GEMI 169 Pty Ltd v Suria Global

Supreme Court of NSW|2024-08-06|Before: Stevenson J, Slattery J

Solicitors: Summer Lawyers (Plaintiffs/Applicants) Aqua Law (Third and Fourth Defendants/First and Second Respondents) File Number(s): 2022/181916

JUDGMENT

The background to this matter is set out in my judgment of 5 August 2024. [1]
To repeat, the plaintiffs, who I will call the "Lenders", advanced an amount in excess of $22 million to the first defendant, who I will call the "Borrower". The Borrower is now in liquidation.
Part of the security obtained by the Lenders from the Borrower was a guarantee from the third defendant, F & L Violi Pty Ltd ("FLV"), and what appeared to be mortgages over properties owned by FLV in Strathfield and Griffith (the "Strathfield Property" and the "Griffith Property").
Those mortgages were purportedly signed on behalf of FLV by its sole director and shareholder, the fourth defendant, Mr Frank Violi.
FLV and Mr Violi contend that the signature on the mortgages purporting to be that of Mr Violi is not, in truth, Mr Violi's signature.

Principles

The Lenders allege a "civil contempt".
The Lenders must establish that: 1. an order was made by a court; 2. the terms of the order were clear, unambiguous and capable of compliance; 3. the alleged contemnor had knowledge of the terms of the order; and 4. the alleged contemnor wilfully breached the terms of the order. [3]
Further: 1. it is sufficient to prove that an act or omission was deliberate, in the sense of not being casual, accidental, or unintentional, but not necessary to prove that the alleged contemnor actually intended to disobey the Court's order; [4] and 2. it is not necessary to prove that the contemnor understood the terms of the order, because the recipient of an order has a positive obligation to try and understand and obey it, and wilful blindness is no defence. [5]
Notwithstanding the fact that the Lenders allege a civil rather than a criminal contempt, they must establish these matters beyond reasonable doubt. [6]

FLV did not comply with order 7(a)

FLV did not comply with order 7(a). No controlled money account of the kind specified in the order was established.
There is no dispute that this was a deliberate omission in breach of order 7(a) in that it was neither casual, accidental or unintentional. [7]
Mr Golledge SC, who appeared with Mr Edney for FLV, submitted that, nonetheless, FLV was not in contempt of order 7(a) because it did not have the requisite knowledge of the terms of the order. [8]

The position of Mr Violi

There was no dispute before me that, as Mr Violi is the sole director of FLV, his knowledge should be attributed to FLV.
Mr Violi summarised his position in relation to order 7(a) as follows: "(a) While I was told about the orders made on 15 July 2022 (the Orders), I did not at the time ever see a copy of the Orders as actually made; (b) I was not aware that the Orders required all rent from FLV's property in Griffith … to be paid into a 'controlled monies' account. Rather I was told that the Orders only required that to happen if there was a surplus after expenses had been paid from the gross rent, such that in the absence of such a surplus there was nothing to be paid into such an account at all."
There is no suggestion in the evidence that there was any such surplus.
Mr Violi received a number of emails from the solicitor acting for FLV in relation to FLV's application to remove the Receivers in the period up to and following 15 July 2022. He gave unchallenged evidence that he did not see or read them.
He also deposed: "I did not see actual Orders as made (either in the form of a sealed court order, or in the form emailed as attached to the emails [to which I refer at [37] to [57] below]), and I never had them read out to me word-for-word. Rather, I had their effect (or what I was told was their effect) explained to me in conversations with either Richard [Lyne] [9] or Larissa [Panazzolo]. [10] That seemed to me to be the appropriate way to know what had been ordered - I am not a lawyer, and so did not think my reading of the Orders could be better than FLV's lawyers' explanation. I now understand that, properly read, the Orders required all of the Griffith Property's rent to be paid into a 'controlled money' account which was to be opened by FLV's former lawyers, with expenses then to be paid out of that account. I now understand that, properly read, the Orders require all of the Griffith Property's rent to be paid into a 'controlled money' account which was to be opened by FLV's former lawyers, with expenses to be taken out of that account. I had no idea that the Orders said that until the recent allegations of contempt of court were raised and I was shown a copy of the orders as stamped by the Court and they were explained to me. Rather, while I … cannot remember exact conversations or dates … what I was told by FLV's lawyers, or by Larissa [Panazzolo] passing on messages from them, was that the Orders provided for the Griffith Property's rent to be paid into such an account if there was a surplus after the payment of all expenses …"
Order 7(a) required that the rent from the Griffith Property be paid into a controlled money account in the name of Polczynski Robinson. As I have said, no such account was established.
As to that, Mr Violi deposed: "I agree that the Griffith Property's rent was not paid into an account under the control of Polczynski Robinson, but I was not aware of any order requiring rent to be paid in that way. To be clear, I was never contacted by Polczynski Robinson about the failure to pay rent into a 'controlled monies' account, or even told that one had actually been set up (and, to the best of my knowledge, one was never set up), though I did not expect to be contacted about such matters given what I had been told … Now that I know what the Orders actually provide, I have no idea how it could be that Polczynski Robinson (who were to set up and control the account) did not realise the Orders were not being obeyed with respect to the account and contact me about it. All I know is that this did not occur."
None of this evidence was challenged.
Mr Violi referred to emails he received from FLV's former solicitor, Mr Richard Lyne, then a director of Polczynski Robinson.
I now turn to those emails.

The 6 July 2022 email

On 6 July 2022, the day that FLV filed its motion seeking to remove the Receivers, Mr Lyne sent Mr Violi and Mr Peter Jess, FLV's accountant, an email attaching a draft notice of motion and the then current version of Mr Lyne's affidavit in support of that motion.
Mr Lyne stated: "In relation to the application you should note that it is our intention and this is based on counsel's advice that we should include as part of the application provide [sic] an Undertaking to the Court from the company to the effect as follows …"
A proposed undertaking was then set out that included: "1. In the event that an order is made to remove or restrain the receivers, I am instructed by [Mr Violi] that he undertakes to: … iii. manage the shopping centre at 10-12 Yambil Street Griffith 2680 (the Griffith Property) as follows: 1. all rent received in relation to the Griffith Property (Rent Received) shall be paid into a second interest bearing controlled money account (the Second IB Account) in the name of Polczynski Robinson." (Emphasis in original.)
The email continued: "Would you please confirm that we have your instructions to put forward such an undertaking to the Court. … The application is to be issued today. Would you please confirm that the draft application is approved and can be issued."
As I have said, Mr Violi said that he did not see or read this email. That evidence was not challenged. I accept it.

The 7 July 2022 email

The following day, 7 July 2022, Mr Lyne sent a further email to Mr Violi and Mr Jess, which said: "We refer to our recent discussions. We can confirm that in accordance with those discussions we have now issued the application to remove the Receivers and Managers. In this regard we attach for your attention the following documents: a) Copy motion as filed; b) Affidavit of Richard Alexander Lyne as filed (this is an attachment to the motion)."
The email attached Mr Lyne's affidavit affirmed 6 July 2022.
That affidavit included an undertaking in the terms that Mr Lyne had attached to his email to Mr Violi on 6 July 2022.
Thus, this part of Mr Lyne's affidavit read: "Undertaking 80. In the event that an order is made to remove or restrain the receivers, I am instructed by [Mr Violi] that [FLV] will undertake to: … (c) manage the shopping centre at the Griffith Property as follows: i. all rent received in relation to the Griffith Property (Rent Received) to be paid into a second interest bearing controlled money account (the Second IB Account) in the name of Polczynski Robinson." (Emphasis in original.)
Mr Lyne had sought Mr Violi's instructions to "put forward such an undertaking to the Court" by his email to Mr Violi on 6 July 2022.
In the opening sentence of his 7 July 2022 email, Mr Lyne referred to "our recent discussions" and stated that the notice of motion to remove the Receivers had been issued "in accordance with" those discussions.
I infer from this, and think it more likely than not, that Mr Lyne had had some discussion with either Mr Violi or Mr Jess that led Mr Lyne to formulate the terms of the undertaking that, in his affidavit, he stated were the subject of his instructions.
Mr Violi's evidence about this was: "I did not see or read any of these emails at that time - they have only been shown to me recently in dealing with the plaintiffs' contempt application. Rather, while I cannot now remember exact times, conversations, or details, I was aware from conversations either with [Mr Lyne] or with [Ms Panazzolo] (passing on messages) in July 2022 that: (a) There was to be a hearing on 15 July 2022 for the purpose of having receivers removed from FLV's properties; (b) As part of that application, FLV was going to be required to agree to certain conditions; (c) The conditions as offered and ultimately agreed included that there was a regime to apply to the Griffith Property's rent."
Mr Violi said that he understood that the "regime" in relation to the Griffith Property's rent was as he deposed in the passage I have set out at [31] above, namely that only any surplus of rent over expenses was to be paid into the controlled monies account.
None of this evidence was challenged.
I think it more likely than not that the conversations in which Mr Violi participated were directly with Mr Lyne, rather than with Ms Panazzolo, with her passing on anything she may have discussed with Mr Lyne.
However, for the reasons I set out below concerning Mr Lyne's 19 July 2022 email, I am not able to be satisfied beyond a reasonable doubt about this matter, nor that Mr Violi actually gave Mr Lyne instructions to give an undertaking in the terms set out at [39] above.

The 14 July 2022 email

On 14 July 2022, the day before the relevant orders were made, Mr Lyne sent a further email, this time to Mr Violi alone, but still copying in Mr Jess, attaching draft submissions prepared by counsel then appearing for FLV and a "Draft Short Minute of Order and Undertaking that is to be given by [FLV]".
The draft undertaking was in the form as that previously sent to Mr Violi.
The draft submissions from counsel included: "Why the removal of the Receivers is appropriate Until such time that the validity of the [Lender's] Loans and the related mortgages can be resolved at a final hearing, [FLV] is prepared to give the Proposed Undertaking setting out how the Strathfield and Griffith properties are to be dealt with, if the Receivers are removed. If the plaintiffs would prefer, [FLV] is content for the Proposed Undertaking to be incorporated into consent orders to the same effect. … This approach has the benefit of: … (c) allowing [FLV] to manage the Griffith property without any disruption from the Receivers, but with any rent in excess of expenses to be held in a controlled monies account, so that the plaintiffs would have the benefit of those funds, as well as any proceeds from the sale of the Griffith property if the [Lender's] Loan and the related mortgages are held to be valid and enforceable." (Emphasis added.)
Mr Violi did not see or read the email or its attachments.
Counsel's submissions, in the passage I have emphasised, accurately summarised the net effect of order 7, namely that once the rent was paid into the controlled monies account, Mr Violi could cause expenses to be paid from it. They did not purport to be a summary of order 7(a) itself.

The 15 July 2022 email

I have mentioned that the relevant orders, including orders 7 and 8, were made after hours on 15 July 2022 by Slattery J sitting as Duty Judge.
At 5:26 pm on 15 July 2022, Mr Lyne sent an email to Slattery J's Associate: "We attach for the Court's attention short minutes of order as proposed by the third and fourth defendant [11] which are agreed."
Some 40 minutes later, at 6.07 pm, Mr Lyne sent Mr Violi an email: "As discussed we confirm that we appeared before Justice Slattery today. We can confirm that after appearing before his Honour throughout the day and negotiating with the various parties late this afternoon orders were made for the retirement of the receivers which are to take effect immediately. A copy of the orders that will be made by the Court are attached for your information. We will provide a further more complete report early next week, but for now we confirm that the receivers are to retire."
The orders that Mr Lyne described as being those "that will be made by the Court", and a copy of which was attached to the email, were in the same form and included order 7(a) which was in the same terms as the documents attached to Mr Lyne's earlier emails.
Mr Violi did not see or read this email.

The 19 July 2022 email

On 19 July 2022, Mr Lyne sent a further email to Mr Violi and Mr Jess commencing: "We write to update you as to the steps and actions that have been taken and to bring you up to date."
The email attached a copy of the Orders, including order 7(a) as made, and stated: "Those orders require you to take a number of steps and actions within specific time frames. We have set out the relevant steps below - we have identified in red who will be responsible for each step."
In relation to the Griffith Property, Mr Lyne stated that one of the steps that FLV was obliged to take in relation to the Griffith Property was to ensure that FLV: "v. Pays the net rental after all expenses and outgoings for, or related to, the operation of the Griffith Property, including, but not limited to, [certain identified expenses] into a controlled money account that we will set up. (We will provide details of this account shortly.)" (Emphasis added.)
This summary of the orders was not correct.
The effect of the order was that FLV was to pay all rent from the Griffith Property into the account and that relevant expenses could be paid from those monies after their deposit into that account.
What Mr Lyne wrote in this email was Mr Violi's understanding of the effect of the order.
Thus, Mr Violi deposed: "While I did not see the email at the time, I agree that what I was told by FLV's lawyers or by Larissa [Panazzolo] was along the lines of what is contained in the email from the lawyers."

Conclusion as to Mr Violi's knowledge

I am satisfied that Mr Violi did not read any of the emails sent to him by Mr Lyne, and thus did not read the terms of order 7.
I accept Mr Violi's evidence that he relied on what he heard directly from Mr Lyne or indirectly through Ms Panazzolo as to the effect of the orders. I think it more likely that he heard directly from Mr Lyne, rather than indirectly through Ms Panazzolo, but this makes no difference to my overall conclusions.
I think it likely that what Mr Lyne stated orally to Mr Violi as the effect of order 7(a) was what My Lyne wrote in his 19 July 2022 email, and that this explains why Mr Violi had the understanding of the order to which he has deposed.
More to the point, I am not persuaded beyond a reasonable doubt that Mr Violi knew the true effect of the order.
Mr Violi could have checked the precise terms of the order by reading its terms in the documents attached to Mr Lyne's 15 and 19 July 2022 emails and could have seen, by reading the documents attached to Mr Lyne's earlier emails, that those terms had been proposed by his legal advisers.
However, I accept as reasonable the explanation given by Mr Violi as to why he did not do this: namely that he did not think his reading of the orders could be better than the explanation he received from FLV's lawyers. [12] I am not satisfied beyond a reasonable doubt that it was unreasonable of Mr Violi not to doubt his solicitor's explanation of the terms of the order and not to check for himself the precise terms of the order.
Overall, I am not persuaded beyond a reasonable doubt that Mr Violi actually knew, or should reasonably have known, the terms of order 7(a).

Mr Lyne's knowledge

Mr Somerville, who appeared with Mr Meyerowitz-Katz for the Lenders, submitted that whatever may have been Mr Violi's knowledge of the orders, FLV's solicitor, Mr Lyne, must be taken to have known of their true effect and that his knowledge should be attributed to FLV. [13]
I do not accept that submission. Proceedings for contempt, including civil contempt, are criminal in nature and just as there is no room for the imposition of vicarious liability in that context, [14] there is also no room for the attribution to the alleged contemnor of knowledge of an agent. After all, "at the core of the notion of criminal responsibility is the requirement of mens rea" [15] and although, as I have said, it is not necessary to show that an alleged contemnor intentionally or contumaciously intended to breach the order in question, it must be that person's knowledge that must be established.
In any event, bearing in mind Mr Lyne's erroneous summary of the effect of order 7(a) in his 19 July 2022 email, it is by no means clear to me what Mr Lyne's actual state of knowledge was.

Conclusion

Charge 1 is dismissed.
The parties should bring in short minutes to give effect to these reasons and my reasons of 5 August 2024.
I will hear the parties as to costs.
If there is a dispute as to costs, the parties should agree on a timetable for short written submissions. I shall deal with that matter on the papers.

Endnotes

GEMI 169 Pty Ltd v Suria Global (L) Pty Ltd (No 5) [2024] NSWSC 951.
Ibid.
For example, see Huang v Liao [2022] NSWSC 347 at [31] (Black J).
Ibid at [32].
Ibid at [33]-[40].
Novelly v Tamqia Pty Ltd [2024] NSWCA 167 at [25] (Gleeson JA, Meagher JA agreeing), [69] (Kirk JA); cf Eshow v Zaia [2020] NSWCA 10 at [24]-[25] (White JA); cf NHB Enterprises Pty Ltd v Corry (No 7) [2021] NSWSC 741 at [2], [196] (Bell P, as the Chief Justice then was).
For example, see Australasian Meat Industry Employees Union v Mudginberri Station Pty Ltd (1986) 161 CLR 98 at 107 (Gibbs CJ, Mason, Wilson and Deane JJ); [1986] HCA 46.
See [21(c)] above.
The solicitor then acting for FLV.
Who Mr Violi described as being his "assistant who handled the day to day administration of the Griffith Property".
That is, FLV and Mr Violi.
See [31] above.
Relying on established principles in the civil law context: for example Sargent v ASL Developments Ltd (1974) 131 CLR 634 at 649 (Stephen J) and 658 (Mason J); [1974] HCA 40.
For example, see Forestview Nominees Pty Ltd v Perron Investments Pty Ltd (1999) 93 FCR 117; [1999] FCA 405 at [15] (Spender J).
Ibid. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 14 August 2024

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