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[1999] FCA 259
Federal Court of Australia
1995-06-23
Kiefel J, Ipp J, Carr J
Original judgment source is linked above.
THE COURT ORDERS AND DECLARES THAT:
WESTERN AUSTRALIA DISTRICT REGISTRY WG 165 of 1996
Introduction 1 By two motions on notice (one in each application), the applicant, the Deputy Commissioner of Taxation for the Commonwealth of Australia ("the Commissioner"), seeks orders that each respondent, Mr James Lindsay Hickey and Ms Heather Margaret Horne, be found guilty of contempt of court and be punished for such contempt. The conduct complained of in each matter is disobedience of an order in the nature of a Mareva injunction granted by Ipp J of the Supreme Court of Western Australia on 19 July 1996, about three and a half months before each of these applications was transferred to this Court.
Factual Background 2 I shall set out some detail of the procedural history of these matters because the extent to which the respondents were aware of the Mareva injunction is, in my view, of some importance. [Although there were two Mareva injunctions, I shall refer to them in the singular because they were relevantly identical.] On 18 July 1996 the Commissioner sued each of the respondents in the Supreme Court of Western Australia, in separate proceedings. I shall refer to them as respondents, although they were defendants at that stage. Each proceeding was initiated by a writ of summons to which was annexed a statement of claim. In each proceeding the Commissioner claimed income tax in respect of the years ended 30 June 1995 and 30 June 1996, together with additional tax and interest pursuant to ss 207 and 207A of the Income Tax Assessment Act 1936 (Cth) ("the Act"). The amount claimed from Mr Hickey was $161,419.66 plus additional tax and interest on virtually the whole of that amount from 19 July 1996. The amount claimed against Ms Horne was $223,110.86 plus, again, interest on virtually the whole of that amount from 19 July 1996. All of the assessments were default assessments, made under s 167 of the Act. On the same date, in each proceeding, the Commissioner applied ex parte to a judge in chambers for a Mareva injunction. An affidavit filed on behalf of the Commissioner in support of that application (Exhibit A1 in these proceedings) disclosed the following facts. First, that between 7 September 1994 and 12 April 1996 the respondents had caused funds totalling $826,081.00 to be transferred from Western Australia to two bank accounts in New Zealand in the name of "J. Hickey and H. Horne". Two of the transactions were for cash cheques amounting to $19,980 and one transaction was for $30,000. But the balance of the funds, being a total of $776,101.00, was transferred in ninety-three separate cash transactions of amounts being less than $10,000. The Financial Transaction Reports Act 1988 (Cth) requires cash transactions of more than $10,000 to be reported to a body called Austrac which is the Commonwealth agency responsible for the administration of that Act. The activity by which large amounts of money are transferred in separate amounts of less than $10,000 is known as "structuring". The respondents used over forty different branches in Western Australia to make these transfers. In one week, in July 1995, the respondents transferred over $100,000 to their New Zealand bank account by ten transactions from nine branches (one branch was used twice) of five different banks. Most of the moneys transferred to New Zealand were, at the direction of the respondents, subsequently transferred to other countries, but some of the moneys found their way back to Australia. The Commissioner became aware of these matters. By 3 May 1996 the Commissioner had served final notices on each of the respondents requiring them to lodge income tax returns for the year ended 30 June 1995. No such returns had been lodged by the time the writs were issued. During May and June 1996 there had been further contact between the Commissioner and the respondents, and he also had contact with their accountants. On 30 May 1996 the Commissioner had issued a notice under s 264 of the Act to Mr Hickey requiring him to attend before an officer of the Commissioner, to give evidence and produce documents on 7 June 1996. Mr Hickey attended on that date but otherwise did not comply with that requirement. On or about 4 July 1996, shortly before the assessments were issued, the Commissioner obtained a search warrant to search premises then owned and occupied by the respondents at Herne Hill. During the course of the execution of that search warrant, a copy of a passbook in Mr Hickey's name was obtained, showing a deposit of $89,917.00 by him on 27 June 1996. On the same day as the execution of the search warrant, Mr Hickey transferred $89,500 from that account to his solicitors in Melbourne. A week later the Commissioner used his powers under s 218 of the Act to retrieve some $61,560 of that amount from those solicitors, Messrs Melasecca Zayler. In late May and early June 1996 the respondents had applied for and obtained approval for a loan of $150,000 from Westpac Banking Corporation. Security for that loan was to be by way of mortgage over the Herne Hill property and an apartment owned by them. Those were their only real estate assets. There was evidence which indicated that arrangements had been so made that at settlement of that transaction some $100,020.00 was to be transferred telegraphically to New Zealand, $30,045.00 was to be transferred to Messrs Melasecca Zayler and $19,935.00 was to be transferred to the bank account of Parmelia & Associates Pty Ltd ("Parmelia"), being the company which acted as trustee for the Hickey-Horne Family Trust. As it turned out, the moneys were not advanced. Had they been advanced, there would have been no realisable equity in those two properties for a judgment creditor. Those, in summary, were the circumstances in which the Commissioner applied ex parte for a Mareva injunction. On 19 July 1996, Ipp J granted the Mareva injunction. The relevant part of his Honour's orders in the proceedings against Mr Hickey (which was identical, save for gender references, in the proceedings against Ms Horne) reads as follows: "1. Until further order the Defendant be restrained and an injunction is hereby granted restraining him, whether by himself, his servants or agents or howsoever otherwise from removing, or causing, or permitting to be removed from the State of Western Australia, or selling, charging, mortgaging, encumbering or otherwise dealing with or disposing of, or causing or permitting to be sold, charged, mortgaged, encumbered or otherwise dealt with or disposed of, all or any of his assets or property (whether owned or held jointly with any other person or otherwise) or any assets or property hereafter acquired by him or by him jointly with any other person, including (but without limiting the generality of the foregoing) all real and personal property, cash and monies or either of them deposited on account with any bank, building society or other lending or financial institution on term or at call, without the prior written consent in writing of the Plaintiff or the Plaintiff's Solicitor, PROVIDED THAT this order shall not prevent the Defendant from paying: (a) ordinary living expenses up to an amount of $300.00 per week; and (b) legal costs reasonably incurred in these proceedings up to an amount of $5,000.00." 3 Again on 19 July 1996, the Commissioner's solicitor forwarded a letter to each of the respondents enclosing a copy of the respective writs of summons. Those letters were individually addressed, but in identical terms. The last paragraph of each letter read: "I advise that orders were obtained from the Supreme Court on Friday 19 July 1996 pursuant to the Plaintiff's application for a mareva injunction preventing Mr Hickey and Ms Horne from dealing with their assets or property except as specified in the Orders of his Honour Mr Justice Ipp. I enclose, by way of service, a copy of the Orders." 4 As appears from the above, each letter also enclosed a copy of Ipp J's orders of 19 July 1996. 5 The applicant's evidence was that on 19 July 1996 each of the respondents was served personally with the respective writ of summons and a copy of Ipp J's orders of 19 July 1996. At the hearing of these motions this was conceded by both respondents (T22-23). 6 However, when so served, the copies of the Mareva injunction were not endorsed with the warning required by Order 46 Rule 4(5) of the Rules of the Supreme Court of Western Australia. That sub-rule is as follows: "(5) Where an order requires a person or body corporate to abstain from doing an act there must be indorsed on the copy of the order served under this Rule a memorandum in the words or to the effect following - "If you the within-named A.B. (or A.B. Ltd.) disobey this judgment (or order), you (or the said A.B. Ltd) will be liable to process of execution for the purpose of compelling you to obey the same"." 7 There is evidence that the respondents retained Messrs Melasecca Zayler and that firm's Perth agents to act for them in relation to these Supreme Court actions. On 22 July 1996 Messrs Melasecca Zayler wrote to the Commissioner's solicitor. The heading of that letter refers specifically to the two Supreme Court actions. The first three paragraphs of that letter read as follows: "We advise that we act for James Lindsay Hickey and Heather Margaret Horne in the above actions. We note that as a result of these proceedings a Mareva injunction has been ordered against each of our respective clients. Our clients are thereby exposed to the requirements of that order. Our clients have requested us to assist them in complying with the orders." 8 Paragraph 3 of the orders made by Ipp J on 19 July 1996 required each respondent to make discovery on oath to the Commissioner, within seven days of service, of all property including all real and personal property, cash, moneys deposited on account with any bank, building society or other lending or financial institution on term or at call which each respondent was entitled to operate (whether jointly with another person or not) or were operated on the respondents' behalf. On 29 July 1996 each of the respondents swore and filed an affidavit setting out particulars of their assets and liabilities. 9 The Commissioner then applied to a judge in chambers for leave to cross-examine the respondents on their affidavits of assets and liabilities. The Commissioner also applied for the Mareva injunction to be varied so as to extend to assets or property whether situate in Western Australia or outside the State. That chamber summons came before Ipp J on 22 August 1996. Each of the respondents was represented by counsel who opposed the application. His Honour declined to make an order that Mr Hickey be cross-examined upon his affidavit, but did order that Ms Horne be cross-examined on her affidavit. His Honour also varied the Mareva injunction which he had granted on 19 July 1996 against Ms Horne, to make it clear that it applied to assets both in and out of the jurisdiction. He varied the injunction against Mr Hickey to make it plain that as against him it was to be limited to assets within the jurisdiction only. His Honour published reasons for his decision. In short, the orders made on 22 August 1996 reflect the evidence that, at that stage, Mr Hickey had sufficient assets within the jurisdiction to satisfy the Commissioner's claim while Ms Horne did not. Ms Horne's counsel applied to Ipp J for leave to appeal against his Honour's decision. His Honour declined to grant leave but postponed the time for her attendance before the Registrar for cross-examination, for a period of fourteen days. 10 On 5 September 1996 Ms Horne's solicitors filed a notice of motion, returnable before the Full Court of the Supreme Court of Western Australia, seeking leave to appeal against Ipp J's decision of 22 August 1996. At about the same time the Commissioner applied for summary judgment against the respondents in both actions. On 10 September 1996 Ms Horne's solicitors applied to a judge in chambers for a stay of the orders made by Ipp J on 22 August 1996. On 12 September 1996 Walsh J dismissed that application. On 14 October 1996 each of the respondents caused separate but relevantly identical applications to be filed in this Court under s 39B of the Judiciary Act 1903 (Cth) and the Administrative Decisions (Judicial Review) Act 1977 (Cth) seeking declarations that the Commissioner's notices of assessment were invalid or void and an injunction restraining the Commissioner from relying upon or enforcing the notices of assessment. On 16 October 1996 the solicitors for the respondents filed identical chamber summonses seeking orders that each of the Supreme Court actions be transferred to this Court pursuant to s 5(1) of the Jurisdiction of Courts (Cross-Vesting) Act 1987 (WA). 11 On 30 October 1996 the Commissioner's chamber summonses for summary judgment and the respondents' applications to transfer the proceedings to this Court came before Wallwork J for hearing. His Honour ordered that both actions be transferred to this Court. He did not make any orders in relation to the application for summary judgment. Shortly after the transfer of proceedings, orders were made by consent that the hearing of both applications (as they by then had become) be expedited. On 24 March 1997 (shortly before the date upon which both applications were listed for hearing), judgment was entered by consent in favour of the Commissioner against Mr Hickey in the sum of $152,721.85, together with interest on that sum at the rate of 19.5% per annum from 22 March 1997. On the same date, and again by consent, a similar judgment was entered against Ms Horne in favour of the Commissioner save that the principal part of the judgment in her case was $222,281.85. On 28 April 1997 Mr Hickey and Ms Horne were personally served with a copy of each of the respective Mareva injunctions, on each of which documents appeared warnings which included the warning required by Order 46 Rule 4(5), referred to above. Order 37 Rule 2(3) of the Federal Court Rules provides for a corresponding warning which refers not to execution, but to imprisonment or sequestration of property. Neither respondent raised the question of whether the copies served on that date, by reason of the fact that the applications had by then been transferred to this Court, should have borne the notice required by Order 37 Rule 2(3) or whether they did in fact bear such a notice. The Commissioner's case was conducted on the basis that the documents served on 28 April 1997 contained only the warnings required by the Supreme Court Rules. The respondents pleaded guilty to the contempt charges on the basis that they were properly served with the respective copies of the Mareva injunctions as from 28 April 1997. Shortly before senior counsel for the Commissioner closed his case, counsel for each of the respondents expressly acknowledged that their respective clients were served with a copy of Ipp J's orders and that they were endorsed with all the warnings required. In those circumstances, I do not think that it is necessary for me to consider whether those documents should have borne a notice complying with Order 37 Rule 2(3). Another reason why where is no such need to consider the point is that as will be seen below, it is quite clear, on the evidence before the Court, that at all relevant times each of the respondents had notice of Ipp J's orders. In those circumstances, Order 37 Rule 2(5) applies and those orders may be enforced regardless of whether service was in accordance with Order 37 Rule 2. Nevertheless, I propose to take into account the facts relating to warning and the like when I consider any mitigating factors. Neither of the Mareva injunctions made against Mr Hickey and Ms Horne has been discharged or otherwise varied, apart from the amendments made on 22 August 1996. On 3 July 1997 a sequestration order in bankruptcy was made in respect of the estate of Ms Horne and on 29 September 1997 such an order was made in respect of the estate of Mr Hickey. Both orders were in consequence of a petition lodged by the respective debtor. On 6 November 1997 senior counsel for the applicant examined Ms Horne, pursuant to s 81 of the Bankruptcy Act 1966 (Cth). On 6 November 1997 and 12 November 1997 he similarly examined Mr Hickey. Copies of the transcripts of those examinations are in evidence in respect of the motions before the Court. Much of that evidence relates to the expenditure made by the respondents since the Mareva injunction was granted. On 27 October 1998 the Commissioner caused notices of motion to be filed for orders that each respondent be found guilty of contempt in connection with this proceeding by disobeying the order made by Ipp J on 19 July 1997 in that: "… the Respondent did on diverse occasions deal with or dispose of certain of his [her] assets or property comprising cash and monies: a) in excess of an amount of $300 per week for ordinary living expenses; and/or b) in excess of an amount of $5,000 for legal costs reasonably incurred in these proceedings, full particulars of which conduct are set out in the statement of charge annexed hereto and marked "B"." 12 The statement of charge in each case recited the relevant portion of Ipp J's order. The applicant charged that each respondent was guilty of contempt by disobeying that order and listed some 59 (in the case of Mr Hickey) periods during which, or occasions on which, he disobeyed that order and (in the case of Ms Horne) lists some 31 periods during which she disobeyed that order. The Commissioner acknowledged at the hearing of the motions that Ms Horne had not spent in excess of $5,000 for legal costs as alleged in paragraph b) above. At the hearing of these motions, separate counsel appeared for each respondent. Counsel told the Court that their clients pleaded guilty to having been in contempt of court, but not to the extent set out in the respective particulars of charge. Their counsel submitted that when I assessed the penal consequences flowing from such contempt I should not take into account: (a) payments made before 28 April 1997, being the date when copies of the Mareva injunctions were served bearing the endorsement referred to above; (b) any payments made by Parmelia to third parties whenever made, and any cash withdrawals or transfers from Parmelia's bank account to any account maintained by the respondents or either of them which occurred before 28 April 1997; and (c) (in Ms Horne's case) any payments made by using a Visa credit card account. Counsel for Mr Hickey did not press this particular argument, but I propose to consider it in his case also. Jurisdiction 13 On behalf of the Commissioner it was contended that although the Mareva injunction was granted by the Supreme Court of Western Australia, it is to be treated as if it were an order made by this Court. The Commissioner relied upon s 11(3) of the Jurisdiction of Courts (Cross-Vesting) Act 1987 (Cth) and the decision of Branson J in Abrook v Patterson (1995) 136 ALR 753 at 756. 14 Neither respondent contended that this Court lacked jurisdiction or power to make the orders sought in these motions. However, of course, the Court is required to satisfy itself that it has jurisdiction and power to make such orders. 15 Section 11(3) of the Jurisdiction of Courts (Cross-Vesting) Act 1987 (Cth) provides as follows: "Where a proceeding is transferred or removed to a court (in this sub-section referred to as the "transferee court" from another court (in this sub-section referred to as the "transferor court") the transferee court shall deal with the proceeding as if, subject to any order of the transferee court, the steps that had been taken for the purposes of the proceeding in the transferor court (including the making of an order), or similar steps, had been taken in the transferee court." 16 When one reads s 5(1) of that Act, which corresponds with the State provision under which these proceedings were cross-vested to this Court, it seems to me that this Court quite clearly had jurisdiction to hear the proceedings which comprise what have now become the two principal applications in this Court. They were (and still are) the relevant "proceedings" for the purposes of s 11(3). In my opinion, s 11(3) operates to confer power on this Court to deal with those proceedings as if the Mareva injunction granted by Ipp J (as subsequently varied) had been made in this Court. It was clearly a step taken for the purposes of the proceedings in the Supreme Court. I respectfully agree with what Branson J said in Abrook at 756.
Significance or otherwise of the lack of warning endorsed upon the orders originally served
17 In my opinion, failure to have the warnings endorsed on the service copies of the Mareva injunction, whether on 19 July 1996 (as required by the Rules of the Supreme Court of Western Australia) or 28 April 1997 (if required by the Federal Court Rules) does not preclude this Court from enforcing it by committal or sequestration. In Deverall v Wannunup Development Nominees Pty Ltd (1994) 12 WAR 561 at 565 Anderson J, after reviewing some authorities, expressed the view that, under Order 2 Rule 1 of the Rules of the Supreme Court of Western Australia, he had power to condone the irregularities which had occurred in that case. Those irregularities included failure to serve the extracted order. The plaintiff had merely served a copy of a draft which had been submitted to the Registry for settling and extraction. His Honour declined, on discretionary grounds, to dispense with the requirements of the rules. The discretionary grounds appear to have been twofold. First, the injunction had not been obtained at a weekend or out-of-hours, and no good or valid reason had been given for failing to draw up and extract and serve a copy of the order, properly endorsed. Secondly, it was not a case in which the defendants had made up their minds to ignore the order and defy the Court, so that such service would have been a useless formality. Ms K A Vernon, counsel for Ms Horne, submitted that Anderson J had a third reason, namely that the conduct of the defendants was not a flagrant and contumacious disregard of the interim injunction. I am inclined to think that the third reason formed part of the second. Both counsel submitted that because the Commissioner in the present matters had not offered any explanation why Order 46 Rule 4(5) had not been complied with, I should not exercise my discretion to dispense with that requirement. It is true that the Commissioner has not offered any explanation for the omission. I take that into account. However, I am satisfied that at a very early stage of the Supreme Court proceedings, probably as early as 19 July 1996, but certainly no later than 22 July 1996 when Messrs Melasecca Zayler wrote their letter of that date (from which I have set out some extracts above), the respondents were well aware that the Mareva injunction had been granted, and of its terms. They had instructed solicitors to assist them in complying with the orders. They were, as I have recited above, represented by counsel at various interlocutory stages including proceedings to vary the Mareva injunction. The Commissioner relies upon a decision of Drummond J in Australian Securities Commission v MacLeod (No 2) (1993) 40 FCR 461. That was a decision under Order 37 Rule 2(5) of the Federal Court Rules. However, as the Full Court of this Court pointed out on appeal in that case [MacLeod v Australian Securities Commission, unreported, Judgment No 553 of 1993] at 16-17, this sub-rule recognises exceptions arising out of a line of authority which their Honours conveniently list. 18 Another factor which I have taken into account is that there was no significant change in the respondents' spending patterns after re-service of the injunctions on 28 April 1997. They continued to spend over the limits stipulated in those orders. 19 Neither respondent argued that I did not have power to dispense with the requirements of Order 46 Rule 4(5) of the Supreme Court Rules. After weighing the factors which I have mentioned immediately above relating to the respondents' awareness of the existence of the Mareva injunctions and how they behaved when they were re-served with the injunctions, properly endorsed, I consider that it is in the interests of justice that any non-compliance with that sub-rule be disregarded for the purposes of disposing of these motions. That means that I will take into account disbursements made by the respondents both before and after 28 April 1997. But I shall take into account the matter of the absence of the endorsement when assessing penalty.
20 The applicant's case was based on what appears to have been a meticulous and painstaking analysis of the moneys which came under the respondents' control (a very high proportion of which was as a result of the earnings which they generated by their personal exertion) and how those moneys were spent. I shall refer, as briefly as possible, to the financial circumstances and arrangements.
Parmelia 21 The evidence shows that Parmelia was incorporated on 24 September 1992 and that at all material times Mr Hickey and Ms Horne were its only directors. Ms Horne was at all material times the company secretary. The company's issued capital comprised two shares paid to $1, held by Mr Hickey and Ms Horne respectively. Parmelia was, as I have mentioned, the trustee of the Hickey-Horne Family Trust, but there is no evidence of the capacity in which it entered into the transactions to which I am about to refer. Mr Hickey is a senior contracts engineer. During the period from September 1996 until Mr Hickey's bankruptcy, he was employed by Parmelia. Parmelia in turn contracted Mr Hickey's services to an employment agency. That employment agency in turn contracted to provide Mr Hickey's services to an engineering company. The employment agency paid Parmelia. In 1996 and 1997 Parmelia contracted directly with another engineering company to provide Mr Hickey's services to it. Parmelia rendered invoices to that company which were duly paid. The applicant's unchallenged case is that over the period during which the Mareva injunction was in force ("the Mareva injunction period") some $118,992 was paid into Parmelia's bank account as a result of income generated by the personal exertion of Mr Hickey. Ms Horne is a contract project controls assistant. Ms Horne had a similar arrangement with Parmelia whereby she was employed by that company which in turn contracted, through an employment agency, to provide her services to an engineering company (not being one of the engineering companies referred to above). During the Mareva injunction period $26,430.20 was paid into Parmelia's bank account as a result of income generated by the personal exertion of Ms Horne (see paragraph 12 of each of the affidavits affirmed by Mr P Y Beck on 26 October 1998). At all material times the respondents lived together as de facto husband and wife. The evidence shows that between them the respondents withdrew all the money that was deposited into Parmelia's bank account.
Bank accounts in the names of one or both of the respondents 22 During the Mareva injunction period the respondents maintained a current account with Australia & New Zealand Banking Group Ltd ("ANZ Bank") in their joint names (Account No 93457). Mr Hickey also maintained two credit card accounts, namely an ANZ Bank Visa Account (No 9427 - "the Visa Account") and a National Australia Bank Ltd Bankcard Account (No 2215) in his own name. Ms Horne was authorised to charge expenses to and draw cash from the Visa Account, a matter to which I refer further below. Mr Hickey also maintained an ANZ Bank Personal Loan Account (No 52776) in his own name. The Commissioner's unchallenged evidence is that during the Mareva injunction period a total of $195,005 was credited to these four accounts (Mr Beck's affidavits at paragraph 16). After excluding moneys paid, with the approval of the Commissioner, from these accounts and after making other relatively minor adjustments, between them the respondents spent a total of $177,225.01 from the Parmelia bank account and from those various personal bank accounts.
The Commissioner's calculation of how much more the respondents spent on ordinary living expenses than was permitted by the Mareva injunction
23 The Commissioner has conducted an analysis of those withdrawals which is reflected in a spreadsheet (see annexures "Q" and "P" respectively of Mr Beck's affidavits). The Commissioner's evidence is that Mr Hickey exceeded the amount of expenditure sanctioned by the Mareva injunction in 55 of the 61 weeks of the Mareva injunction period. For the entire period he was entitled to spend $16,500 in respect of ordinary living expenses, whereas the amount in fact spent by him was $130,574.31. The comparable figures in relation to Ms Horne were that she was entitled to spend $9300.00 in respect of ordinary living expenses, but in fact spent $22,068.02. This latter figure is referred to in the relevant paragraphs of Mr Beck's affidavits whilst in the annexures the amount shown is $24,436.83. I have assumed that the lower figure is correct.
Payments made to solicitors by Mr Hickey (but not by Ms Horne)
24 It is common ground that between September 1996 and December 1996 Mr Hickey paid Messrs Melasecca Zayler a total of $45,000 by using loan monies advanced by a Ms Cheryl Endall and Mr Alan Bryant. Through his counsel, Mr Hickey accepted that if I decided to take into account payments made during this period, i.e. before 28 April 1997 (as I have), then by making these payments he breached the Mareva injunction. The breach amounts to payment in total of $40,000 more than was allowed for legal expenses.
The Holiday at Club Med 25 In July 1997 the respondents had a holiday including a six nights stay at the Club Med Resort at Lindeman Island, Queensland at what was described as a "known cost" of $4343.00. There is evidence that Ms Horne paid to the travel agent cash payments in May and June 1997 totalling $2,560. On the same date upon which Ms Horne paid the first instalment of $550, the evidence shows that Mr Hickey drew a cash cheque for $2,000 on the Parmelia account. On the day on which Ms Horne paid the balance of $2060.00 in cash (12 June 1997) Mr Hickey drew a cash cheque on the Parmelia account in the sum of $2,500. Those amounts have been included in the calculation of the amount by which Mr Hickey spent more on ordinary living expenses than he was permitted by the Mareva injunction. There is further evidence that the respondents extended the holiday for one day which, together with other expenses, cost $1733.00. This was paid by a credit card.
Purchase of 2 Sweeting Street, Guildford 26 On 2 July 1997, Parmelia, as trustee for the Hickey-Horne Family Trust acquired a property known as 2 Sweeting Street, Guildford. The purchase price, including stamp duty, settlement agent's fees and other charges, amounted to $170,427.50. The main source of funds for the purchase was a loan of $131,127.50 from the Bank of New Zealand. Payments made included a deposit of $1,000 on or about 2 July 1997, a further payment on 7 August 1997 of $37,550.00 and another payment of $750 on 12 August 1997. The deposit of $1,000 was paid by way of a cheque drawn on the Parmelia bank account signed by Mr Hickey. The $37,550 was paid from funds held in an account in the name of the family trust of which $24,000 were said to be sourced from what was described in Mr Beck's affidavit as "an alleged gift to the trust of $24,000 by Mrs Betty Smith". The balance of $13,550 found its way into the family trust account by way of a cheque drawn on the Parmelia bank account and signed by Mr Hickey. The final sum of $750 was paid out of the family trust account within two days of Mr Hickey signing a cheque for $800 in favour of the family trust account drawn on the Parmelia bank account. The moneys drawn by Mr Hickey from Parmelia's bank account (but not those otherwise sourced) have been treated by the Commissioner, in his calculations of over-expenditure, as payments made by Mr Hickey. Mr Hickey does not dispute the quantum, but submits that these moneys should be treated as having belonged to Parmelia, not to him. I deal with that issue below.
Payments made out of Parmelia's bank account 27 Both respondents conceded, for the purposes of these motions, that in respect of moneys drawn from the Parmelia bank account, those moneys which were transferred to any of their own bank accounts, or drawn out in cash, may be taken into account as expenditure by them. However, they submitted that payments made out of the Parmelia bank account to what were described as "third parties" should not be taken into account. These concessions were subject to their submissions that I should not take into account any disbursements made before 28 April 1997. 28 It is thus necessary for me, in the course of assessing the extent to which the respondents admittedly breached the Mareva injunction, to make a ruling about whether the latter payments which I have referred to immediately above should, as a matter of law, be treated as falling within the terms of that injunction. 29 I think that it is useful to set out again the relevant portion of that order. It is as follows: "… or any assets or property hereafter acquired by him or by him jointly with any other person, including (but without limiting the generality of the foregoing) all real and personal property, cash and monies or either of them deposited on account with any bank, building society or other lending or financial institution on term or at call …" 30 Central to the respondents' argument was that the moneys which were generated by their personal exertion were not their moneys. I have described earlier in these reasons the employment arrangements which applied to each respondent. In my view, the moneys which found their way into the Parmelia bank account as a result of the services rendered by each respondent fell, as a matter of law, within the terms of the Mareva injunction at the time when they were drawn upon or disbursed at the direction of the respondents or either of them. I shall state my reasoning fairly briefly. There was no suggestion that the respondents gave their services to Parmelia on an honorary basis. Therefore, Parmelia became indebted to each of the respondents for their services in what appears to have been, as between the respective parties, an unquantified amount. When one looks at the manner in which the moneys in Parmelia's bank account were treated, the evidence points, in my opinion inexorably, to an arrangement whereby the indebtedness of Parmelia to each of the respondents for their employment services was treated by all three parties as co-extensive with the amount of moneys which Parmelia received from the respective employment agencies. That is, Parmelia did not deduct anything for itself, but treated the arrangement as one in which the respondents were entitled respectively to all the moneys generated by their personal services. Mr Hickey, during his bankruptcy examination, gave evidence that he had (at the relevant times) decided that Parmelia would pay him what was fair and reasonable (see Exhibit A1, p 62). Parmelia was content to be a conduit in practical terms, although legally there were the arrangements which I have described. What took place in practice was not inconsistent with those legal arrangements. The respondents caused Parmelia to draw upon the funds at bank from time to time, without any limit. Parmelia thus extinguished its indebtedness to each of the respondents. As I see it, the indebtedness of Parmelia from time to time to the respondents became their after-acquired property which they disposed of by drawing on Parmelia's bank account. Whether they drew the moneys out in cash, transferred them to their personal accounts or caused payments to be made to third parties does not, in my opinion, make any difference to that proposition. In respect of payments made to third parties, as a matter of law, the respondents were applying Parmelia's indebtedness to them to satisfy amounts owing to those third parties. There was a faint suggestion that Parmelia had a business of its own and that some of those expenses were paid out of its own moneys. In that regard, I think it is sufficient to say two things. First the evidence very strongly suggests (and I so find with the requisite degree of satisfaction beyond reasonable doubt) that the whole of the income of Parmelia during the relevant period comprised the moneys paid as a result of the services rendered by the respective respondents. Secondly, any of Parmelia's business expenses arising out of its employment of the respondents must have been relatively minimal in the context of assessing the culpability overall of the respondents in breaching the Mareva injunction.
The Visa Account 31 As I have mentioned above, Mr Hickey conducted the Visa Account, but Ms Horne was entitled to draw cash from it and debit expenditure to it. The applicant argued that expenditure charged to the Visa Account should be treated as a dealing with or disposal of the respondents' assets or property for the purposes of assessing the extent to which they breached the Mareva injunction. Counsel for Ms Horne (but not counsel for Mr Hickey) argued that this was incorrect. Counsel for Ms Horne was given leave to file, after the hearing had concluded, a schedule of calculations. That schedule of calculations related both to exclusion of expenses paid from the Visa Account and also expenses paid from the Parmelia bank account. In view of my conclusion in relation to the Parmelia bank account, it is only necessary to focus upon the former. Those calculations indicate that, if one excludes the payments made by the Visa card, then Ms Horne breached the Mareva injunction in twenty-six weekly periods compared to the thirty-one breaches alleged by the applicant. The amount of excess expenditure is consequently reduced, on my calculations, from $12,768.00 to about $9,000. (I have started with the gross figure of $22,068.02 referred to in paragraph 23 above). The applicant's response to those calculations was to accept them, but to argue that amounts deposited to the Visa Account should be regarded as expenditure by the card holder. I accept the latter proposition. However, my calculations of the excess (excluding Visa charges) in the case of Ms Horne are as I have set out above and differ from Ms Horne's calculations, as apparently accepted by the applicant. For the reader who may have to check my calculations, I give the following by way of assistance. I have accepted Ms Horne's calculations of the excess without Visa charges (i.e. the figures in the 5th column of those calculations where there is a notation of either nil or a particular sum, but not the notation "N/A"). Where in the immediately preceding column (column 4) there appears a notation "N/A" preceded, in column 3, by an alleged excess over $300, I consider that that alleged excess must be taken into account. So far as I can see, the total excess calculated on behalf of Ms Horne does not take those amounts into account and thus understates the over-expenditure. I accept the applicant's contention that on any occasion when Ms Horne drew funds, either by cash or a cheque, from the Parmelia account and made a deposit to the Visa Account, then that should be treated as expenditure by her. Consistent with the above reasoning, that is how the calculations work out. 32 The evidence was (see annexure "K" at pp 171-178 of Mr Beck's affidavit affirmed on 26 October 1998 and filed in the proceedings against Ms Horne) that the Visa Account was in debit for substantial amounts throughout the Mareva injunction period. There was evidence that the Visa Account had a credit limit of some $20,000. In round figures, the debit balance varied between about $4,000 and nearly $16,000. For the purposes of these proceedings, I do not think that the right (if indeed there was a right) to draw upon the Visa Account should be regarded as either property or an asset of either of the respondents. The contract between ANZ Bank and the respondents was not in evidence. I assume, from perusal of the manner in which the account was operated, that its terms enabled the respondents to draw upon the account by using the Visa card up to a limit of $20,000, subject to repaying a relatively small proportion of the monthly balance, which would include interest accrued from time to time. It may well have been that the respondents did not enjoy a legal right to draw, but only a privilege to draw funds, being a privilege which could be rescinded at any time at the bank's discretion. In the end I do not think that any such difference matters. In my view, when the respondents drew cash or paid expenses by debiting such amounts to the Visa Account they did not deal with or dispose of their assets or property within the meaning of the Mareva injunction. Throughout the relevant period that account was in debit. The respondents simply caused pre-existing indebtedness to be increased. Counsel for Mr Hickey submitted that looking at the Visa Account only confused matters, so far as his client was concerned (see T80). His counsel conceded that Mr Hickey had spent a considerable amount of money over and above what he was permitted to spend and that whether, in the end, it was $90,000 or $100,000 would probably make little difference in punishment terms. I think that there is considerable merit in that proposition. In view of the position thus taken by Mr Hickey (which I think was a sensible one), I have tried to make only an approximate adjustment to take into account, by reduction, his withdrawals from the Visa Account. The total debited to that account can be seen (in annexure "L" of Mr Beck's affidavit affirmed on 26 October 1998 in the proceedings against Mr Hickey) to have been $47,645.43. From that I have deducted some $2,681.84 attributed to Ms Horne in the tabular submission to which I have referred above. The resultant figure is, in round terms, $45,000.00. But $26,644.81 of these moneys have been identified (at folio 285 of the above affidavit) as coming from the Parmelia bank account and have already been counted. This leaves a balance of about $19,000 to deduct from the alleged total over-expenditure on ordinary living expenses of $130,574.31. I shall work on the basis that Mr Hickey over-spent under the heading of "Ordinary Living Expenses" about $111,000 and over-spent the allowance in respect of legal expenses by some $40,000, making a total of about $151,000. The contraventions occurred, in his case, in about fifty-five of the sixty-one week period of the Mareva injunction. As I have mentioned above, Ms Horne's contraventions occurred in twenty-six weeks and involved an excess of expenditure of about $9,000.
Generally 33 The respondents have pleaded guilty to the contempts with which they have respectively been charged. However, this was virtually at the last minute, when senior counsel for the Commissioner started his opening address. Nevertheless, to some extent, I take that into account together with the apology which was tendered on behalf of Mr Hickey in similar circumstances - i.e. very late in the piece. 34 The Federal Court of Australia has the same power to punish contempts as is possessed by the High Court of Australia in respect of contempts of that Court - see s 31 of the Federal Court of Australia Act. The High Court of Australia has the same power to punish contempts as was possessed in 1903 by the Supreme Court of Judicature in England - see s 24 of the Judiciary Act 1903 (Cth). All parties to these proceedings concede that the Court has a discretion to impose a prison sentence, to fine, to make costs orders or to punish by any combination of such alternatives. I think that it is accepted these days that, generally, imprisonment is a punishment of last resort. But even that proposition must be subject to the nature and seriousness of the crime. 35 Any contempt of court is serious. The seriousness transcends matters such as the personal dignity of the judiciary, or the rights in this case of the Commissioner as a litigant in this Court. The offence involves interference with the effective administration of justice, by impeding and perverting its course: Johnson v Grant (1923) SC 789 at 790 per Lord President Clyde. Contempt of court is a matter of basic public significance. Unless the laws of contempt are properly enforced our whole system of justice is at risk. I regard the offences committed by the respondents as being very serious. They amount to wilful disobedience of Court orders over a sustained period of time and involve substantial amounts of money. At this stage it is appropriate that I should say something about the extent of the respondents' knowledge. This, of course, goes only to penalty, not to guilt. The applicant submitted that I should infer from the evidence that the respondents were advised at a very early stage of the consequences of any failure to comply with the Mareva injunction. The particular evidence relied upon by the applicant for that submission included the fact that at all material times the respondents were represented by solicitors and counsel. Annexed to Mr R P Hornsby's affidavit sworn 24 February 1999 (annexure RPH4) were details provided by Messrs Melasecca Zayler of the services which they had rendered to the respondents between 15 July 1996 and 26 May 1997. This included extensive telephone attendances in particular during the period 15 July 1996 to 9 August 1996. On the other hand, Ms Horne deposed in her affidavit sworn 19 February 1999 (Exhibit R2 in the proceedings against her) that she did not receive any advice from Mr Zayler about what would happen if she did not comply with the Mareva injunction - see paragraph 16 of that affidavit. Mr Hickey gave no evidence in that regard. I am left in a situation where both or either of the respondents may have been advised by their solicitors of the consequences of contravening the Mareva injunction, or they may not have been so advised. In my view, both possibilities are equally likely. To conclude affirmatively that the solicitors had provided the advice, as the applicant submits, would be impermissible speculation on my part: see Re Bramblevale Ltd [1970] 1 Ch 128 at 137 (C.A.). I treat these matters as being of a criminal character. I am not satisfied beyond reasonable doubt that the respondents were advised of the consequences of any failure to comply with the Mareva injunction. I take that into account when assessing appropriate punishment. I also take into account that the orders when served on them on 19 July 1996 were not endorsed with the warning required by the Supreme Court Rules. However, they were put on notice on 28 April 1997. Furthermore they were aware from the very outset (19 July 1996) that the Mareva injunction had been granted in the terms set out above. Their behaviour did not seem to modify significantly after 28 April 1997, if at all. Senior counsel for the applicant submitted that the respondents had "thumbed their noses" at the orders of the Supreme Court. Although that is a somewhat colourful expression, I think that it is an accurate one. However, on reading the correspondence between the parties I accept the submission (made on behalf of Mr Hickey, but I think that it applies to both respondents) that they perceived that the Mareva injunction was just part of their battle with the Taxation Department, a battle in which they thought they were being unfairly treated. The first part of that perception was wrong; but I accept that the respondents had it. The second part - perceived unfair treatment - is a contentious matter upon which it is not necessary for me to express any opinion. I take into account that at all relevant times, from a very early stage, the respondents made what appear to me to have been very substantial and genuine offers to pay the tax assessed. The evidence suggests that the parties (the Commissioner is the respondents' major creditor) are close now to reaching an arrangement whereby the respondents will raise an amount of $40,000, to be distributed amongst their creditors, and will be discharged from bankruptcy. That amount is but a small fraction of the amount which they offered to the Commissioner in July and August 1996. 36 In my opinion, there is one very significant mitigating factor in these matters, which I will come to in a moment. I shall refer to it as "the very significant mitigating factor". It is generally no answer to a charge of contempt that the order disobeyed should not have been made in such wide terms - see for example the discussion in Borrie & Lowe "The Law of Contempt" (3 ed) at 555-556. However, in my view, that is a circumstance which it is appropriate to take into account in mitigation when assessing punishment. The very significant mitigating factor is this. I think that at any time after the ex parte Mareva injunction was made, any reasonably competent solicitor would have been able to persuade a judge of the Supreme Court of Western Australia (or subsequently a judge of this Court) that its terms should have been varied to exclude its application to the respondents' earnings from their personal exertion. In Jackson v Sterling Industries Ltd (1987) 162 CLR 612 the High Court of Australia explained that the purpose of a Mareva injunction was not to provide security for a plaintiff, but to prevent a defendant from disposing of his actual assets (including claims and expectancies) so as to frustrate the process of the Court by depriving the plaintiff of the fruits of any judgment obtained in the action, thereby frustrating the Court's process. I am not suggesting that the Mareva injunction in either of these matters provided the Commissioner with any security. Clearly it did not do that. But Jackson v Sterling Industries Ltd illustrates what a Mareva injunction is intended to achieve. See also Patterson v B.T.R. Engineering (Aust) Ltd (1989) 18 NSWR 319 in particular at 321-322 and a convenient collection of the leading cases in Tomlinson & Ors v Cut Price Deli Pty Ltd & Ors (unreported, Kiefel J, Federal Court of Australia Judgment No. 425/95, 23 June 1995). It would have been quite open to the respondents in this matter not to have worked at all and to have drawn down $300 per week each for living expenses and $5,000 in total for legal expenses out of the assets which they held as at 19 July 1996. They chose not to do so. By their personal exertion they generated the income which constituted the source of relevantly all of the expenditure complained of (save for some of the legal expenses paid by Mr Hickey). Where judgment has been obtained, there are execution procedures designed to give a judgment creditor access to such earnings. However, it is a very big step to deny a person access to his or her ordinary personal exertion earnings before any judgment is obtained. As Ackner LJ (as his Lordship then was) said in Bekhor Ltd v Bilton [1981] 1 QB 923 at 942: "The courts must be vigilant to ensure that the Mareva defendant is not treated like a judgment debtor." 37 It is quite understandable why the Mareva injunction was granted in such wide terms, given the factual background which I have recited earlier in these reasons. The respondents were people who had demonstrated a facility and a willingness to move, by stealth, large amounts of money out of the reach of the relevant authorities. However, in my respectful opinion, the terms of the injunction should not have been so wide as to catch the ordinary personal exertion earnings of these respondents. I have very little doubt that had the matter been brought to Ipp J's attention, he would have made that clear. As I say, any reasonably competent solicitor could have obtained a variation of the injunction to enable the respondents to have had legal access to the moneys in respect of which they took French leave and thereby committed contempt of court. While it is important to emphasise that such conduct still remains a very serious contempt of court, I think that the appropriate penalty in each case should take into account this very significant mitigating factor. I now turn to the individual circumstances of each respondent's case.
Mr Hickey 38 Mr Hickey turns 45 at the end of this month. He has no prior convictions. He left school at the age of 15. Since then he has been in continuous employment, initially unskilled employment. He has acquired, through experience and some part-time study, skills which have been, and still are, in healthy demand. His activities before the Mareva injunction was granted might well give rise to suspicions that he was involved in illegal money laundering of some sort. However, he is not being punished for those matters. Nor should they be taken into account in assessing any penalty. Mr Hickey, as his counsel submitted, has the capacity to generate a good salary and, if discharged from bankruptcy, the capacity to generate a very high salary (in the order of $100,000 per annum gross). His counsel conceded that he has the capacity to pay a fine, although he would require some time in which to do so. I have regard to his working and financial history. This indicates that over a period of approximately 25 years Mr Hickey had (with the assistance of Ms Horne with whom he has lived for most of that period) accumulated a substantial net asset position. That included the Herne Hill property and the investment apartment in the Lawson Building. Those were jointly owned assets. At the time when the Mareva injunction was granted, Mr Hickey had sufficient assets within the jurisdiction to satisfy the amount claimed by the Commissioner in the proceedings brought against him. With the bankruptcy of the respondents, all of those assets have gone, save that there is some equity in the property at Guildford owned by the family trust. As I have mentioned, I consider that Mr Hickey's contempt of court was more serious, by far, than that of Ms Horne. Were it not for the very significant mitigating factor mentioned above, I would have imposed a prison sentence upon him in the order of about six months. I have considered imposing a fine and a suspended sentence. While a suspended sentence would serve to stress the seriousness of the matter and indicate the Court's thorough disproval of Mr Hickey's conduct, I do not think on balance that it would be appropriate. For example, I do not think that there is sufficient evidence to infer that he would in the foreseeable future commit an offence involving interference with the effective administration of justice. It seems to be generally accepted that a suspended sentence should be suspended for approximately the same length as what would have been the term of imprisonment. Nor do I think that the imposition of either an actual or suspended prison sentence would, in the unusual circumstances of this case, deter any other person from committing contempt of court. Harsh or severe punishment for contravention of an order which would (on application being made) most likely have been varied to accommodate the respondents' expenditure requirements, would not, in my view, advance the public interest in the administration of justice. In all the circumstances, I think that the appropriate penalty for Mr Hickey should be a fine of $12,000.00 and an order that he pay the applicant's costs in the motion brought against him.
Ms Horne 39 Ms Horne has no prior convictions either. I take into account, as I have mentioned above, the fact that Ms Horne's contempts are nowhere near as extensive (either in monetary terms or number of periods involved) as those of Mr Hickey. However, as his de facto spouse, she stood knowingly to gain from Mr Hickey's contraventions, which must also be taken into account. Her role in paying over the cash which Mr Hickey drew out to pay for the Club Med holiday is just one example of that. In any event, the amounts of money involved in Ms Horne's case, when compared with Mr Hickey's case, should not determine the penalty to be imposed upon her. It is, as I say, one (important) factor to be weighed in all the circumstances of these matters. What I have said above about an actual or suspended prison sentence applies also to Ms Horne, although the period would have been about half that mentioned in respect of Mr Hickey. I do not think that Ms Horne is likely to re-offend. Ms Horne is 39 years of age with a four year old daughter. She is in regular part-time employment. In January 1999 she suffered a stroke for which she is still receiving treatment. I take into account all of the matters in mitigation which have been put to me by her counsel. I take into account also the matters which are common to both parties. In all the circumstances, I consider that Ms Horne should be ordered to pay a fine of $4,000 and that she should also be ordered to pay the applicant's costs of the motion in the proceedings brought against her.
40 There will be the following declarations and orders. They are to be taken as interim punishment only, in that the motions are to be stood over for further consideration of what would be appropriate further orders if the fines or costs (in either application) are not paid. If they are paid then there will be no need for the motions, or the respective motion concerned, to be relisted.
I certify that the preceding forty (40) numbered paragraphs are a true copy of the Reasons for Judgment of Justice Carr.
Associate: Dated: 18 March 1999 Counsel for the Applicant: Mr S Owen-Conway QC, with Mr T J Carey
Solicitor for the Applicant: Australian Government Solicitor
Solicitor for Mr Hickey: Messrs Bayly & O'Brien
Solicitors for Ms Horne: Messrs Arthur Metaxas & Co
Deputy Commissioner of Taxation
Hickey
(1995) 136 ALR 753
(1994) 12 WAR 561
(1993) 40 FCR 461
(1987) 162 CLR 612