Australian Securities and Investments Commission v Reid

REASONS FOR JUDGMENT 1 On 17 November 2003 the applicant filed a notice of motion seeking the following orders: '1. that the respondent be committed to prison or otherwise punished for contempt of Court for contravening the order of the Honourable Justice Jenkinson made on 10 March 1992 that the respondent be prohibited, pursuant to section 230 of the Corporations Law, until 10 August 2036 from managing a corporation; or in the alternative 2. that the warrant ordered by the Honourable Justice Kenny on 12 February 2002 to lie on the Court file be executed; or in the alternative 3. that the respondent be committed to prison or otherwise punished for contempt of Court in respect of his breach of the undertaking provided by him to the Honourable Justice Kenny on 8 October 2001 that he would not be involved in the management of a company in any form at all in the future.' 2 The notice of motion was accompanied by a statement of charge under O 40 r 6 of the Federal Court Rules: 'The applicant alleges that the respondent, Maxwell John Reid is guilty of contempt of Court and further that such contempt is wilful and contumacious in so far as: 1. in breach of paragraph 1 of the order of the Honourable Justice Jenkinson of this Court, made on 10 March 1992, wherein the respondent was prohibited from managing corporations until 10 August 2036, the respondent has been involved in the management of the following corporations: 1.1 Battstone Australia Pty Ltd between about 3 March 2003 and 3 June 2003; and 1.2 Australian Marble Pty Ltd between about 1 February 2003 and 14 July 2003; and 2. in breach of an oral undertaking provided to the Honourable Justice Kenny on 8 October 2001 that he would not be involved in the management of a company in any form at all in the future, the respondent has been involved in the management of the following corporations: 2.1 Battstone Australia Pty Ltd between about 3 March 2003 and 3 June 2003; and 2.2 Australian Marble Pty Ltd between about 1 February 2003 and 14 July 2003.' 3 The parties asked me to first determine whether I was satisfied that the respondent was guilty of contempt before considering the question of sentence if so satisfied. On 13 September 2005 I published reasons (Australian Securities and Investments Commission v Reid [2005] FCA 1274) ('the principal reasons') in which I concluded that the applicant had established that the respondent was guilty of contempt as alleged in the statement of charge. I did not at that time determine whether the respondent's contempt should be categorised as technical, wilful or contumacious: Australasian Meat Industry Employees' Union v Mudginberri Station Proprietary Limited (1986) 161 CLR 98. The matter was adjourned to enable submissions to be made in relation to the categorisation of the contempt and sentence. 4 I have now been addressed on both the categorisation of the respondent's contempt and the question of penalty generally. 5 In the principal reasons I set out the history of this long running matter. It commenced on 31 January 1992 when the Australian Securities Commission (the former name of the applicant) brought proceedings in this Court seeking declarations against the respondent that he had engaged in conduct which contravened the Corporations Law ('the Law') by managing a company whilst prohibited from doing so within five years of having been convicted for serious fraud without the leave of the Court. 6 On 10 March 1992 Jenkinson J made an order prohibiting the respondent from managing a corporation until 10 August 2036. 7 On 11 November 1993 the applicant sought an order that the respondent be committed to prison or otherwise punished for contempt for breaching Jenkinson J's order on 10 March 1992. Jenkinson J found the respondent guilty of two charges of contempt by being concerned in the management of two corporations, namely Mistoil Pty Ltd and Resourceful Mining Pty Ltd in breach of Jenkinson J's own order of 10 March 1992. 8 Jenkinson J sentenced the respondent to imprisonment in Pentridge Prison for a term of six months but suspended the operation of that order for as long as the respondent abstained from a further contravention of the order of 10 March 1992. As I noted in the principal reasons, the terms of that order effectively meant the order for imprisonment was suspended until 2036. 9 On 14 May 1999 the applicant sought a further order that the respondent be committed to prison or otherwise punished for contempt for a further breach of the order made by Jenkinson J on 10 March 1992. During the hearing of that notice of motion before Kenny J on 8 October 2001, the respondent gave an unequivocal undertaking on oath that he would not be involved in the management of a company in any form at all in the future. 10 On 12 February 2002 Kenny J committed the respondent to prison for a term of 12 months but ordered that the warrant lie in the Registry for a period of two years provided that the respondent abstained from contravention of Jenkinson J's order of 10 March 1992 and provided that the respondent comply with other conditions. 11 Kenny J also discharged the earlier sentence of imprisonment ordered by Jenkinson J on 6 May 1994. 12 The history of the proceeding before me is fully described in the principal reasons. Relevantly, on one occasion Mr Reid did not appear in answer to the charge and the applicant sought the issue of a warrant for Mr Reid's arrest pursuant to O 40 r 9 on the basis that Mr Reid was likely to abscond or otherwise withdraw himself from the jurisdiction of the Court. A warrant issued. Mr Reid could not be found until 11 August 2004 when the warrant was executed by the Federal Police. 13 Mr Reid remained in custody until 2 November 2004. The reasons for his incarceration are set out between [61] and [67] of the principal reasons. If Mr Reid is to be imprisoned in respect of the contempts which I have found proved, the period which he served, nearly three months, should be taken into account in fixing the further period of imprisonment. 14 The intent and purpose of Jenkinson J's order was to disqualify the respondent from managing a corporation until 2036. As these reasons show and the principal reasons more fully show, this was the third occasion that the respondent has been charged with and found guilty of contempt of Jenkinson J's order of 10 March 1992. The respondent has been sentenced to imprisonment in relation to two previous contempts on two occasions. In both cases, the sentences of imprisonment were suspended. Indeed, in respect of Kenny J's order, a warrant for Mr Reid's committal to prison for a period of 12 months was lying on the Court file when these further contempts occurred. 15 In the principal reasons I have set out in detail Mr Reid's conduct which, in my opinion, contravened Jenkinson J's order of 10 March 1992. I found Mr Reid had involved himself in the management of the two corporations referred to in the statement of charge, namely, Battstone Australia Pty Ltd between about 3 March 2003 and 3 June 2003 and Australian Marble Pty Ltd between about 1 February 2003 and 14 July 2003. 16 The respondent was well aware that he was prohibited from managing a corporation. The conduct, which I have detailed in the principal reasons, show that he committed these breaches knowingly in contravention of both the order and the undertaking. The respondent's conduct must be viewed in circumstances where he has twice before been charged with and found guilty of contempt, and ordered to be imprisoned. At the time that the respondent conducted himself in breach of Jenkinson J's order and the undertaking given to Kenny J, a warrant was lying in the Court which would issue if a contravention occurred. 17 In Witham v Holloway (1995) 183 CLR 525 at 530, the High Court said: 'In general terms, the distinction between civil and criminal contempt is that a civil contempt involves disobedience to a court order or breach of an undertaking in civil proceedings, whereas a criminal contempt is committed either when there is contempt in the face of the court or there is an interference with the course of justice. However, disobedience or breach of an undertaking amounts to a criminal offence if it involves deliberate defiance, or as it is sometimes said, if it is contumacious.' 18 The respondent's conduct must be described as wilful disobedience of Jenkinson J's order and the undertaking given to Kenny J. It was contumacious. It made the contempt a criminal contempt. I will expand on this a little later but Mr Reid's contumacy is evidenced by a number of statements which he made to a psychologist whose report was tendered to this Court. 19 The applicant seeks an order that Mr Reid only be punished for the breach of Jenkinson J's order made on 10 March 1992 and not for the further breach of the undertaking given to Kenny J on 8 October 2001. That seems to me appropriate. The undertaking given to Kenny J was in similar terms to the order made by Jenkinson J. In those circumstances, it would not be appropriate, as the applicant has recognised, that the respondent be punished for the same conduct which contravenes the order and the undertaking. He should only be punished for breach of the order. 20 However, the applicant has submitted that I should not disregard the order made by Kenny J because the applicant's conduct was such that he breached a condition of the order which allowed the warrant to lie in the Registry and not to issue. 21 The applicant submits that, in the circumstances, I should exercise my discretion to direct that the warrant, which presently lies on the Court file, issue and I should further sentence the respondent to an additional term of imprisonment in relation to the contempt which I have found established. I do not accept that submission. 22 In the criminal law, if a person is sentenced to imprisonment and the sentence is suspended upon the person being of good behaviour for a period of time and the person then commits a further criminal offence, the person can be called upon to serve the original suspended sentence and to serve a further sentence of imprisonment in respect of the later criminal offence. Whilst such an order might be appropriate in the ordinary criminal law, I do not think it is appropriate in this case where the Court is imposing a sentence to uphold the authority and dignity of the Court. 23 Kenny J made her order on 12 February 2002, more than four years ago. Even though I am of the opinion that Mr Reid's conduct is contumacious, I do not think it would be appropriate to require him to serve the sentence of imprisonment imposed four years ago and a further sentence of imprisonment. I do not think there is a need for such harshness, notwithstanding this is the third occasion in which the appellant has breached the same order of the Court. 24 In my opinion, it would be inappropriate to both allow the warrant which has been lying in the Court for a period of some years to issue and to separately sentence Mr Reid to imprisonment. I think the better course is to simply take into account the previous sentence of imprisonment which was imposed by Kenny J which she allowed to remain suspended as a significant matter in the sentencing of Mr Reid, but to sentence him separately for his contempt. 25 There is no doubt that I have power to order imprisonment. The Court's wide range of penalties were summarised in Australian Competition and Consumer Commission v Info4PC.com Pty Ltd (2002) 121 FCR 24 by Nicholson J at 54. He said: ' The Federal Court has a wide range of penalties open to it (Australian Securities and Investments Commission v Matthews (1999) 32 ACSR 404 at 411 (ASIC v Matthews) per Sackville J) and includes the power to: (a) commit a contemnor to prison for an indefinite period of time (Gallagher v Durack (1983) 152 CLR 238; Flamingo Park Pty Ltd v Dolly Dolly Creation Pty Ltd (1985) 5 FCR 169 at 178 per Wilcox J); (b) to impose a fine for a wilful breach of an order or undertaking (Australasian Meat Industry Employees' Union v Mudginberri Station Pty Ltd at 109-113; Flamingo Park Pty Ltd at 178 per Wilcox J); (c) to impose a daily fine (Australasian Meat Industry Employees' Union at 113-115); (d) to order the sequestration of the assets of a contemnor (Australasian Meat Industry Employees' Union at 115-116); and (e) to suspend on condition any sentence of imprisonment that it might impose in respect to contempt (Australian Competition and Consumer Commission v Goldstar Corp Pty Ltd [1998] FCA 1441; ASIC v Matthews at 411). It is important that the seriousness of a contempt is brought home to the contemnor and that the contemnor realise that their perceptions do not constitute a licence to ignore court orders or legislation directed to the prohibition of deceptive conduct (Hughes at [24]). In determining what is an appropriate penalty, the intent of the contemnor is important (Attorney-General v Times Newspapers Ltd [1992] 1 AC 191 at 217-218; Hughes). A sentence for contempt is punitive, to vindicate the authority of the court (Australasian Meat Industry Employee' Union at 107). The underlying rationale for every exercise of the contempt power was the necessity to uphold and protect the effective administration of justice. Gibbs CJ, Mason, Wilson and Deane JJ said: "Although the primary purpose in committing a defendant who disobeys an injunction is to enforce the injunction for the benefit of the plaintiff, another purpose is to protect the effective administration of justice by demonstrating that the courts orders will be enforced. As the authors of Borrie and Lowe's Law of Contempt (2nd ed, 1983) say, at p 3: 'if a court lacked the means to enforce its orders, and its orders could be disobeyed with impunity, not only would individual litigants suffer, the whole administration of justice would be brought into disrepute.'"' 26 In Australian Competition and Consumer Commission v World Netsafe Pty Ltd (2003) 204 ALR 537 at 540, Spender J listed a number of indicia that were relevant in deciding on the appropriate penalty. He said: 'Considerations which are relevant in deciding what is the appropriate penalty include: (a) The relative seriousness of the contempt, which is determined by the extent to which the contemnor appreciated that a contempt was being committed: ACCC v Info4PC.Com Pty Ltd(2002) 121 FCR 24 at [144] (Info4PCCom). (b) Whether the contemnor subjectively intended to disobey the order: Attorney-General v Times Newspapers Ltd[1992] 1 AC 191; [1991] 2 All ER 398 at AC 218; ACCC v Hughes(2001) ATPR 41-807 at [20] (Hughes); and Info4PC.Com. (c) The importance of bringing home to the contemnor the seriousness of the contempt: Hughesat [24];Info4PC.Comat [139]. (d) Whether the contemnor has offered any explanation or apology for his conduct: Gallagher v Durack(1983) 152 CLR 238; 45 ALR 53 at CLR 245 per Gibbs CJ, Mason, Wilson and Brennan JJ. (e) An acknowledgment by the contemnor that a contempt was committed may be a mitigating factor: Matthewsat [25] and [29].' 27 All of those indicia are, in my opinion, relevant in a consideration of the appropriate penalty in this case. Of course, a court in considering whether or not to impose a sentence of imprisonment on a contemnor must have regard to matters personal to the contemnor. 28 As the principal reasons show, a consideration of each of the indicia mentioned by Spender J must lead to a conclusion that this was a very serious contempt committed in full knowledge of the existence of the order and undertaking which were contravened, and in circumstances where the respondent has shown not the slightest indication of remorse or contrition or, indeed, even an acknowledgement of the commission of the contempt. 29 I am satisfied, unless the applicant's personal circumstances require otherwise, that the respondent must be sentenced to imprisonment in respect of his contempt. 30 The respondent was born in Tasmania on 10 August 1944 and thus, is nearly 62 years of age. 31 The respondent had an apparently uneventful childhood. He was educated until the age of 15 and a half years, and left school at his father's instigation to work on the family farm. He left home to marry at the age of 17 years. He was mainly employed as a farm labourer until he left Tasmania at about the age of 42 years. 32 He has been married three times. He separated from his third wife in August 2004, apparently, as a result of these matters. The respondent has three children, a son and two daughters who are aged 38, 40 and 43 years. He has no mental illnesses. 33 The respondent describes his health as 'only fair' because he suffers from a condition of the spine. His spinal condition has been diagnosed as 'isthmic spondylolisthesis'. He is presently unemployed and in receipt of a Centrelink sickness benefit. He has twice been declared bankrupt. 34 He described himself to a psychologist, Dr Richard Balfour, as a 'risk taker' in dealing with financial matters. 35 Importantly, Dr Balfour offers the opinion that the respondent's behaviour did not occur as a result of any underlying psychological disorder or mental impairment. 36 Also importantly, Dr Balfour recorded: 'Mr Reid views his current offending behaviour occurring as a result of him being a victim of circumstances and being persecuted by ASIC. His intention was to earn an income and to assist some close friends who had requested his assistance with their business ventures. He continues to believe he is innocent of the charges he has been found guilty of following a trial. His view of his offending behaviour is somewhat self-serving and egocentric. At the time of the current offences, Mr Reid was not suffering from a psychological or psychiatric disorder which would have interfered with his capacity to appreciate the nature and quality of his actions, and their wrongfulness. I asked Mr Reid why he had offended and he replied "It's circumstances what I'm doing working there. As soon as ASIC know that I'm there in the circumstance they investigate right away and they're still doing it today. They continually phone my business associates in North America to find out what I'm doing". I asked Mr Reid who was responsible for his offending behaviour and he replied "I still don't believe that I've done anything wrong. It's been the switching around and pressure with witnesses from ASIC that's brought this about. And this would have never happened except for a liquidator asking ASIC for help with the liquidation of a corporation. And as soon as they found out that I worked there they investigated me and didn't investigate what the liquidator asked them. The liquidator after the trial rang me and told me to go to his office and told that to me himself". I asked Mr Reid what is his attitude towards his offending behaviour and he replied "I'm a victim in this. Continually investigated by ASIC. The Judge already knows. I'm sorry that's [sic] it's all happened but its circumstances that get me here".' 37 Mr Reid repeated to Dr Balfour that he was the victim and ASIC was the persecutor. 38 Apparently, the respondent has been imprisoned on previous occasions for the commission of offences. 39 Dr Balfour has offered the opinion: 'Mr Reid does not appear to have learned from his past periods of incarceration for his offending behaviour. Therefore I have no confidence that further periods of incarceration will act as a significant deterrent against future offending behaviour.' 40 In my opinion, Dr Balfour's report shows that Mr Reid has no insight whatsoever in relation to his conduct and the seriousness of it. It shows that he cannot accept that his conduct has been in contravention of the order made by Jenkinson J and the undertaking given to Kenny J. He continues to see himself as the victim and ASIC, the applicant, as the persecutor. 41 A sentence of imprisonment must be a sentence of last resort. A sentence for contempt can be no different than a sentence for an ordinary criminal offence where a sentence of imprisonment is a matter of last resort. 42 In this case, I am of the opinion that there is no alternative but to sentence Mr Reid to a sentence of imprisonment. It is necessary to require Mr Reid to serve a sentence of imprisonment to impress upon him the seriousness of his behaviour. I reject Mr Mancini's submission that a form of punishment in the nature of home detention would be appropriate. 43 Mr Reid spent a period of between two and three months in gaol for the reasons shown in the principal reasons when he failed to attend Court. I take that into account in the sentence which I am about to impose. I also have taken into account the order for costs which I intend to make. 44 Having regard to the period already served and the order for costs which I intend to make, the order of the Court is that Mr Reid be committed to prison for a period of nine months. 45 I accept Mr Mancini's submission that it would be appropriate to discharge Kenny J's order of 12 February 2002. Of course, the order is now spent because the period of two years mentioned in paragraph 4 of the order has now expired, although it had not when these further contempts occurred. Nevertheless, it would be appropriate to discharge the order so that the threat of any further imprisonment for any other contempt which might have been committed during that two year period is removed. 46 The applicant has sought an order for costs on an indemnity basis or on a solicitor and client basis. The applicant has submitted that it was obliged to bring these proceedings to vindicate the authority of the Court. I accept that submission. I think the applicant had a duty to bring these proceedings not only to vindicate the authority of the Court but to protect persons of the kind in these proceedings who might otherwise deal with the respondent. Jenkinson J's order was made to protect those persons from the respondent's conduct. 47 There is no rule which requires that a respondent in contempt proceedings pay costs on a solicitor and client basis: McIntyre v Perkes & Another [1987] 15 NSWLR 417. However, the respondent's conduct which gave rise to these proceedings and the civil proceedings, and his conduct in these proceedings, make such an order appropriate. 48 There will be an order that the respondent pay the applicant's costs on a solicitor and client basis. I will make the declaration that the respondent has committed the contempts alleged in the Statement of Charge. 49 Mr Reid has indicated that he intends to appeal from this decision. 50 In those circumstances, I will hear the parties as to whether or not the warrant ought to lie in the Court until such time as Mr Reid has prosecuted an appeal. I certify that the preceding fifty (50) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lander.