunderstanding as to the sale of unit 23 to which I referred above, albeit that only arose after Admark's contempt and Mr Pennimpede's conduct in respect of it had continued for some time. I have concluded, with some hesitation, that I should not impose a sentence of that kind where it received limited focus in submissions and where a substantial fine should be sufficient to achieve the objectives of sentencing in cases of this kind.
3. Mr Dick submits that an appropriate punishment for the contempt would be a declaration that Mr Pennimpede has committed contempt of the Court; a fine, taking into account the seriousness of the conduct and the steps that have since been taken by Mr Pennimpede to purge his contempt; and an order that Mr Pennimpede pay GJ Building's costs on an indemnity basis. On balance, it seems to me that the appropriate order, in all the circumstances to which I have referred above, is a declaration as to the contempt committed by Mr Pennimpede's causing Admark's breach of the undertaking; an order that he pay a fine in the amount of $50,000; and an order that he pay GJ Building's costs of and incidental to the contempt application and the penalty hearing on an indemnity basis. In determining the amount of that fine, I have had regard to the matters set out above, including the deliberate character of the relevant conduct; the fact that that conduct had the capacity to advantage Admark and Mr Pennimpede's associated companies and disadvantage GJ Building, even if it could have had alternative recourse to any guarantee given by Mr Pennimpede; the dispute in the evidence as to the dealings between Mr Pennimpede, Mr Cuoco and Admark's liquidator, which were subsequent to the non-compliance with the undertaking, and which I have not found it necessary to resolve; the evidence as to Mr Pennimpede's personal issues at the relevant time, and his present medical conditions; and the fact that the fine needs to be set at a sufficiently high level that it is meaningful to Mr Pennimpede, where no submission has been made that his financial resources are insufficient to pay such a fine.
4. Accordingly, there should be a declaration that Mr Pennimpede has committed a contempt of the Court and orders that he pay a fine of $50,000 within a specified time and pay GJ Building's costs of and incidental to the contempt application and the penalty hearing on an indemnity basis. The parties should bring in agreed short minutes to give effect to this judgment within 7 days.

Amendments 01 March 2017 - Correcting typographical errors. 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: 01 March 2017