ASIC v Michalik & Ors

[2004] NSWSC 1259

Supreme Court of NSW|2004-12-20|Before: Palmer J, White J

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Court

Supreme Court of NSW

Decision date

2004-12-20

Before

Palmer J, White J

Source

Original judgment source is linked above.

Judgment (72 paragraphs)

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Reported Decision : 52 ACSR 115 (2005) 23 ACLC 188

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CITATION : ASIC v Michalik & Ors [2004] NSWSC 1259 HEARING DATE(S) : 20 December, 2004 JUDGMENT DATE : 20 December 2004 JURISDICTION: Equity Division JUDGMENT OF : Palmer J DECISION : Each Defendant sentenced to eighteen months imprisonment; First Defendant fined $120,000; Second Defendant fined $80,000; Defendants ordered to pay indemnity costs.

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CATCHWORDS : CONTEMPT OF COURT - CORPORATIONS - ASIC commences proceedings against Defendants alleging contraventions of Corporations Act - Defendants restrained by interlocutory orders from dealing with assets or leaving Australia - in deliberate disobedience of orders, Defendants realise assets and attempt to flee - discussion of relevant factors for consideration in determining punishment. LEGISLATION CITED : - Corporations Act 2001 (Cth) - s.911A, s.911B - Supreme Court Rules 1970 (NSW) - Pt 55 r.6, r.7, r.10, r.13 - Australian Competition & Consumer Commission v Hughes (2004) 207 ALR 116 - Australian Competition & Consumer Commission v World Netsafe Pty Ltd (2003) 133 FCR 279 - ASIC v Matthews (2001) 39 ACSR 110 - Court of Appeal Registrar v Craven (No 2) (1995) 120 FLR 464 - Marriage of Tate (No 3), Re (2003) 30 Fam LR 427 CASES CITED : - Principal Registrar of the Supreme Court of New South Wales v Jando (2001) 53 NSWLR 527 - Registrar of the Court of Appeal v Maniam (No 2) (1992) 26 NSWLR 309 - Registrar of the Court of Appeal v Raad (unrep.) NSWCA, 9 June 1992 - Ryan v Wright (No 2) [2004] NSWSC 1019 - Von Doussa v Owens (No 3) (1982) 31 SASR 166 - Wood v Staunton (No 5) (1996) 86 A Crim R 183 - Young v Jackman (unrep.) NSWCA 2 June 1993 Australian Securities and Investments Commission - Plaintiff PARTIES : Andrzej Janusz Michalik - First Defendant (aka Tomas Tomaszewski and Stanislav Konstanty Krawczyk) Martin Michalik - Second Defendant Kilahim Pty Ltd - Third Defendant FILE NUMBER(S) : SC 4434/04 COUNSEL : D.R. Stack - Plaintiff D.E. Grieve QC, B. Slowgrove - Defendants SOLICITORS : Australian Securities & Investments Commission - Plaintiff Dennis & Co - Defendants

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iii) commission was charged between 20% to 30% of the value of the fund. 3 On 10 August 2004 White J, upon ex parte application by ASIC, made certain asset preservation orders against the Defendants, ordered the First and Second Defendants to surrender their passports, and prohibited them from leaving New South Wales. The orders were made effective up to and including 16 August 2004. There is no dispute that the orders were served on the First and Second Defendants personally on 11 August 2004. 4 On 16 August the matter came before Barrett J. The Defendants were represented by counsel and solicitors. Barrett J made interlocutory orders by consent extending the orders made by White J until further order, with some variations. In addition, his Honour made orders restraining the First and Second Defendants, until further order, from leaving New South Wales or Australia and from going within 200 metres of a point of overseas departure. 5 On 22 November 2004, upon ex parte application by ASIC, I extended the scope of those interlocutory orders. Relevantly, I ordered that within one business day of service of the orders the First and Second Defendants deliver up to the Registrar all passports and airline tickets concerning their travel arrangements for the ensuing twelve months. The orders were served personally on the First and Second Defendants on 22 and 23 November. The proceedings were stood over for further hearing to 29 November 2004. 6 On Saturday, 27 November 2004, the First and Second Defendants were apprehended by the Australian Federal Police at Perth Airport as they were endeavouring to board a plane to Singapore. They had in their possession passports and airline tickets. ASIC then made urgent application to me as Duty Judge for a warrant for the arrest of the Defendants under Pt 55 r.10. ASIC prepared a Notice of Motion in accordance with Pt 55 r.10(a) and r.6(1), and a Statement of Charge in accordance with Pt 55 r.7. I granted leave to file the Notice of Motion and Statement of Charge in Court immediately. There had been no time to prepare an affidavit in support of the motion and the circumstances of the Defendants' apprehension were related to me orally by Counsel. I signed Warrants of Arrest for the Defendants. The Defendants were then taken into custody in Perth and, after an extradition proceeding, they were returned to New South Wales and delivered to the Sheriff. The guilty pleas

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25 The principles upon which the Court acts in determining what punishment is appropriate for a contempt of court are well settled and they need not be recounted at length. In the present case, I am not dealing with what is sometimes called a technical contempt, such as may occur if an order of the Court is breached inadvertently or accidentally. In this case I am dealing with what is called a wilful or contumacious contempt in which the Defendants, with the benefit of legal advice at all relevant times, must clearly have understood the effect of the Court's orders of 10 August, 16 August and 22 November, and must clearly have understood the consequences of disobeying those orders. 26 Part 55 r.13(1) of the Supreme Court Rules 1970 (NSW) provides that where a contemnor is a natural person, a court may punish a contempt by committal to a correctional centre, that is, imprisonment, or fine or both. It is now well established that if punishment for contempt involves a custodial sentence, the sentencing considerations required in the Crimes (Sentencing Procedure) Act 1999 (NSW) are applicable: see Principal Registrar of the Supreme Court of New South Wales v Jando (2001) 53 NSWLR 527 at paras.42 to 45 per Studdert J; Ryan v Wright (No 2) [2004] NSWSC 1019 per Gzell J at paragraph 21. 27 In Registrar of the Court of Appeal v Maniam (No 2) (1992) 26 NSWLR 309, Kirby J, with whom Mahoney and Clarke JJ agreed, said at 314: "A conviction of contempt of court is a conviction of an offence, criminal in nature. Punishment of the convicted contemnor must therefore take into account the considerations normally applicable to the punishment of crime and apt to uphold the purpose of this jurisdiction, viz, the undisturbed and orderly administration of justice in the courts according to law. Thus, in determining the punishment which is apt to the circumstances which have led to a conviction of contempt, it is appropriate to bear in mind the purposes of punishing the contemnor; deterring the contemnor and others in the future from committing like contempts; and denouncing the conduct concerned in an approximately emphatic way: see Director of Public Prosecutions v John Fairfax & Sons Ltd (1987) 8 NSWLR 732 at 741. In this jurisdiction, contempt is a common law offence for which there is therefore no maximum penalty in this Court: R v Dunbabin; Ex parte Williams (1935) 53 CLR 434 at 442. Any limits which are imposed upon the Court's powers derive from the purposes stated above and the limitations expressed in the Tenth Article of the Bill of Rights 1688 which restrains the imposition of cruel or unusual punishments or "excessive fines" : see Smith v The Queen (1991) 25 NSWLR 1, noted (1991) 65 ALJ 695." 28 In Wood v Staunton (No 5) (1996) 86 A Crim R 183, at 185, Dunford J identified a number of factors which are relevant in considering the proper punishment for contempt of court. The contempt there charged was a refusal to give evidence at a criminal trial, but the relevant factors identified by his Honour are, with appropriate adaptions, of wider utility: see, for example, Australian Competition & Consumer Commission v World Netsafe Pty Ltd (2003) 133 FCR 279. 29 For present purposes the relevant factors to be considered may be summarised thus:

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30 Mr Grieve QC makes the following submissions on behalf of the Defendants, both orally and in the written submissions previously delivered to the Court. First, the orders of the Court disobeyed by the Defendants were interlocutory, not final. Second, a court of equity acts to coerce, not to punish. Third, the consequences of the Defendants' disobedience have been undone. Their passports are now in the possession of the Court and they have executed documentation enabling a receiver to take possession of the funds sought to be removed from the jurisdiction. Fourth, the Defendants have purged their contempt by an apology to the Court by surrendering their passports, by executing documents enabling recovery of the funds transferred overseas, by offering to charge the Third Defendant's real estate to secure their continuing presence in New South Wales, and because they have now been in custody since 27 November 2004. Fifth, imprisonment is no longer necessary to ensure compliance with the Court's interlocutory orders. Sixth, the Defendants have pleaded guilt to the contempt charges and have thereby relieved ASIC of the burden of proving their guilt. Seventh, the Defendants, as far as is known, have no previous convictions. Eighth, in view of the fact that the Defendants have already been in custody for about three weeks, the appropriate punishment to be imposed is the acceptance of an apology to the Court, and an order that the Defendants pay ASIC's costs of the contempt proceedings. 31 As to the first submission: it makes no difference, in my view, that the injunctions disobeyed were interlocutory, not final. Every injunction is to be treated with equal seriousness. It is not for any party to the Court's process to decide for himself or herself which injunctions must be obeyed and which may be ignored, which are important, and which are not so important. The orders in the present case were expressly designed to prevent the Defendants from defeating the entire purpose of the proceedings commenced by ASIC. If the Defendants' contempts had succeeded in their aim, the Defendants would have frustrated the whole of the proceedings and the Court's process. 32 As to the second submission: in punishing a contempt, a court of equity acts no differently from a court of common law. The distinction between common law and equity in this context is meaningless. In punishing for contempt, a judge of the Supreme Court is vindicating the authority of the Court itself, regardless of the Division in which the judge happens to be sitting. 33 As to the third submission: the Defendants did not act to undo the consequences of their contempts until after they had been caught and taken into custody. This submission would have had much greater force had the Defendants acted to purge their contempts as soon as ASIC warned them in its letter of 17 November 2004 that they had been discovered. Instead, the Defendants decided to escape. 34 As to the fourth submission: the Defendants' apologies have very little weight, for the reasons I have given in answer to the third submission. It is significant in this respect that the Defendants themselves do not personally come before the Court to make their apologies so that I may assess for myself the sincerity of their contrition. Further, the security they offer is over the property of the Third Defendant. The mortgage on that property has been fully drawn down, in furtherance of the Defendants' contempts. 35 As to the fifth submission: I can have no confidence that the Defendants, if released, will not attempt to procure other passports using dishonest means, as they have previously done, or that they will not attempt to disappear so as to avoid having to answer the serious allegations of contravention of the Corporations Act made against them by ASIC in these proceedings. The Defendants have tendered no evidence as to their personal circumstances such as to indicate the unlikelihood of their absconding from Australia permanently. 36 As to the sixth submission: I do take into account the fact that the Defendants have pleaded guilty, but I must also take into account that the evidence of guilt tendered against them by ASIC was overwhelming. 37 As to the seventh submission: I take into account that as far as the evidence discloses, the Defendants have no prior convictions. 38 As to the eighth submission: I take into account the following circumstances in determining the appropriate punishment. I will follow the sequence of the considerations which I have earlier recounted in paragraph 29 above.

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39 First, it is difficult to imagine more serious, flagrant and calculated contempts of court than those committed by the Defendants. The contempts of each Defendant were numerous: twelve on the part of the First Defendant, and eight on the part of the Second Defendant. The contempts were committed over a period of four months and were clearly part of a carefully worked out plan to frustrate the Court's orders. That plan must have been conceived by both Defendants almost as soon as the first orders were made. The contempts were committed methodically, and involved the making of false statements by each Defendant to procure new passports from the Australian and the Polish authorities. In short, it is clear that the Defendants acted in concert to do whatever was necessary to ensure that they escaped the jurisdiction of the Court with as much of their assets as they could realise. 40 Second, there can be no question that the Defendants must have been aware of the consequences to themselves of their contempts. They have Australian citizenship, having apparently been resident in this country for some years. There is no evidence that they have any difficulty understanding English. Their conduct of a business of finance broking suggests the opposite conclusion. They have at all relevant times had the benefit of advice from competent counsel and solicitors. The orders made on 16 August 2004 were made by consent, Mr Slowgrove of Counsel appearing on their behalf on that occasion. There could be no basis for assuming that Mr Slowgrove and his instructing solicitor did not properly explain to the Defendants the nature and effect of the orders then made, and the consequences to the Defendants if they disobeyed those orders. As I have said, the Defendants have not put on any evidence to suggest that such explanations were not given to them, or were not understood by them. 41 Third, if the Defendants had succeeded in their plan to flee the country with their assets, the whole purpose of the proceedings commenced against them by ASIC would have been frustrated. 42 Fourth, the Defendants' contempts were committed in the context of proceedings against them alleging serious contraventions of the Corporations Act , and involving large sums of money. The contraventions were alleged to have involved solicitation of the public by means of frequent advertisements and were said to have resulted in substantial financial gain to the Defendants, all said to be dishonestly derived. Clearly, there was a serious public interest to be vindicated by ASIC's proceedings. 43 Fifth, I have no hesitation in concluding that the Defendants' motive for the contempts was to escape the consequences to themselves of ASIC's proceedings, if they succeeded, and to take with them as much as they could of their assets so as to frustrate any judgment which the Court might award in those proceedings. 44 Sixth, I am satisfied that the Defendants sought to gain financial benefit to themselves from their contempts, for the reasons which I have explained in the previous paragraph. 45 Seventh, the Defendants did not attempt to purge their contempts as soon as they were informed by ASIC on 17 November that their contempts had been detected nor did they attempt to purge their contempts when the Court's orders of 22 November were served on them on that and the following day. The Defendants' apologies came only after they had been arrested. Further, as I have said, although they are now present in Court they do not come forward themselves to make their apologies personally. Their apologies are conveyed only by their Counsel. Eloquent though those apologies are, I am not able to gauge their sincerity by direct observation of the Defendants themselves. In those circumstances, I am not able to feel with any degree of conviction that the Defendants' apologies are sincere. 46 Eighth, the Defendants have tendered no evidence of their antecedents, their characters, their personal circumstances, or as to any mitigating factors. All that the Court knows is that the First Defendant was born in June 1950, so that he is now 54, and that the Second Defendant was born in March 1973, so that he is now 31. Both Defendants were born in Poland. Both are now Australian citizens, apparently having Polish citizenship as well. The evidence shows that both Defendants are educated and experienced enough in financial matters to use corporations and local and overseas bank accounts confidently in their business dealings. There is no evidence to suggest that the Second Defendant, who is the son of the First Defendant, is overborne by the First Defendant and is therefore less answerable for his conduct. In short, there is no evidence offered by either Defendant which seeks to explain, excuse or mitigate his conduct. 47 Ninth, in my opinion, such serious, flagrant and calculated contempts as have been committed by each Defendant require the imposition of a custodial sentence as a deterrent both to such Defendants, and to others tempted to disobey the Court's orders in such a manner. Much has been said in the authorities about the critical importance of ensuring that the Court's orders are obeyed. If they are not, the very basis and structure of the administration of justice crumbles. Further, as the contempts were designed to remove the Defendants' assets from the Court's jurisdiction for their own financial gain, it is also appropriate as a deterrent to impose a substantial fine so that both the Defendants and others like-minded may appreciate that in no sense does it pay to disobey the Court's orders. 48 Tenth, the law requires that I impose a separate punishment for each of the twelve contempts committed by the First Defendant, and for each of the eight contempts committed by the Second Defendant. However, the separate contempts of each Defendant were in truth steps in a single plan designed to subvert the Court's orders. Each sentence therefore will be served concurrently. Punishment

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49 I have reviewed numerous decisions of the Courts as to what sentence would be appropriate in circumstances such as the present. In addition to the decisions referred to in Principal Registrar Supreme Court v Jando , I have looked at the following cases in which custodial sentences or substantial fines have been imposed with or without conditions: Von Doussa v Owens (No 3) (supra); Re Marriage of Tate (No 3) (2003) 30 Fam LR 427; Australian Competition & Consumer Commission v Hughes (2004) 207 ALR 116; Young v Jackman (unrep.) NSWCA 2 June 1993; Court of Appeal Registrar v Craven (No 2) (1995) 120 FLR 464; ASIC v Matthews (2001) 39 ACSR 110; Registrar of the Court of Appeal v Raad (unrep.) NSWCA, 9 June 1992; ACCC v World Netsafe Pty Ltd (supra). In the end, as Studdert J says in Jando at p.539, review of the punishments in other cases is of limited assistance, as each case really depends upon the Court's assessment of the relevant facts. 50 As will have appeared, I regard the Defendants' contempts in this case as of the most serious category. I have determined that the appropriate penalty for each offence of each Defendant is a sentence of imprisonment for eighteen months, with each sentence to be served concurrently. This is not a case in which I would consider it at all appropriate that the sentence be served by way of periodic detention, as was ordered in Jando , or that the sentences be suspended on condition that the Defendants perform community service, as was done in Ryan v Wright (No 2) . The sentences must be served in full-time custody. 51 In addition, I will impose a fine of $10,000 for each contempt committed by each Defendant, so that the First Defendant will be fined a total of $120,000, and the Second Defendant will be fined a total of $80,000. I appreciate that these are large sums, and that the Defendants must have resources to pay the legal costs of the defence of the ASIC proceedings. However, the evidence shows that the Defendants have realised at least $837,000 in cash from their assets, and they are said to have some other property still in New South Wales. 52 There is, as I have said, no evidence that the Defendants have any dependants, or that they need any part of the money which they sought to remove from the jurisdiction for the conduct of any ongoing business. In those circumstances, I do not see that the fines will deprive the Defendants of the ability to conduct their defences, nor that the fines will cause undue hardship to other persons.

ASIC v Michalik & Ors

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