LED Builders Pty Ltd v Eagle Homes Pty Ltd

REASONS FOR JUDGMENT (Contempt of Court) INTRODUCTION 1 By notice of motion filed on 15 April 1999, the applicant ("LED") seeks a finding of contempt of court by the respondent ("Eagle"), by Paul Cardile and by Eagle Management Australia Pty Ltd ("Eagle Management"). The contempt alleged is a failure to comply with Order 1 of orders made by Whitlam J in this proceeding on 23 December 1996. In substance, the order was to the effect that Eagle was restrained from parting with any of its "real assets" with an ordinary market value in excess of $10,000 without first giving at least seven days' notice to LED of its intention to do so. According to the statement of charge, Eagle transferred two allotments of land without first giving seven days' notice to LED. 2 First, by transfer dated 16 September 1998, registered on 10 February 1999, Eagle transferred Lot 1 DP 852183 at Hinchinbrook ("Lot 1 Hinchinbrook") to Eagle Management. Second, by transfer dated 30 April 1998, registered on 4 December 1998, Eagle transferred Lot 163 DP 843696 at Harrington Park ("Lot 163 Harrington Park") to Galaxy Homes (Aust) Pty Limited ("Galaxy Homes"). Further, according to the statement of charge, by transfer dated 10 March 1999, registered on 18 March 1999, Galaxy Homes transferred Lot 163 Harrington Park to Stephen Frederick Woodward. 3 At all material times Paul Cardile was a director of, and shareholder in, Eagle and Eagle Management, and his son, John Cardile was a director of, and shareholder in, Galaxy Homes. BACKGROUND FACTS 4 On 23 December 1996, Whitlam J made the following order in proceeding NG 817 of 1993: "1. The respondent be restrained from entering into any contract in respect of, or encumbering, any of its real assets with an ordinary market value in excess of $10,000, without first providing 7 days written notice to the applicant, such notice to specify: (a) the nature of the asset; (b) the estimated ordinary market value of the asset; (c) the parties to the proposed dealing; (d) how it is proposed to apply the proceeds of the sale of the asset." 5 Although it is not directly relevant to the issues before me, his Honour made the following further order on the same day: "2. The Respondent provide to the applicant on or before 24 December 1996 copies of the agency agreements between L J Hooker Narellan and the respondent relating to the two blocks of vacant land at 5 and 7 William Campbell Avenue, Harrington Park, in the State of New South Wales (Lots 163 and 164 DP 843696). 6 The issue of service of copies of the orders has been the subject of submissions. As at 24 December 1996, the registered office of Eagle, Eagle Management and Galaxy Homes was 42 Harris Street Pyrmont. On that day Colin Steele, Licensed Commercial Agent, attended at an office at that address and had a conversation with the receptionist there as follows: Mr Steele: "Is this the registered office of Eagle Homes Pty Ltd?" Receptionist: "Yes it is." He handed a copy of the orders to the receptionist. On 30 December 1996 he served a copy of the order upon Mr Cardile at 7 Eildon Court, Wattle Grove. At the time he had a conversation with Mr Cardile to the following effect: Mr Steele: "Are you Paul Cardile?" Mr Cardile: "Yes I am." Mr Steele: "This is a Federal Court order. Are you the Paul Cardile referred to in this order?" Mr Cardile: "Yes." 7 There is no issue as to service upon Eagle or Mr Cardile, but it will be noted that there was no purported service upon Eagle Management or, for that matter, Galaxy Homes. LED submits that Eagle Management was served by reason of two facts: the address at 42 Harris Street Pyrmont was the registered office of Eagle Management as well as that of Eagle, and Mr Cardile was, at the time of service on him, a director of, and shareholder in, Eagle Management. In substance, LED submits that the service upon Eagle and Mr Cardile was effective service upon Eagle Management also. 8 The order bore the following endorsement: "To: Eagle Homes Pty Limited And to: The Directors of Eagle Homes Pty Limited Paul Cardile Lucy Cardile If Eagle Homes Pty Limited: (a) refuses or neglects to do the acts referred to in order 1 within the specified time; or (b) disobeys order 2 Eagle Homes Pty Limited, Paul Cardile and Lucy Cardile will be liable to sequestration of property and Paul Cardile and Lucy Cardile will be liable to imprisonment." 9 The case does not concern Lucy Cardile and I need say no more of her. The terms of the endorsement and the relationship between them and the terms of Whitlam J's order assumed some importance in the case. 10 On 17 April 1997, Eagle's solicitors wrote two letters to LED's solicitors advising that Eagle proposed to sell certain land. The terms of the letters evince an attempt to satisfy the terms of the orders of 23 December 1996. 11 On 25 June 1997, Emmett J made an order in proceeding NG 862 of 1994 as follows: "1. Eagle Homes Pty Limited be restrained, until further order, from disposing of or dealing with any of its money, property or other assets, other than for the following purposes: (a) to protect the copyright of his housing plans (other than plans relating to these proceedings) by the commencement and prosecution of proceedings against infringement of the same; (b) to commence and prosecute any other proceedings which it may be advised to bring; (c) to defend any other proceedings which may be brought against it; (d) to meet its taxation liabilities; (e) to comply with statutory requirements to which it is subject; (f) to satisfy any judgment for the payment of money in these proceedings; (g) to enable it to pay and to continue to pay its reasonable costs of defending these proceedings; and (h) to meet its normal accounting fees and other expenses incurred in relation to the day to day conduct of its business and management of its affairs." 12 On 25 February 1998, Mr John Valeri, the General Manager of Eagle, sent a facsimile to Mr John Castrission of Castrission & Co, Eagle's solicitors, in relation to Lot 1 Hinchinbrook. The facsimile read as follows: "I refer to our telephone conversation of today and advise we intend to sell the above property to Eagle Management Australia Pty Ltd for the price of $286,000.00. Please advise the solicitors for LED of the above as soon as possible as we are going to prepare contract of sale." 13 A note made by Mr Valeri on the same day records that he spoke to Mr Castrission on that day and advised him to "let [the] other side know" that Eagle intended to sell Lot 163 Harrington Park to "Johnny Cardile's company" for $95,000. The reference to "the other side" was clearly a reference to LED or its solicitors. As at 25 February 1998, Lot 1 Hinchinbrook had a house on it but Lot 163 Harrington Park was still vacant land. 14 On 16 March 1998, Mr Valeri faxed Mr Castrission regarding Lot 163 Harrington Park as follows: "On the 25/2/98 I contacted you to advise LED['s] solicitors that we intended to sell vacant land at Lot 163 William Campbell Drive Harrington Park. The block will be sold to Paul & Lucy's son John Cardile's company for $95,000. This sale is now to proceed. Please ensure LED['s] solicitors are notified." In his affidavit, Mr Valeri said that at the time of sending the facsimiles to Mr Castrission he "thought it was appropriate for [Eagle] to seek advice on the matter". However, he agreed in cross-examination that his opinion at the time of sending the facsimiles was that Eagle was required by a previous order of the Court to notify LED of the proposed sales of land, and, further, that his instructions to Mr Castrission contained no request for advice as to whether or not notification was necessary. 15 In his affidavit, Mr Castrission gave evidence that he was asked by Mr Valeri "to advise [Eagle] in connection with the intended sale of properties in Hinchinbrook and Harrington Park", and, in particular, to advise "whether [Eagle] should notify [LED] of the intended sales in the light of Orders made by the Court regarding [Eagle's] assets". In cross-examination, he suggested that the two facsimiles referred to above, when combined with telephone conversations he had with Mr Valeri in around February and March 1998, amounted to a request for such advice. Mr Castrission said that his view was that the orders made by Emmett J on 25 June 1997 had superseded those made by Whitlam J on 23 December 1996, and that notification of the intention to sell was therefore unnecessary. On 26 March 1998, Mr Castrission sent a facsimile to Mr Valeri regarding Lot 163 Harrington Park as follows: "We refer to your letter dated 16 March 1998 and enclose copy of Mr Justice Emmett's Order dated 25 June 1997 so far as affects Eagle Homes Pty Limited. As you can see from the enclosed Court Order, any sale proceeds can only be used for the purposes set out in the Order. Therefore, provided that the purpose of disposal is [sic - proceeds of disposal are] to be used for the purposes set out in the Order, there should be no problem in selling the property." 16 Mr Valeri agreed in cross-examination that nothing in this facsimile told him that notification to LED of the two proposed sales was unnecessary. However, he said that after receiving Mr Castrission's facsimile he in fact believed that notification was not necessary. 17 By transfer bearing the date of 30 April 1998, Eagle transferred Lot 163, Harrington Park to Galaxy Homes for a stated consideration of $100,000. That transfer was registered on 4 December 1998 number 5443291. The transfer bears an imprint of Eagle's common seal which is stated to have been affixed by the authority of the board of directors and in the presence of "P Cardile" whose signature appears as that of a "director". By a subsequent transfer dated 10 March 1999, registered on 18 March 1999, number 5691493, Galaxy Homes transferred Lot 163 Harrington Park to Stephen Frederick Woodward for a stated consideration of $320,000. The common seal of Galaxy Homes is impressed on that transfer and the witness is John Cardile who is stated to be "sole director/secretary" of Galaxy Homes. 18 Eagle transferred Lot 1 Hinchinbrook to Eagle Management by transfer bearing the date of 16 September 1998 registered on 10 February 1999 number 5545406 for a stated consideration of $155,000. The transfer bears the imprint of the common seals of Eagle and Eagle Management. Each common seal is said to have been affixed by the authority of the board of directors and in the presence of Paul Cardile whose signature appears and who is said to be, in each case, sole director.