ASIC v Michalik & Ors

Supreme Court of NSW|2004-12-22|Before: Palmer J

Reported Decision : 52 ACSR 115 62 NSWLR 335

CITATION : ASIC v Michalik & Ors [No 2] [2004] NSWSC 1260 HEARING DATE(S) : 3 December, 2004 JUDGMENT DATE : 22 December 2004 JURISDICTION: Equity Division JUDGMENT OF : Palmer J DECISION : Defendants committed to custody of Corrective Services Department pending hearing of contempt charges.

CATCHWORDS : CONTEMPT OF COURT - PRACTICE AND PROCEDURE - ARREST - DETENTION IN CUSTODY - Content of arrest warrant issued under Pt 55 r.10 Supreme Court Rules discussed - power of Court to direct alleged contemnors to be held in prison pending trial of contempt charge explained. - Corporations Act 2001 (Cth) LEGISLATION CITED : - Crimes (Administration of Sentences) Act 1999 (NSW) - Pt 13 s.3, s.249 - Crimes (Sentencing Procedure) Act 1999 (NSW) Supreme Court Rules 1970 (NSW) - Pt 1 r.12, Pt 55 r.2, r.4, r.5, r.10, r.11, r.13 - ASIC v Michalik & Ors [2004] NSWSC 1259 - Australasian Meat Industry Employees Union v Mudginberri Station Pty Ltd (1986) 161 CLR 98 - Fitts v Froome [2001] NSWSC 965 - John Fairfax & Sons Pty Ltd v McRae (1955) 93 CLR 351 - Patton v Harrison (No 1) (unrep.) NSWCA, 12 October 1989 CASES CITED : - R v Baines (1840) 12 Ad & El 210 [113 ER 792] - Registrar of the Court of Appeal v Maniam (No 2) (1992) 26 NSWLR 309 - Ryan v Wright (No 2) [2004] NSWSC 1019 - Schnabel v Lui (2002) 56 NSWLR 119 - Scott v Scott [1913] AC 417 - Witham v Holloway (1995) 183 CLR 525 - Young v Registrar Court of Appeal (No 3) (1993) 32 NSWLR 262 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 B. Slowgrove- Defendants SOLICITORS : Australian Securities & Investments Commission - Plaintiff Dennis & Co - Defendants

1 This judgment gives my reasons for the orders made by me on 3rd December 2004 to secure the detention in custody of the First and Second Defendants ("the Defendants") pending the hearing of contempt of court charges against them. The circumstances in which the Defendants were charged with contempt and, ultimately, sentenced are set out in ASIC v Michalik & Ors [2004] NSWSC 1259. 2 The Defendants were apprehended at Perth airport on 27 November 2004 as they tried to leave Australia, in breach of orders of this Court. They were then arrested pursuant to warrants issued under Pt 55 r.10 Supreme Court Rules 1970 (NSW), which provides: " Arrest

(a) notice of a motion for punishment of a contempt has been filed or proceedings have been commenced for punishment of a contempt, and

(b) it appears to the Court that the contemnor is likely to abscond or otherwise withdraw himself from the jurisdiction of the Court,

the Court may issue a warrant for the arrest of the contemnor and his detention in custody until he is brought before the Court to answer the charge, unless he, in the meantime, gives security in such manner and in such sum as the Court directs, for his appearance in person to answer the charge and to submit to the judgment or order of the Court." 3 The Defendants were brought back to New South Wales and delivered into the custody of the Sheriff. It was obvious that the Sheriff would probably have to detain them in custody, at least overnight, until the matter could be dealt with by the Court. I have been informed that the necessity to detain persons in custody for any time after arrest pursuant to Pt 55 r.10 is so rare that the appropriate procedures have not been developed by the Sheriff's Office or by the Court. 4 Commonly, when a person is charged with contempt under Pt 55 Div 3, which deals with contempts other than those in the face or hearing of the Court, that person appears before the Court without having to be arrested. There being no apprehension that the person will fail to appear at the trial for contempt, the person is allowed to go free without having to give security for his or her attendance to answer the charge. The possibility of a sentence of imprisonment for contempt is usually enough to secure obedience to the Court's directions. 5 Far less commonly, a person charged with contempt under Pt 55 Div 3 is arrested pursuant to a Bench Warrant issued under Pt 55 r.10. Usually, when the alleged contemnor is brought before the Court, he or she is released the same day on the provision of security specified by the Court. 6 However, where there is a high probability that the alleged contemnor, even after being arrested, will abscond if given the chance, release on security may be inappropriate in the first instance. In such a case, the person should be detained in custody for sufficient time to ensure that proper safeguards against his or her absconding are put in place. 7 In circumstances which I will recount shortly, the Defendants were arrested, taken into custody by the Sheriff, and brought before the Court on 3 December, 2004. The Sheriff's Officers then informed the Court that there were no procedures in place whereby the Defendants could be held in custody overnight or for any length of time beyond that day: the Sheriff's Office had nowhere to put them and the Department of Corrective Services would not take them except upon some order of the Court, duly made in accordance with law. Neither the Sheriff's Office nor the Plaintiff, Australian Securities and Investments Commission ("ASIC"), knew by what authority the Court could order alleged contemnors to be detained in the custody of the Department of Corrective Services, after they had been arrested under Pt 55 r.10. 8 The Defendants had been arrested as they were about to board a flight leaving the country after allegedly having committed very serious contempts of court. There was a high probability that if they were released on security, they would endeavour to abscond. The Court was now faced with the possibility that the Defendants would be allowed simply to walk out of Court because the Sheriff of New South Wales, having taken them into custody, did not know what to do with them. 9 Some fevered research produced an answer to the dilemma, which enabled the Defendants to be kept in custody by the Department of Corrective Services until the charges of contempt were heard and determined on 20 December 2004: ASIC v Michalik (supra). It is regrettable that a procedure for detention in custody was not already known to both the Sheriff's Office and the Department of Corrective Services, so that it could be implemented without difficulty or delay. 10 Occasions for recourse to the arrest and detention procedure under Pt 55 r.10 are rare but not unknown. To my knowledge, exactly the same situation as has occurred in the present case arose in August 2001 when alleged contemnors had to be taken into custody and detained by the Sheriff's Office to answer contempt charges: Fitts v Froome [2001] NSWSC 965. The Warrants for Arrest were issued on a Friday. On the following Monday, the then Sheriff attended upon the Court to advise that the alleged contemnors had not been arrested in accordance with a warrant issued under Pt 55 r.10 and that, even if they had been arrested, the Sheriff had nowhere to put them over the weekend. 11 Again, in another proceeding which came before me as Duty Judge in late November 2004, the defendant, in clear breach of asset preservation orders made only days before, withdrew a very substantial amount from a bank account, allegedly with the intention of going immediately overseas. A warrant for his arrest and detention was issued under Pt 55 r.10. When the motion for contempt was returned in Court, the Sheriff's Officers again advised that the defendant had not been arrested. Fortunately, the defendant voluntarily appeared in Court with his solicitor. Exactly what had happened to the money withdrawn by the defendant was not yet known. I made orders that the defendant surrender his passport to the Registrar in Equity and remain in the custody of the Sheriff until further order to answer the charge of contempt, unless he provided security in the amount of $150,000. 12 The defendant was then taken by the Sheriff's Officers to the Downing Centre. He was kept there overnight and released the next morning. Neither he nor anyone else had provided security in accordance with the orders which I had made. The defendant had simply walked out of custody, in breach of the Court's orders, without let or hindrance from the Sheriff. I have not yet discovered how this happened. 13 It would seem that there is something seriously amiss with the procedures in the Sheriff's Office for enforcement of the Court's orders in aid of contempt proceedings. If proper proceedings for enforcement are not put into place, the community will quickly learn that the orders of the Supreme Court may be disobeyed at will and that the Court is helpless to do anything about it. 14 Accordingly, it seems useful now to record the practice and procedure of the Court for arresting and detaining in custody persons charged with a contempt under Pt 55 r.10 SCR. 15 Before doing so, however, it is desirable to set out the circumstances which brought this matter into Court. The contempts

16 The First Defendant is the father of the Second Defendant. On 10 August 2004, ASIC commenced proceedings against the Defendants for numerous contraventions of the Corporations Act 2001 (Cth) involving dishonesty. Large sums of money were in issue. On the same day, White J, upon ex parte application by ASIC, made certain asset preservation orders, ordered the Defendants to surrender their passports and prohibited them from leaving New South Wales. The orders were made up to and including 16 August 2004. 17 On 16 August, 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 Defendants until further order from leaving New South Wales or Australia and from going within two hundred metres of a point of overseas departure. 18 On 22 November 2004, upon ex parte application by ASIC, I extended the scope of these interlocutory orders. Relevantly, I ordered that within one business day of service of the orders, the Defendants deliver up to the Registrar all passports and airline tickets concerning their travel arrangements for the ensuing twelve months. The orders were served on the Defendants personally on 23 November. The proceedings were stood over for further hearing to 29 November 2004. 19 On the night of Saturday, 27 November 2004, the 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, airline tickets and large amounts of money in cash. 20 ASIC then made urgent ex parte 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 then signed warrants for the arrest of the Defendants. The form of warrant for arrest

21 Each warrant directed the Sheriff of New South Wales to arrest the relevant Defendant and bring him before the Court to answer a charge of contempt, detaining him in custody in the meantime. The warrants did not contain the further statement appearing in Form 65 in Schedule F to the Supreme Court Rules, i.e.: "… (U)nless by paying the sum of $ into Court (or as the case may be) he gives security for his appearance in person before the Court to answer the charge and to submit to the (judgment or ) order of the Court." 22 Bearing in mind that the circumstances of the Defendants' apprehension suggested a very strong likelihood that they would endeavour to abscond again if released from custody, I did not think it appropriate to include that provision. 23 The first question which arises is whether a warrant for arrest issued pursuant to Pt 55 r.10 must always include a provision for release upon specified security. In Schnabel v Lui (2002) 56 NSWLR 119, Hamilton J said at p.124 (para.12): "Another difficulty that arises in relation to the interpretation of the rule is whether or not the warrant, when issued, should contain a provision for the giving of security and the sum in which security should be given, or whether the intention of the rule is that that subject matter should be attended to only when the alleged contemnor is brought before the court on the warrant. The latter view, namely, that it should not initially be included in the warrant, was taken by the learned authors in A.G. Neville & A.W. Ashe, Equity Proceedings with Precedents (NSW) (1981) Sydney, Butterworths. Their form of warrant does not include a provision for security: Precedent 23(9). The opposite view was taken by Kirby P in Patton v Harrison (No 1) at 122. It seems to me that the view taken by his Honour should govern the practice of the Court, so that warrants when issued provide a mechanism whereby the contemnor may avoid arrest or obtain immediate release by the giving of the security which has already been defined." 24 His Honour, whose mastery of the Court's rules and procedure is unrivalled, does not say that Pt 55 r.10 requires that an arrest warrant issued under that Rule must contain a provision for release on security and that it is defective if it does not; rather, he says that it should contain such a provision. 25 The decision of the Court of Appeal in Patton v Harrison (No 1) (unrep., NSWCA 12 October 1989), to which his Honour refers, does not suggest that provision for security in an arrest warrant issued under Pt 55 r.10 is obligatory. In that case, the Court of Appeal, having come to the conclusion that the issue of an arrest warrant was appropriate, accepted without comment a form of warrant prepared by the plaintiff which provided for security in an unspecified amount. The Court then determined that the amount of security should be stated at $50,000. I do not think that that decision is authority for the proposition that provision for security should always be made in a specified amount in an arrest warrant at the time of issue. I do not think that Hamilton J intended to refer to the decision for any purpose other than to show what is the normal practice of the Court. I am sure that his Honour was not suggesting that the normal practice is mandatory and immutable in all cases, whatever the circumstances. 26 I do not think that Pt 55 r.10, on its proper construction, requires the Court in every case to deal with the question of release of the alleged contemnor upon security at the same time as it issues the arrest warrant. The Rule does not prescribe a form of arrest warrant in which provision for security must be contained. The words in the Rule which follow "warrant" are not a succession of adjectival clauses all qualifying "warrant" by identifying its characteristic content; the words merely specify for what purpose the warrant may be issued. That purpose, in short, is to ensure the appearance of the alleged contemnor at his or her trial for contempt. However, the Rule recognises that that purpose may be achieved by the provision of security rather than by continuing detention of the alleged contemnor. 27 It is true that the form of arrest warrant under Pt 55 r.10 provided in Form 65 of Schedule F to the Supreme Court Rules contains a provision for release on security in a sum to be specified. However, Pt 1 r.11 does not make any of the forms set out in Schedule F mandatory. Moreover, under Pt 1 r.12, the Court may always dispense with the requirements of the Rules. In any event, it has been recognised that departure from prescribed forms may be necessary from time to time to accommodate the requirements of justice in particular situations: R v Baines (1840) 12 Ad & El 210, at 226 [113 ER 792]. 28 As I remarked at the commencement of this judgment, detention in custody of an alleged contemnor arrested under Pt 55 r.10 pending a final hearing of the contempt charge would be highly unusual. The Court is very reluctant to keep in custody a person charged with contempt to await a final hearing of the charge if any other satisfactory means of ensuring his or her appearance can be found. Often the judge issuing the arrest warrant will be satisfied that the risk of the alleged contemnor absconding again is low enough to justify his or her release on security in a certain sum as soon as that can be arranged after the arrest. In such a case, the judge will specify the amount of security required in the arrest warrant itself. 29 In other cases, the judge issuing the warrant may not be prepared to specify in the arrest warrant an amount of security, or may not even be prepared to permit release from custody at all, until the alleged contemnor has been brought before the Court and the circumstances of the alleged contempt are more fully investigated. In such a case, the warrant for arrest will not provide for release upon security and the judge, when issuing the warrant, will make the Notice of Motion for contempt returnable before him or her at the earliest possible opportunity so that the person arrested may have the chance to explain his or her conduct and place before the Court for consideration any circumstances which would justify release upon security. That is the course which I followed in the present case. Procedure for detention in custody

30 As the Defendants had to be extradited from Western Australia before they could be delivered into the hands of the New South Wales Sheriff, they did not come before the Court until 3 December 2004. 31 On that occasion, Mr D.R. Stack of Counsel appeared for ASIC and Mr B. Slowgrove of Counsel appeared for the Defendants. Mr Slowgrove informed the Court that, in light of the circumstances in which the Defendants had been apprehended, he did not intend to make a submission at that time that they should be released on security pending a final hearing of the contempt charges. 32 It was then that the Sheriff's Officers, who had earlier that day taken charge of the Defendants, disclosed to the Court that they did not know what to do with the Defendants now because the Sheriff had no facilities for detaining them and the Department of Corrective Services would not taken them into custody unless it was required to do so by an order of the Court. 33 The Supreme Court Rules themselves do not provide for what is to be done when an alleged contemnor is arrested under Pt 55 r.10 and detained in custody pending final hearing of the contempt charge. 34 Pt 55 r.13(1) provides that a contemnor may be committed by the Court to a correctional centre but, obviously, only by way of punishment when the contempt charge has been proved, and not before. 35 Pt 55 r.4 provides: "Interim custody

(a) direct that the contemnor be kept in such custody as the Court may determine, or

(2) The Court may make a direction under subrule 1 (b) on terms, which may include a requirement that the contemnor give security, in such sum as the Court directs, for his appearance in person to answer the charge." 36 However, a reading of Pt 55 Div 2, in which Pt 55 r.4 appears, makes it clear that "the charge" referred to in r.4 is a charge of contempt in the face or in the hearing of the Court, as provided in Pt 55 r.2. Pt 55 r.4 applies where the Court has issued a warrant for arrest of the contemnor under r.2(b) or has directed that the contemnor be brought before the Court under r.2(a). Rule 4 does not apply to an arrest under Pt 55 r.10, which is in Pt 55 Div 3. As Pt 55 r.5 makes clear, the provisions of Div 3 do not apply to a case in which the Court proceeds under Div 2. The corollary also applies, in my opinion. 37 The solution to the difficulty is provided by Pt 13 of the Crimes (Administration of Sentences) Act 1999 (NSW) (the "CAS Act"). Section 249 of that Act relevantly defines "a person in custody" as: "a person who is in lawful custody:

(a) before being brought before a court in connection with the alleged commission of an offence, or

(b) during proceedings to determine whether the person has committed an offence or while such proceedings are pending, or … (h) in accordance with a warrant of commitment or other warrant, or an order of a court or other competent authority,

but does not include a person who is detained in accordance with the Intoxicated Persons Act 1979." 38 As the law in Australia presently stands, there is some debate as to whether deliberate disobedience to an order of a Court in civil proceedings, that is, a civil contempt, is a criminal offence. Earlier authorities held that it was not: see, e.g. Scott v Scott [1913] AC 417, at 456; John Fairfax & Sons Pty Ltd v McRae (1955) 93 CLR 351, at 364; Australasian Meat Industry Employees Union v Mudginberri Station Pty Ltd (1986) 161 CLR 98, at 106; and see the discussion in Young v Registrar Court of Appeal (No 3) (1993) 32 NSWLR 262 per Handley JA at 288, and Ryan v Wright (No 2) [2004] NSWSC 1019 paras. 18-20 per Gzell J. But there is a blurred and unsatisfactory distinction between a civil contempt and a criminal contempt, i.e., a contempt in the face of the Court or an interference with the administration of justice Disobedience to a Court order, i.e. civil contempt, is often described as "criminal in nature": see e.g. per Kirby P in Registrar of the Court of Appeal v Maniam (No 2) (1992) 26 NSWLR 309, at 314. Indeed, it has been said that the differences upon which the distinction between civil and criminal contempt is based are, in significant respects, illusory: Witham v Holloway (1995) 183 CLR 525, at 534. Further, it has been held that even when the Court's power to punish for civil contempt is exercised pursuant to the Court's inherent power, as declared in Pt 55 r.13(1) Supreme Court Rules, the sentencing principles in the Crimes (Sentencing Procedure) Act 1999 (NSW) must be applied if a custodial sentence is considered appropriate: Ryan v Wright (No 2) (supra). 39 For present purposes, I do not need to decide whether a civil contempt of the character alleged in the present case should now be regarded as a criminal offence for all purposes and in all contexts. I need only consider whether the Defendants fall within the definition of "person in custody" for the purposes of Pt 13 CAS Act. 40 In my opinion, an alleged civil contempt resulting in an arrest under Pt 55 r.10 is an "offence" within paragraphs (a) and (b) of the definition of "person in custody" in s.249 CAS Act. "Offence" is not defined by the CAS Act but "offender" is relevantly defined for the purposes of Pt.13 in s.3 of the Act as "a person who is subject to a sentence of imprisonment". I think that "offence" must have a corresponding meaning, i.e., the commission of a wrong which, if proved, renders the wrongdoer subject to a sentence of imprisonment. Pt 55 r.13(1) Supreme Court Rules expressly provides that the Court may punish a contempt, including a civil contempt, by committal to a correctional centre, that is, by imposing a sentence of imprisonment: cf. Witham v Holloway at 534. 41 In the present case, pending hearing of the contempt charges the Defendants were "persons in custody" as defined in paragraph (b) of the definition in s.249 CAS Act because:

they were in lawful custody, having been detained in custody by the Sheriff pursuant to warrants of the Court issued under Pt 55 r.10; and

there were on foot proceedings, commenced by ASIC's motion for committal, to determine whether the Defendants had committed an "offence", i.e. a civil contempt of Court which, if proved, would render them liable to a sentence of imprisonment. 42 Further, I do not think that there could be any doubt that the Defendants were "persons in custody" as defined by paragraph (h) of the definition. They were in lawful custody pursuant to and in accordance with the warrants of arrest issued under Pt 55 r.10. Neither paragraph (h) of the definition in s.249 or any other provision of the CAS Act defines what warrants are included within the term "other warrant" in paragraph (h) and I can see no reason why those words should be held to exclude a warrant for arrest and detention issued under Pt 55 r.10. I note in this regard that "court", as defined in s.3 of the CAS Act, includes the Supreme Court. 43 The Defendants, being "persons in custody" as defined by s.249 CAS Act, could be dealt with under Pt 13 of that Act. Section 250 provides: " Transport and detention of persons in custody

(1) A person in custody may be given into the keeping of a correctional officer.

(2) A correctional officer into whose keeping a person in custody has been given:

(a) may convey the person to any correctional centre, court or other place, and

(b) may detain the person in any correctional centre or other place.

(3) A warrant of commitment or other warrant, or an order of a court or other competent authority, authorising the conveyance of a person in custody to, or the detention of a person in custody in, a correctional centre authorises a correctional officer to convey the person to the correctional centre referred to in the warrant or order." 44 Pursuant to s.249, on 3 December 2004, I made orders in respect of the First Defendant in the following terms: "1. Order, pursuant to Pt 55 r.10, that Andrzej Janusz Michalik, also known as Andre Tomaszewski and Stanislaw Konstanty Krawczyk, be detained in custody until he is brought before the Court to answer the charges of contempt contained in the Amended Statement of Charge dated 1 December 2004 and filed on 1 December 2004 unless he is earlier released by order of the Court.

Order, pursuant to s.250 of the Crimes (Administration of Sentences) Act 1999 (NSW), that the said Andrzej Janusz Michalik be given into the keeping of a Correctional Officer as defined in the said Act to be detained in accordance with Order 1.

Order pursuant to Pt 55 r10 that Martin Michalik be detained in custody until he is brought before the Court to answer the charges of contempt contained in the Amended Statement of Charge dated 1 December 2004 and filed on 1 December 2004, unless he is earlier released by order of the Court.

Order, pursuant to s.250 of the Crimes (Administration of Sentences) Act 1999 (NSW), that the said Andrzej Janusz Michalik be given into the keeping of a Correctional Officer as defined in the said Act to be detained in accordance with Order 1.

Order that the Interlocutory Process filed in Court on 27th November 2004, as amended, be returnable before the Duty Judge at 10am on 10th December 2004.

Grant liberty to the parties to apply on such notice as is reasonable.

Direct that these orders be passed and entered forthwith." 45 The Registrar then issued Warrants for Committal on Adjournment in the following terms: "TO: The Sheriff and all Constables, Gaolers, Keepers of Prisons and Lockup Keepers and others concerned in New South Wales.

(herein called the witness), on this day appeared before the Honourable Justice Palmer, a Judge of the Supreme Court of New South Wales, in respect of the charge(s) described below. The Court remanded the accused. Bail was refused. THIS IS TO REQUIRE YOU to safely CONVEY the accused to SILVERWATER METROPOLITAN REMAND & RECEPTION CENTRE, Locked Mailbag 144, Silverwater NSW 2128 And to deliver the witness to the keeper thereof, together with this warrant. THIS IS TO REQUIRE YOU, the keeper of the said prison, to receive the accused into your custody and to IMPRISON and KEEP the witness until the date the accused has been remanded to appear. THIS IS TO REQUIRE YOU to have the witness DELIVERED to Court at the time and place set out below before such Judge, Magistrate, Justice or Justices of the Peace as may then be there to answer the charges set out below and to be further dealt with according to law.

All the above requirements are subject to further order of the Court.

Remanded to: 10 December 2004 at: Sydney Offence(s): CONTEMPT OF COURT " Conclusion

46 The Defendants were held in custody by the Department of Correctional Services and appeared before the Court on 20 December 2004 to answer the contempt charges. The First Defendant pleaded guilty to twelve contempts of Court and the Second Defendant pleaded guilty to eight contempts. 47 The First Defendant was sentenced to eighteen months imprisonment and fined $120,000; the Second Defendant was sentenced to eighteen months imprisonment and fined $80,000: see ASIC v Michalik & Ors [2004] NSWSC 1259. ~ oOo ~

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