Kenneth James Baker & Ors v Anthony Christopher Paul & Ors

The Unwind Agreement 10The Unwind Agreement had two groups of provisions: terms for the financial unwinding of the mutual financial affairs of Mr Baker and Mr Paul arising from the business they had already written in the existing partnership; and, terms for the separation of their future business affairs and their future revenue generation. Each of these parts of the agreement are of some importance. 11The parties' financial unwinding was comprehensive. The terms of the Unwind Agreement in that general category were: revenue earned for the period up to 31 December 2009 would continue to be paid to Association Media and deposited into its bank accounts and its liabilities would be paid from those accounts when due; payments would be made from Association Media's bank accounts only upon authorisation jointly by Mr Baker and Mr Paul; after all Associated Media's liabilities were paid in the manner described, any balance would be divided evenly between Mr Baker and Mr Paul; and, Mr Baker and Mr Paul would appoint a new independent accountant and they would work with that accountant to finalise the financial winding up of Associated Media. 12The business separation clauses were equally comprehensive. The Unwind Agreement fixes a business separation date of 31 December 2009 after which date Mr Baker would be entitled to sell some of the magazine advertising space previously managed by Associated Media; and, Mr Paul would be entitled to sell other magazine advertising space previously managed by Associated Media. 13In the Unwind Agreement the parties agreed that the trading name "McGowan & Cox Media Sales" would be transferred to Mr Baker's nominee. They also agreed that Mr Paul could register the name "Association Media" as a trading name. Mr Baker and Mr Paul agreed they could each form a new company and continue to trade in the same industry through their new companies and that they would each sign joint letters addressed to the existing clients of Association Media, informing them of the new arrangements. 14Mr Baker made two general kinds of allegation about the non-performance of the Unwind Agreement. The first was that Mr Paul had transferred monies from Association Media's bank account without his approval and therefore in breach of the terms of the Unwind Agreement that required joint management of Association Media's remaining funds. The other allegation was that Mr Paul had failed to cooperate in various ways to make the Unwind Agreement operate efficiently, by failing: to cause Association Media's income to 31 December 2009 to be paid into Association Media's account; to authorise payment of Association Media's liabilities in a timely fashion; to permit any surplus funds from Association Media to be divided between Mr Paul and Mr Baker; and, to give instructions to the independently appointed accountant to allow the Association Media's accounts and taxation obligations to be finalised. These disputes were not resolved and ultimately resulted in the commencement of these proceedings. 15At various times from August 2010 after the Unwind Agreement commenced in operation, Mr Baker now says that without his knowledge, Mr Paul had caused various monies to be transferred, from the Association Media bank account, to the bank account of a company he controlled, Tony Paul Media Pty Limited ("Paul Media"). Mr Baker's discovery of this led to his commencing these proceedings, joining Mr Paul as first defendant and Paul Media as third defendant. Association Media is the second defendant.

The Structure of the Plaintiffs' Pleaded Case 16Mr Paul's contentions that the contempt motion against him is incompetent must be analysed by close reference to the allegations in the pleadings and the evidence expected to be adduced in support of those allegations. 17The allegations in the Statement of Claim fall into three categories: (1) allegations of breach of contract and breach of equitable duty arising out of the original partnership agreement; (2) allegations of breach of contract and breach of equitable duty and restitutionary remedies arising out of the operation of the Unwind Agreement; and, (3) consequential remedies in equity against the third defendant and other persons associated with Mr Paul and Paul Media, related to the alleged transfer of funds by Association Media to Paul Media in August 2010. I will briefly deal with each of these in turn. 18Breach of the Partnership Agreement. Mr Baker alleges that Mr Paul breached what is effectively an implied term of the partnership agreement that the partnership funds would only be applied for the purposes of partnership business. He contends Mr Paul breached the partnership agreement by making the unauthorised withdrawals described earlier in these reasons prior to the end of 2009. These are said to give rise to a breach of contract remediable at common law and to found a claim for equitable compensation for breach of fiduciary duty and to lead to restitutionary remedies. Those allegations will be determined at any future trial of the principal proceedings. 19Breach of the Unwind Agreement. The next basket of issues in the Statement of Claim relates to the Unwind Agreement. Mr Baker says Mr Paul has breached the Unwind Agreement through two categories of conduct: transferring moneys from the Association Media bank account without Mr Baker's approval and failing to co-operate in the agreed unwinding arrangements. Because of the existing partnership relationship, those breaches are also said to amount to breaches of fiduciary duty. Mr Baker also alleges that, Mr Paul, has after December 2009 failed to account to the partnership for the moneys he has received, has taken personal expenses from partnership funds without the approval of Mr Baker and has failed to account for certain moneys paid by mistake into Associated Media's bank account since December 2009 and then paid into the third defendant's, Paul Media's, bank account. These allegations are denied and will be determined at the trial of the principal proceedings. 20Customers of Associated Media made a number of payments into its bank account after 31 December 2009, as is not uncommon in this kind of unwind situation. Despite the fact that customers were notified of the changed business arrangements after 31 December 2009, some of them continued to pay invoices to Associated Media and not to the account of Mr Baker's new company, the second plaintiff, KJB Media Pty Ltd ("KJB Media"). Mr Baker and KJB Media allege that those advertisers made these payments by mistake into Associated Media's bank account. 21The mistaken payments after December 2009 into Association Media's bank accounts, that should have been paid to KJB Media, are also the subject of an alternative unjust enrichment claim. Those funds allegedly paid by mistake are also said to be held on constructive trust. 22Payments to Paul Media. The final group of claims in the Statement of Claim relate to various payments Mr Paul is said to have arranged and various funds he is alleged to have applied from Association Media's bank accounts and paid into Paul Media's accounts. Amounts of some $37,000 were allegedly paid between mid to late August 2010 in this way. The contention is that Paul Media was at the least a volunteer in respect of those funds. But the principal allegation is that Mr Paul was the sole director and controlling mind of both Association Media and Paul Media at the time of the payments and therefore Paul Media had notice when it received those moneys that it had no entitlement to receive them. The plaintiffs' allege that Paul Media now holds these moneys on constructive trust for Mr Baker. 23The Court first placed restraints upon the defendants' dealing with the partnership funds when these proceedings were commenced in August 2010. These are the restraints to which I will now turn.

Freezing Orders August - September 2010 24These proceedings were commenced in the Equity duty list on 27 August 2010 when Nicholas J made the first set of freezing orders. 25On 1 September 2010 those orders made by Nicholas J were extended by myself sitting as duty judge. The full orders made on 1 September 2010 are set out below. "1 The application for this order is made returnable immediately. 2 The time for service of the application, supporting affidavits and originating process is abridged and service is to be effected by 7:00pm today, 1 September 2010, by: (i) forwarding a copy of these orders by email to: tony@associationmedia.com.au; and (ii) forwarding a copy of these orders by facsimile transmission to Bowles Lawyers, attention Mr Darren Bowles, by facsimile number: (02) 9267 1455; and (iii) personal service on the first defendant by 12 noon, 2 September 2010 unless before that time Messrs Bowles Lawyers confirm they act for the first defendant. 3 Subject to the next paragraph, this order has effect up to and including 5:00pm on Monday, 13 September 2010 ('the return day'). On the return day at 10:00 am there will be a further hearing in respect of this order before the Court. 4 Anyone served with or notified of this order, including you, may apply to the Court at any time to vary or discharge this order or so much of it as affects the person served or notified. 5 In this order: 'applicant', if there is more than one applicant, includes all the applicants; 'you', where there is more than one of you, includes all of you and includes you if you are a corporation; 'third party' means a person other than you and the applicant; 'unencumbered value' means value free of mortgages, charges, liens or other encumbrances; and if you are ordered to do or not to do something you must do it or not do it yourself or through directors, officers, partners, employees, agents or others acting on your behalf or on your instructions or with your encouragement or in any other way. 6 (a) If you are ordered to do something, you must do it by yourself or through directors, officers, partners, employees, agents or others acting on your behalf or on your instructions; (b) If you are ordered not to do something, you must not do it yourself or through directors, officers, partners, employees, agents or others acting on your behalf or on your instructions or with your encouragement or in any other way. FREEZING OF ASSETS 7 (a) You must not remove from Australia or in any way dispose of, deal with or diminish the value of any of your assets in Australia ('Australian assets') up to the unencumbered value of AUD$72,820.80 ('the Relevant Amount'). (b) If the unencumbered value of your Australian assets exceeds the Relevant Amount, you may remove any of those assets from Australia or dispose of or deal with them or diminish their value, so long as the total unencumbered value of your Australian assets still exceeds the Relevant Amount. 8 For the purposes of this order, (1) your assets include: (a) all your assets, whether or not they are in your name and whether they are solely or co-owned; (b) any asset which you have the power, directly or indirectly, to dispose of or deal with as if it were your own (you are to be regarded as having such power if a third party holds or controls the asset in accordance with your direct or indirect instructions); and (c) the following assets in particular: the property known as 9 Meehan Road, Cromer New South Wales or, if it has been sold, the net proceeds of the sale; the assets of your business Tony Paul Media Pty Limited t/as Association Media or, if any or all of the assets have been sold, the net proceeds of the sale ; and any money in any and all bank accounts. (2) the value of your assets is the value of the interest you have individually in your assets. PROVISION OF INFORMATION 9 Subject to paragraph 10, you must: (a) at or before the further hearing on the return day (or within such further time as the Court may allow) to the best of your ability inform the applicant in writing of all your assets in Australia, giving their value, location and details (including any mortgages, charges or other encumbrances to which they are subject) and the extent of your interest in the assets; (b) within 5 working days after being served with this order, swear and serve on the applicant an affidavit setting out the above information. 10 (a) This paragraph (10) applies if you are not a corporation and you wish to object to complying with paragraph 9 on the grounds that some or all of the information required to be disclosed may tend to prove that you: (i) have committed an offence against or arising under an Australian law or a law of a foreign country; or (ii) are liable to a civil penalty. (b) This paragraph (10) also applies if you are a corporation and all of the persons who are able to comply with paragraph 9 on your behalf and with whom you have been able to communicate, wish to object to your complying with paragraph 9 on the grounds that some or all of the information required to be disclosed may tend to prove that they respectively: (i) have committed an offence against or arising under an Australian law or a law of a foreign country; or (ii) are liable to a civil penalty. (c) You must: (i) disclose so much of the information required to be disclosed to which no objection is taken; and (ii) prepare an affidavit containing so much of the information required to be disclosed to which objection is taken, and deliver it to the Court in a sealed envelope; and (iii) file and serve on each other party a separate affidavit setting out the basis of the objection. EXCEPTIONS TO THIS ORDER 11 This order does not prohibit you from: (a) paying your ordinary living expenses; (b) paying your reasonable legal expenses; (c) dealing with or disposing of any of your assets in the ordinary and proper course of your business, including paying business expenses bona fide and properly incurred; and (d) in relation to matters not falling within (a), (b) or (c), dealing with or disposing of any of your assets in discharging obligations bona fide and properly incurred under a contract entered into before this order was made, provided that before doing so you give the applicant, if possible, at least two working days written notice of the particulars of the obligation. 12 You and the applicant may agree in writing that the exceptions in the preceding paragraph are to be varied. In that case the applicant or you must as soon as practicable file with the Court and serve on the other a minute of a proposed consent order recording the variation signed by or on behalf of the applicant and you, and the Court may order that the exceptions are varied accordingly. 13 (a) This order will cease to have effect if you: (i) pay the sum of $72,820.80 into Court; or (ii) pay that sum into a joint bank account in the name of your solicitor and the solicitor for the applicant as agreed in writing between them; or (iii) provide security in that sum by a method agreed in writing with the applicant to be held subject to the order of the Court. (b) Any such payment and any such security will not provide the applicant with any priority over your other creditors in the event of your insolvency. (c) If this order ceases to have effect pursuant (a), you must as soon as practicable file with the Court and serve on the applicant notice of that fact. COSTS 14 The costs of this application are reserved to the judge hearing the application on the return day. ADDITIONAL DIRECTIONS AND ORDERS 15 Liberty to restore and apply on 24 hours notice. 16 Leave to the plaintiffs to have these orders entered forthwith. 17 The notice to produce dated 31 August 2010 served upon the defendants' solicitors to be returnable on Monday, 6 September 2010 at 9:00am. SCHEDULE A UNDERTAKINGS GIVEN TO THE COURT BY THE APPLICANT (1) The applicant undertakes to submit to such order (if any) as the Court may consider to be just for the payment of compensation (to be assessed by the Court or as it may direct) to any person (whether or not a party) affected by the operation of the order. (2) As soon as practicable, the applicant will file and serve upon the respondent copies of: (a) this order; (b) the summons or notice of motion to be relied on at the hearing on the return day; (c) the following material in so far as it was relied on by the applicant at the hearing when the order was made: (i) affidavits (or draft affidavits); (ii) exhibits capable of being copied; (iii) any written submission; and (iv) any other document that was provided to the Court. (d) a transcript, or, if none is available, a note, of any exclusively oral allegation of fact that was made and of any exclusively oral submission that was put, to the Court; (e) the originating process, or, if none was filed, any draft originating process produced to the Court. (3) As soon as practicable, the applicant will cause anyone notified of this order to be given a copy of it. (4) The applicant will pay the reasonable costs of anyone other than the respondent which have been incurred as a result of this order, including the costs of finding out whether that person holds any of the respondent's assets. (5) If this order ceases to have effect the applicant will promptly take all reasonable steps to inform in writing anyone who has been notified of this order, or who he has reasonable grounds for supposing may act upon this order, that it has ceased to have effect.(6) The applicant will not, without leave of the Court, use any information obtained as a result of this order for the purpose of any civil or criminal proceedings, either in or outside Australia, other than this proceeding. (7) The applicant will not, without leave of the Court, seek to enforce this order in any country outside Australia or seek in any country outside Australia an order of a similar nature or an order conferring a charge or other security against the respondent or the respondent's assets. SCHEDULE B AFFIDAVITS RELIED ON 1 September 2010: Name of Deponent Date affidavit made Kenneth James Baker 26 August 2010 Andrew Gordon Cameron 30 August 2010 Andrew Gordon Cameron 1 September 2010 NAME AND ADDRESS OF APPLICANT'S LEGAL REPRESENTATIVES Legal representative Robert McLaughlin McLaughlin & Riordan 5/82 Elizabeth Street SYDNEY NSW 2000 Contact name and telephone Andrew Cameron (02) 9223 2411

Dated: 1 September 2010" 26Only Mr Paul and Association Media were defendants when the first two sets of orders were made. On 16 September 2010 the plaintiffs joined Paul Media as the third defendant and the Court (Rein J) made freezing orders against it. This last set of orders, made on 16 September 2010, is the subject of the contempt charge to which I will now come. These orders continued the orders made on 1 September 2010 against all defendants. 27The contempt motion does not coincide with the case pleaded in the Statement of Claim but is consequent upon it. The contempt motion relates to events that arise after the events pleaded in the Statement of Claim and involves the alleged payment away by the third defendant of particular moneys. These payments are said to have been made at the alleged instigation of the first defendant, and made to Mr Paul and to other persons. The contempt motion alleges these moneys were applied at his direction and presumably in his interests. The orders sought on the motion for contempt together with the statements of charge are set out below. 28Relief on the contempt motion is sought against the first defendant Mr Paul "As director of the third defendant [Paul Media] that he is guilty of contempt". A separate charge is brought against Paul Media:- "1. The First Defendant, Anthony Christopher Paul, as director of the Third Defendant, Tony Paul Media Pty Ltd, be found guilty of contempt of this Court for failing to comply with the order made by Justice Rein on 16 September 2010, which restrained the third defendant by itself, its employees, servants and agents, from withdrawing or otherwise dealing with the monies held standing in St George Bank Ltd Account No: 112-879 Account No: 473710029, so as to reduce the balance of the account below the sum of $37,837.74. 2. The Third Defendant, Tony Paul Media Pty Ltd, be found guilty of contempt of this Court for failing to comply with the order made by Justice Rein on 16 September 2010, which restrained it by itself, its employees, servants and agents from withdrawing or otherwise dealing with the monies held standing in St George Bank Ltd Account No" BSB: 112-879 Account No: 473710029, so as to reduce the balance of the account below the sum of $37,837.74. 3. The First and Third Defendants be punished for disobeying the said order of this Court and that a warrant issue accordingly. 4. The Sheriff be directed to bring the First Defendant before the Court. 5. Pursuant to r 40.7(4) Uniform Civil Procedure Rules 2005 (NSW), the Court orders that the orders of Rein J on 16 September 2010 be enforced against the First and Third Defendants. 6. In the alternative to prayer 5 above, pursuant to Pt 40, r 40.7(5) UCPR, the Court dispenses with service. 7. Such further or orders as the Court considers appropriate. 8. The First and Third Defendants pay the Plaintiff's costs of and incidental to this application. Statement of Charge Against the First Defendant Pursuant to SCR Pt 55 r 7. The First Defendant, Anthony Christopher Paul is guilty of contempt of the Court by causing the Third Defendant to breach the order made by Justice Rein on 16 September 23010, which ordered that the Third Defendant by itself, its employees, servants and agents be restrained from withdrawing or otherwise dealing with the monies held standing in the Third Defendant's St George Bank Ltd Account No: BSB: 112-879 Account No: 473710029 so as to reduce the balance of the said account below the sum of $37,837.74 by causing or permitting the transactions to be made from the said bank account between 22 September 2010 and 4 April 2011 in the amounts and on or about the date specified in the schedule hereto so as to reduce the balance of the said bank account to the sum of $7,505.84 as at 4 April 2011. Statement of Charge Against the Third Defendant Pursuant to SCR Pt 55 r 7 The Third Defendant, Tony Paul Media Pty Limited (ACN: 125 824 799) is guilty of contempt of the Court by breaching the order made by Justice Rein on 16 September 2010, which ordered that the Third Defendant by itself, its employees, servants and agents be restrained from withdrawing or otherwise dealing with the monies held standing in the Third Defendant's St George Bank Ltd Account No: BSB: 122-879 Account No: 473710029 so as to reduce the balance of the said account below the sum of $37,837.74 by itself or by its director, servant or agent, the First Defendant, causing or permitting the transactions to be made from the said bank account between 22 September 2010 and 4 April 2011 in the amounts and on or about the dates specified in the schedule hereto so as to reduce the balance of the said bank account to the sum of $7,505.84 as at 4 April 2011". 29The lengthy schedule of transactions referred to in the statements of charge refers to many transactions that commence on 22 September 2010 and conclude on 4 April 2011. The schedule comprises some 50 or 60 transactions, which are mostly withdrawals, but there are some deposits. Over the six months the balance of the account is reduced from $36,658.75 to $7,505.84. The withdrawals range in size from as little as $7.50 and as much as $8,900.10. Many of the withdrawals are in the range of $600 to $1,000. There are sometimes up to five transactions in the one day, involving both withdrawals and deposits. The plaintiffs say that the terms of the Court's orders on 15 September 2011 were unequivocal and that the objective documentary evidence as to the withdrawals from the account found an inference, that Mr Paul was involved in these withdrawals and that both he and Paul Media so acted in deliberate defiance of the Court's order. The plaintiffs say the withdrawals are sufficiently frequent and sufficiently directed to the end of reducing the contents of the account that the inference of defiance can be drawn: Australasian Meat Industry Employees' Union v Mudginberri Station Pty Ltd (1986) 161 CLR 98 at 108 and Witham v Holloway (1995) 183 CLR 525 at 530 and 534. 30The third defendant has not appeared in response to the plaintiffs' motion for contempt. The plaintiffs seek, after proof of service upon the third defendant, to proceed against the third defendant, Paul Media in its absence. 31The evidence the plaintiffs adduce in support of the motion need not be canvassed in detail for the purposes of disposing of the issue now before the Court. But the plaintiffs say that Mr Paul was put on notice of the Court making the orders on 16 September 2010. On that occasion his solicitor, and Paul Media's solicitor, Mr Darren Bowles, and their counsel Mr E Walker, were present in Court when the orders were made. 32It is not disputed that Mr Paul controls Paul Media. It is alleged that the depletion of the moneys standing in the St George account, which I will simply describe by its last 3 digits, 029, was a contravention of the Court's order 3 made on 16 September 2010. 33This is a slightly unusual contempt case. The first and third defendants, Mr Paul and Paul Media, have put on affidavit evidence in response to the charges brought against them. In that evidence Mr Paul effectively concedes his involvement in the withdrawals but gives explanations as to what, from his perspective, was the basis for and justification of them.

Defences raised by Mr Paul's Evidence 34For the purposes of the present issue it is sufficient to understand that Mr Paul and Paul Media will field these defences. But the question before the Court now is a threshold one, whether this Court is competent to deal with the motion. But some understanding of what might be contested even by way of defence is important. The evidence has been read on both sides on this application, solely for the purposes of the Court understanding what evidence might be led at hearing, without determining the admissibility of the material and reserving the parties' rights to object to that material on hearing. 35The first defence Mr Paul fields to the contempt motion is the one now being considered; that the motion is incompetent because its prosecution is restrained by Bankruptcy Act 1966, s 58. 36The defendants have a number of other arguments by way of defence. The first group of these arguments relates to the wording of the contempt charge. The defendants submit that the charge is not in proper form. It is phrased to allege that Mr Paul caused the corporation, in effect, to be involved in the breach of the Court's orders. It does not specify Mr Paul's own particular conduct which is said to constitute the alleged contempt. The wording of the charge against the first defendant Mr Paul is that he is said to have been: "Causing or permitting the transactions to be made from the said bank account between 22 September 2010 and 4 April 2011." 37The defendants say that this form of charge is able to be criticised in much the same way that the Court of Appeal criticised the form of charges in Sigalla v TZ Limited [2011] NSWCA 334, and see also Attorney-General v Times Newspapers Ltd [1992] 1 AC 191. Those cases emphasise that if a person is not in terms bound by an order, the person's conduct, coupled with knowledge of the Court's orders may, show that the person is flouting the authority of the Court. This is the true ground of any charge of contempt against such a person. 38The next way the defendants answer the charges is to rely upon the exceptions written into the Court's orders. Mr Paul says on affidavit that he understands the way the Court's orders operated was that he was entitled to reduce the amount held in the St George bank account 029 in order to pay reasonable living expenses, legal expenses and bona fide business expenses because that was an exemption provided for in the existing freezing orders made on 1 September 2010 which were being extended, which exemption Mr Paul argues still applied to him from 16 September 2010. 39Mr Paul says he believed he was not prohibited from using St George bank account 029 to pay his ordinary living expenses and, in the ordinary course of business, to pay expenses relating to his family, to his business and to Association Media. For this argument he relies upon cases that suggest that a contempt cannot be committed if, on its plain reading, objectively construed, the relevant undertaking or order is of uncertain or ambiguous meaning: Pang v Bydand Holdings Pty Limited [2011] NSWCA 69 at [52] (per Beazley JA). The question of possible ambiguity in the orders will be determined on the final hearing of the contempt motion, if these proceedings are competent. 40Finally, Mr Paul and Paul Media argue that, despite the fact that their solicitor was in Court when the orders were made, the orders were not brought to his attention. If these proceedings are competent the plaintiffs will argue that there has been a waiver of client privilege in the communications between Mr Paul's (and Paul Media's) solicitor and the clients by reason of Mr Paul adducing evidence to the following effect: "I was not provided with a copy of those orders [of 16 September 2010] by either my solicitors or the solicitors for the plaintiffs." 41Incidental to that argument is a motion from some of Mr Paul's advisors for reimbursement of the costs of complying with a subpoena. But I do not have to determine those various matters today.

The Bankruptcy Act Provisions 42What I must determine today is the question of the competence of the proceedings. The plaintiffs' argument in this respect is based upon the operation of Bankruptcy Act, s 58. 43In short, the defendants say that by reason of the application of s 58(3) these proceedings are, without more and without the need for an application to the Federal Court of Australia, not competent. The defendants contend that the first plaintiff, Mr Baker, as a creditor, is seeking either to enforce a remedy against Mr Paul or against his property in respect of a provable debt within Bankruptcy Act, s 58(3)(a), or is seeking to take a fresh step in proceedings in respect of a provable debt. The defendants point out that he has not obtained the leave of the Federal Court before doing so. 44The plaintiffs say in response that the proceedings are maintainable. To deal with these arguments it is necessary to analyse the structure of the relevant parts of the Bankruptcy Act, the defendants' several contentions, the plaintiffs' responses and the pleaded case in the principal proceedings. 45Section 58 of the Bankruptcy Act, provides as follows: "58. Vesting of property upon bankruptcy-general rule (1) Subject to this Act, where a debtor becomes a bankrupt: (a) the property of the bankrupt, not being after-acquired property, vests forthwith in the Official Trustee or, if, at the time when the debtor becomes a bankrupt, a registered trustee becomes the trustee of the estate of the bankrupt by virtue of section 156A, in that registered trustee; and (b) after-acquired property of the bankrupt vests, as soon as it is acquired by, or devolves on, the bankrupt, in the Official Trustee or, if a registered trustee is the trustee of the estate of the bankrupt, in that registered trustee. Note 1: This subsection has a limited application if there are orders in force under the proceeds of crime law: see section 58A. Note 2: Even if property has vested under this section, it may, under the Proceeds of Crime Act 2002: (a) become subject to a restraining order; and (b) be taken into account in making a pecuniary penalty order; and (c) become subject to a charge to secure the payment of an amount under a pecuniary penalty order, if it is subject to a restraining order; and (d) be dealt with by the Official Trustee, if it is subject to a restraining order and a court has directed the Official Trustee to pay the Commonwealth an amount under a pecuniary penalty order out of property subject to the restraining order. (2) Where a law of the Commonwealth or of a State or Territory of the Commonwealth requires the transmission of property to be registered and enables the trustee of the estate of a bankrupt to be registered as the owner of any such property that is part of the property of the bankrupt, that property, notwithstanding that it vests in equity in the trustee by virtue of this section, does not so vest at law until the requirements of that law have been complied with. (3) Except as provided by this Act, after a debtor has become a bankrupt, it is not competent for a creditor: (a) to enforce any remedy against the person or the property of the bankrupt in respect of a provable debt; or (b) except with the leave of the Court and on such terms as the Court thinks fit, to commence any legal proceeding in respect of a provable debt or take any fresh step in such a proceeding. (4) After a debtor has become a bankrupt, distress for rent shall not be levied or proceeded with against the property of the bankrupt, whether or not the bankrupt is a tenant of the landlord by whom the distress is sought to be levied. (5) Nothing in this section affects the right of a secured creditor to realize or otherwise deal with his or her security." 46A provable debt is defined under Bankruptcy Act, s 5 as meaning "a debt or liability that is, under this Act, provable in bankruptcy". The debts that are provable in bankruptcy are provided for by Bankruptcy Act s82 which, relevantly provides as follows: "82. Debts provable in bankruptcy [see Table B] (1) Subject to this Division, all debts and liabilities, present or future, certain or contingent, to which a bankrupt was subject at the date of the bankruptcy, or to which he or she may become subject before his or her discharge by reason of an obligation incurred before the date of the bankruptcy, are provable in his or her bankruptcy. (1A) Without limiting subsection (1), debts referred to in that subsection include a debt consisting of all or part of a sum that became payable by the bankrupt under a maintenance agreement or maintenance order before the date of the bankruptcy. (2) Demands in the nature of unliquidated damages arising otherwise than by reason of a contract, promise or breach of trust are not provable in bankruptcy. (3) Penalties or fines imposed by a court in respect of an offence against a law, whether a law of the Commonwealth or not, are not provable in bankruptcy. (3AA) An amount payable under an order made under section 1317G of the Corporations Act 2001 is not provable in bankruptcy. (3AB) A debt incurred under Part 4-1 of the Higher Education Support Act 2003 is not provable in bankruptcy. (3A) An amount payable under an order made under a proceeds of crime law is not provable in bankruptcy. (3B) A debt is not provable in a bankruptcy in so far as the debt consists of interest accruing, in respect of a period commencing on or after the date of the bankruptcy, on a debt that is provable in the bankruptcy. (4) The trustee shall make an estimate of the value of a debt or liability provable in the bankruptcy which, by reason of its being subject to a contingency, or for any other reason, does not bear a certain value. (5) A person aggrieved by an estimate so made may appeal to the Court not later than 28 days after the day on which the person is notified of the estimate. (6) If the Court finds that the value of the debt or liability cannot be fairly estimated, the debt or liability shall be deemed not to be provable in the bankruptcy. (7) If the Court finds that the value of the debt or liability can be fairly estimated, the Court shall assess the value in such manner as it thinks proper. (8) In this section, liability includes: (a) compensation for work or labour done; (b) an obligation or possible obligation to pay money or money's worth on the breach of an express or implied covenant, contract, agreement or undertaking, whether or not the breach occurs, is likely to occur or is capable of occurring, before the discharge of the bankrupt; and (c) an express or implied engagement, agreement or undertaking, to pay, or capable of resulting in the payment of, money or money's worth, whether the payment is: (i) in respect of amount-fixed or unliquidated; (ii) in respect of time-present or future, or certain or dependent on a contingency; or (iii) in respect of the manner of valuation-capable of being ascertained by fixed rules or only as matter of opinion." 47It is well-established in authority that claims of breach of fiduciary duty are claims at least analogous to claims in contract and are provable in bankruptcy: See Emma Silver Mining Co v Grant (1880) 17 Ch D 122 per Jessel MR at 130 and Barewa Oil and Mining NL (in liquidation) v ISIM Mineral Development Pty Limited (1981) 38 ALR 288. Claims in damages for tort are not provable in bankruptcy. 48Reference in argument has been made to the provisions of Bankruptcy Act, s 60 which provides:- "60. Stay of legal proceedings (1) The Court may, at any time after the presentation of a petition, upon such terms and conditions as it thinks fit: (a) discharge an order made, whether before or after the commencement of this subsection, against the person or property of the debtor under any law relating to the imprisonment of fraudulent debtors and, in a case where the debtor is imprisoned or otherwise held in custody under such a law, discharge the debtor out of custody; or (b) stay any legal process, whether civil or criminal and whether instituted before or after the commencement of this subsection, against the person or property of the debtor: (i) in respect of the non-payment of a provable debt or of a pecuniary penalty payable in consequence of the non-payment of a provable debt; or (ii) in consequence of his or her refusal or failure to comply with an order of a court, whether made in civil or criminal proceedings, for the payment of a provable debt; and, in a case where the debtor is imprisoned or otherwise held in custody in consequence of the non-payment of a provable debt or of a pecuniary penalty referred to in subparagraph (i) or in consequence of his or her refusal or failure to comply with an order referred to in subparagraph (ii), discharge the debtor out of custody. (2) An action commenced by a person who subsequently becomes a bankrupt is, upon his or her becoming a bankrupt, stayed until the trustee makes election, in writing, to prosecute or discontinue the action. (3) If the trustee does not make such an election within 28 days after notice of the action is served upon him or her by a defendant or other party to the action, he or she shall be deemed to have abandoned the action. (4) Notwithstanding anything contained in this section, a bankrupt may continue, in his or her own name, an action commenced by him or her before he or she became a bankrupt in respect of: (a) any personal injury or wrong done to the bankrupt, his or her spouse or de facto partner or a member of his or her family; or (b) the death of his or her spouse or de facto partner or of a member of his or her family. Note: See also subsection 5(6). (4A) Notwithstanding paragraph (1)(b), this section does not empower the Court to stay any proceedings under a proceeds of crime law. (5) In this section, action means any civil proceeding, whether at law or in equity." 49Before looking to the defendants' argument it is useful to analyse the different ways that s 58(3) and s 60(1) operate. The reference in both these provisions to "the Court" is a reference to the Federal Court of Australia or to the Federal Magistrates Court: Bankruptcy Act, s 5. By virtue of s 27(1) exclusive jurisdiction in bankruptcy is given to the Federal Court and the Federal Magistrates Court: Green v Schneller [2001] NSWSC 897. 50Bankruptcy Act, s 58(3) and Bankruptcy Act, s 60(1) operate in different ways. Section 58(3) operates automatically unless it is established that, in respect of s 58(3)(b), the leave of the Bankruptcy Court has been obtained. Section 60(1) only operates through the order of the Bankruptcy Court and requires an application to the Bankruptcy Court before such an order is made. The defendants' argument here is based only on s 58. This Court has no jurisdiction to deal with an application under s 60. Indeed, it may still be open to the defendants to pursue some relevant s 60 relief in respect of this case independently of the current argument. 51The plaintiffs have not sought the leave of the Bankruptcy Court to allow the taking of any fresh step in these proceedings since Mr Paul was made bankrupt in October last year, if such leave were required under Bankruptcy Act, s 58(3). Thus the question here is whether s 58(3) effects a direct statutory declaration of the incompetence of these proceedings. It is not contended by either side that the words "except as provided by this Act" create any relevant room for manoeuvre to the plaintiffs to bring these proceedings outside s 58(3).

A "Fresh Step" in Proceedings - s 58(3)(b) 52The timing of the motion for contempt and the filing of the Debtor's Petition are important background matters. The motion for contempt was filed on 29 September 2011. Mr Paul, filed his Debtor's Petition on 10 October 2011, approximately 2 weeks later. Through his counsel, Dr Peden, the first defendant, Mr Paul argues that the taking of the contempt motion is either "to commence...legal proceedings in respect of a provable debt" or alternatively is to "take any fresh step in such a proceeding". 53It was not contested that the contempt motion qualifies as "a fresh step in a proceeding". Bankruptcy Act, s 58(3) operates "after a debtor has become bankrupt". As the motion was filed before Mr Paul's bankruptcy, the aspect of s 58(3)(b) that applies here is the "taking of a fresh step" on the motion. The bringing of the proceedings to hearing and the pressing of the motion before me, the defendant contends is a "fresh step". The plaintiffs did not contest that their advancing of the motion was such a "fresh step", which is consistent with authority: Coventry v Charter Pacific Corp Ltd (2005) 227 CLR 234 and ANZ Group Limited v Computer Plus (1992) IVR 607, at 608 and 610.

Enforce any Remedy - s 58(3)(a) 54The next issue is whether this is a proceeding "in respect of a provable debt" within s 58(3)(b), or whether it is "enforc[ing] any remedy" against the personal property of Mr Paul within s 58(3)(a). 55In the course of argument the plaintiffs conceded that they did not press any pecuniary penalty by way of fine against Mr Paul, in the event that the contempt was made out. The plaintiffs made clear that were a contempt finding to be made, the only consequential remedy which the plaintiffs would seek would be (1) a declaration that a contempt had taken place (2) that Mr Paul enter into a bond to be of good behaviour or be imprisoned. Sequestration of Mr Paul's estate or the payment of a fine are not being sought. 56Authority suggests that the abandonment of such pecuniary remedies means that s 58(3)(a) does not apply. In Melnik v Melnik (2005) FCAFC 160 (Spender, Hill and Finn JJ) the Full Court at [18] and [41], [43] and [44], stated that "imprisonment for contempt is not a 'remedy' within s 58(3)(a) of the Bankruptcy Act". As the plaintiffs are not "enforcing a remedy" s 58(3)(a) does not apply. But that still leaves section 58(3)(b), which contains the remaining point of contention.

In Respect of a Provable Debt - s 58(3)(b) 57Mr Paul says that s 58(3)(b) applies to render these proceedings incompetent because these are proceedings "in respect of" a "provable debt". The defendants point out that the plaintiffs' claims against Mr Paul in the Statement of Claim are principally (1) a declaration that he is in breach of the partnership agreement and the agreement concerning the Unwind Agreement and (2) an account for money he has applied and damages. The defendants say that all of these claims relate to or are "in respect of a provable debt". 58The defendants' arguments in respect of the width of the term "in respect of a provable debt" highlight the well-known authorities about the words "in respect of": State Government Insurance Office (Queensland) v Rees (1979) 144 CLR 549 at 561 per Mason J in which the words are described to have "the widest possible meaning of any expression intended to convey some connection or relation between the two subject matters to which the words refer"; Technical Products Pty Ltd v State Government Insurance Office (Queensland) (1989) 167 CLR 45 at 47. The width of these words in the context of s 58(3)(b) has been a basis for courts to conclude that the nexus between the proceedings in question and the relevant "provable debt" may indeed be indirect: see for example, Fraser v Commissioner of Taxation & Anr (1969) 69 FCR 99 at 112 per Beaumont J and Green v Schneller [2001] NSWSC 897 at [12] to [19]. 59As Mr Paul's argument helpfully showed, the Court must focus upon both "provable debt" and "in respect of" to determine the relevant application of the s 58(3)(b) here.

"Provable Debt" 60I will deal with the issue of "provable debt" first. On this issue it is necessary briefly to analyse the various claims against Mr Paul in the Statement of Claim. Paragraph 13 pleads a claim for damages, for restitution and for equitable compensation in respect of the alleged unauthorised withdrawals in contravention of the partnership agreement. This claim is made against the first defendant, Mr Paul, personally. It is undoubtedly a claim for a provable debt, because the liability for the unauthorised withdrawal is a claim for breach of contract, or a claim for compensation for breach of fiduciary duty. Within the authorities already cited, these are debts provable in his October 2010 bankruptcy. 61Similarly, the plaintiffs' further pleading of the Unwind Agreement, against Mr Paul, alleges breaches of contract and further alleged misapplications of funds which could have amounted to breaches of fiduciary duty occurring prior to October 2011. These claims are also provable in Mr Paul's bankruptcy. 62The claim against the first defendant for breach of fiduciary duty is also a provable debt, as is the claim against Mr Paul in respect of the transfer of funds from the second defendant to the third defendant. 63The third defendant Paul Media is claimed to be a constructive trustee, for either Associated Media or Mr Baker in respect of the transfers to the third defendant. The knowledge of the first defendant, Mr Paul, is the means by which the third defendant is claimed to be on notice of the misapplication of funds in breach of fiduciary duty and in turn said to be liable on a constructive trust. 64But the structure of the plaintiffs' pleading is important. Aside from the respective claims against the first defendant, Mr Paul, the Statement of Claim contains the plaintiffs' causes of action against the second and third defendants; both corporate entities. These obligations claimed to be owed by either of those two corporate entities are not provable in Mr Paul's bankruptcy. 65In contrast, the conduct the plaintiffs complain of in the contempt motion is the transfer of funds away from the third defendant, Paul Media, to other destinations. But the first defendant, Mr Paul, is alleged to be an actor in each of those transfers. The Statement of Claim does not cover these transfers away from the third defendant, Paul Media. These transfers are alleged to have been made contrary to the Court's orders of 16 September 2010, in circumstances where the plaintiffs say: (1) that Paul Media is liable to account to Associated Media for those funds, or that those funds are held by Paul Media on constructive trust for Associated Media, pursuant to the Unwind Agreement, or alternatively, (2) that those funds are held in trust directly, for the plaintiffs, and indeed co-ordinately, for the trustee in bankruptcy of Mr Paul. But those claims are also not provable debts in Mr Paul's bankruptcy, as they are claims the plaintiffs have against the second and third defendants, not against Mr Paul. 66The acts constituting the alleged contempt are, on the existing pleadings, the dealings with the monies within Paul Media alleged to be constructively owned by the second defendant, Association Media, or by the first plaintiff. These dealings are not explained by nor do they necessarily involve a "provable debt". But the defendants say that although recovery from the second and third defendants may not involve the pursuit of a provable debt, nevertheless the conduct of the first defendant, Mr Paul, in the transfer of funds away from the third defendant, Paul Media, incidentally may also lead to a cause of action against him. In that it seems to me, the first defendant, is correct. The transfers from Associated Media to the third defendant, Paul Media, and from Paul Media are all initiated by Mr Paul at each stage. He may arguably be said to have breached his fiduciary duties to the plaintiffs in being involved in these transfers. But such a breach is not pleaded against him in the Statement of Claim and no pecuniary relief in respect of such a claim is made in the contempt motion.

"In respect of" 67The question is whether in such circumstances the plaintiffs make a claim against the bankrupt Mr Paul, "in respect of" a provable debt. The plaintiffs' claims against each of the second and the third defendants are not claims in respect of provable debts. A claim against any recipient of the monies the subject of the contempt charge, other than Mr Paul, would also not be a claim in respect of a provable debt. 68But does the additional circumstance that the plaintiffs might be able to pursue the first defendant, Mr Paul, in damages (but does not) in respect of the moneys transferred from Paul Media or otherwise for breach of fiduciary duty make them claims "in respect of" a provable debt? To sharpen this argument, the plaintiffs say that they are prepared to amend their Statement of Claim to remove any form of claim in the principal proceedings against the first defendant, Mr Paul. The plaintiffs concede that Bankruptcy Act, s 58(3) stays all of those actions against him in any event. The Court can indeed proceed upon the basis that Mr Paul is notionally removed from the proceedings as a defendant. His only involvement in the proceedings in such circumstances would be as respondent to the motion for contempt. 69This does sharpen the point. The question now becomes: does Bankruptcy Act, s 58(3)(b) prevent the Court from proceeding on a contempt motion against a person, where the relief sought on the motion is not also relief for the recovery of a provable debt and where any attempt to so recover is now disclaimed, but where the conduct underlying the alleged contempt which is proposed to be established could give rise to an action for damages (a provable debt), against the alleged contemnor, were such action not also disclaimed. 70In my view, for the reasons that follow, such a proceeding is not a claim "in respect of" a provable debt. In my view, Bankruptcy Act, s 58(3) does not apply and does not render these proceedings incompetent. 71The authorities in respect of the words "in respect of" in the context of Bankruptcy Act, s 58(3), such as Re Lattouf (1994) 52 FLR 147 and Re Sutherland-Cropper (1985) 11 FCR 156; Fraser v Commissioner of Taxation & Anor (1969) 69 FCR 99 and Green v Schneller [2001] NSWSC 897 identify the requirement for a sufficient nexus between non-payment of the provable debt and the claim in question. In my view, this claim can be wholly explained as a proceeding for contempt arising out of dealings with property alleged to belong to the second defendant, Association Media or to the plaintiffs. It is not necessary to call for the recovery of a provable debt for the plaintiffs to be successful on the contempt motion. Such a proceeding involves seeking to uphold the authority of the Court in making the restraining orders. And in addition to the motion for contempt, what is left of the principal proceedings is just an action for the preservation of the property of the second defendant, Association Media. This action is brought against persons other that Mr Paul, so that such property can in turn be properly administered in accordance with the Unwind Agreement. Moreover, any claimed nexus between these proceedings and a proceeding in respect of a provable debt is removed by the plaintiffs' statement that they do not seek any sequestration orders or recovery of any money as a result of those proceedings. 72Neither counsel has, in what was a quickly and efficiently argued case, been able to refer the Court to a case where s 58 has been applied in similar circumstances. My own researches in the limited time available have not found one either. But it would be a surprising result if s 58(3) did render this contempt charge incompetent. There is no doubt, as the plaintiffs have pointed out, that Federal legislation can operate to limit the Court's power to hear charges for contempt, or for individuals to bring such action: Wentworth v Rogers [2009] NSWSC 1038 per Rothman J. 73But this case can be approached on the basis that the plaintiffs put that it is conceded that no money claim can be pursued on the pleadings or on the contempt motion against the first defendant, Mr Paul, and that his sole role in the proceedings is as a respondent to the motion for contempt. It would be a surprising result, if the Court were not able merely to restrain a bankrupt from interfering in the transfer of funds between two corporations or from causing such a transfer to occur, provided no monetary relief was sought against the bankrupt. That would not be consistent with the policy of the Bankruptcy Act explained in Storey v Lane (1981) 147 CLR 549 set out in the passage at 556:- "Stated shortly, the effect of the provision is to empower the court to relieve a debtor, against whom a petition has been presented, from process (civil or criminal) instituted against him because of his failure to pay a provable debt. The objects of the paragraph are to ensure that if a sequestration order is (or has been) made against the estate of the debtor his assets will be available for administration in the interest of his creditors generally, to prevent one creditor, who has the right to enforce payment of his debt under some other law, from exercising that right so as to gain an advantage over other creditors, and to protect the debtor from punishment because he has not paid the debt when payment might be a breach of the bankruptcy law. Under the Bankruptcy Act, once a debtor becomes bankrupt his property vests in the official trustee (s 58) and with certain exceptions is divisible amongst his creditors (s 116) and a court of bankruptcy may order that all or part of his income shall be paid to the trustee for the benefit of his creditors (s 131). Even before he has been made a bankrupt, payment of a debt due to a creditor might be voidable as a preference under s 122 of the Bankruptcy Act. A provision such as s 97(5) of the Industrial Act, under which a debtor can be ordered to pay a debt and imprisoned if he failed to do so, would tend to defeat the policy of the Bankruptcy Act; if the debtor complied with the order, the result would be likely to impede the due administration of the estate; if the debtor failed to comply with the order, it would be unjust to commit him to prison if his failure was due to the fact that a bankruptcy petition had been presented against him or he had been made bankrupt." 74Put simply, the bringing of this contempt charge does not give the plaintiffs an advantage over other creditors. Nor does it punish the bankrupt because he has not paid a provable debt, when payment might be a breach of the Bankruptcy Act. 75The cases on Bankruptcy Act, s 60 are of some but limited utility in the present circumstances. Most of the claims in respect of Bankruptcy Act, s 60(b)(i)(b), which permit the Bankruptcy Court to stay criminal process against a person or property of a debtor "in respect of the non-payment of a provable debt", in situations such as Re Lattouf, have the feature that the action thought to be restrained involves a compulsory money payment by the bankrupt pursuant to a criminal or like process. That is not this case. No payment is required here. 76For these reasons this Court has jurisdiction. These proceedings are not rendered incompetent by Bankruptcy Act, s 58 and they will be allowed to proceed. I will hear argument at a suitable time between the parties about the future course of the proceedings, and if necessary I will hear arguments about the costs of the determination of this preliminary question. 77Direct each party to file and serve any submissions on costs, or any other procedural submissions, by 5pm on 17 April 2012. I will assume the parties are content for the Court to deal with those submissions in chambers, unless the parties wish to seek a further mention date.

Amendments 08 May 2013 - correct typographical error Amended paragraphs: 69 08 May 2013 - correct typographical error Amended paragraphs: 58 08 May 2013 - correct typographical error Amended paragraphs: 73 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: 08 May 2013