Menzies v Paccar Financial Pty Ltd

Solicitor for Paul Andrew Burness and Morgan Lane as trustees in bankruptcy of the estates of the appellants: Charles Fice

Solicitor for the Respondent: K Hopkins

AND: PACCAR FINANCIAL PTY LTD (ACN 005 592 049)

1. On the appellants' motion notice of which was filed on 7 July 2010 THE COURT ORDERS THAT: (a) Paul Andrew Burness and Morgan Lane be joined as parties to the appeal for the purposes only of the said motion and the motion the subject of paragraph 2 of this order. (b) The motion be otherwise dismissed.
2. On the motion of Paul Andrew Burness and Morgan Lane as trustees of the bankrupt estates of the appellants notice of which was filed on 8 July 2010 THE COURT DECLARES THAT: (a) The stay of proceedings in the order made by Justice Ryan on 1 July 2010 came into effect on 7 July 2010. (b) The trustees' solicitors two letters to the appellants' solicitor of 2 July 2010 did not cause the trustees to breach the stay order.
3. On the motion the subject of paragraph 2 of this order, the Court notes that the appellants' oral undertakings given to Ryan J on 1 July 2010 referred to in paragraph 33 of the reasons for judgment herein, though not recorded in the written orders made on that date, were in fact given, and were renewed on the hearing of the motions.
4. On or before 29 July 2010 the parties (including the added parties) file written submissions as to the orders that should be made as to the costs of the motions.

Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court's website.

AND: PACCAR FINANCIAL PTY LTD (ACN 005 592 049)

BACKGROUND 1 On 11 June 2010, on the petition of the respondent, the appellants were made bankrupt by order of the Federal Magistrates Court. Paul Andrew Burness and Morgan Lane were appointed trustees of the appellants' bankrupt estates. The appellants were notified of their bankruptcies by 15 June 2010. They have appealed to this Court against the making of the sequestration orders. Section 54(1) of the Bankruptcy Act 1966 (Cth) provides: Where a sequestration order is made, the person against whose estate it is made shall, within 14 days from the day on which he or she is notified of the bankruptcy: (a) make out and file with the Official Receiver for the District in which the sequestration order was made a statement of his or her affairs; and (b) furnish a copy of the statement to the trustee. 2 The 14 day period prescribed by s 54 expired on 29 June. The appellants did not comply with the filing and furnishing requirements by that date. 3 On 1 July 2010, on the appellants' application for a stay of the orders, Ryan J ordered, amongst other things, that: All proceedings under the sequestration order made on 11 June 2010 be stayed until the hearing and determination of the appeal or further order on condition that each of the appellants lodge with the trustee in bankruptcy … a statement of his or her affairs in conformity with s 54 of the Bankruptcy Act 1966 (Cth). 4 On 2 July 2010 the trustees' solicitor wrote to the appellants' solicitor. After referring to Ryan J's stay order, the letter continued: The condition of the stay has not been satisfied because statements of affairs have not been lodged. The condition can never be satisfied because statements of affairs cannot now be lodged within 14 days of notification of the bankruptcy, as mandated by section 54 and accordingly there can never be statements lodged in conformity with section 54. While Justice Ryan has not yet given reasons for making the order, we heard your submissions and assume that he made the orders in part because you assured him of past and future co‑operation by the bankrupts with the trustees. However, you did not tell his Honour, as was the fact, that the bankrupts' co‑operation did not extend to filing their statements of affairs on time and in consequence they had committed a strict liability offence by contravening section 54. Perhaps if his Honour had been told this he may have declined to make the order. At least he would not have made the order he did with a condition that was incapable of being fulfilled. As there is no stay (and can never be a stay under present orders) and as statements of affairs have not been furnished, the trustees have no option but to continue to carry out their statutory duties, including to ascertain the assets and liabilities of the bankrupts (section 19(1)) and to forthwith take possession of all the property of the bankrupts capable of manual delivery (section 129(1)). Please confirm by close of business today that the bankrupts will voluntarily give the trustees full and free access to their farm and books and allow them to make copies of, or take extracts from, any such books and will further permit them to seize and remove property of the bankrupts that is stored on the farm. According to information received from Paccar that property was listed by the bankrupts as being worth approximately $1 million a few years ago. Absent such consent, it may be necessary for the trustees to elicit the support of the Official Receiver to accompany them to the farm (section 77AA(1)) and/or apply to the court for a section 130 warrant authorising them to lawfully enter and search the farm to take possession of property and books of the bankrupts. 5 Later on 2 July the trustees' solicitor wrote again to the appellants' solicitor saying, amongst other things, that shortly after Ryan J had left the bench, he had told the appellants' solicitor that he believed the stay order was defective because it did not state a time by which the statements of affairs had to be provided. It is not necessary to refer further to this letter. It was described by Mr Washington, the appellants' counsel, as "subsidiary", and will not itself constitute a contempt of court. 6 On 6 July the appellants filed a notice of motion (later amended to seek additional relief) for orders that the trustees be joined as parties to the appeal, that they be declared in contempt of court, that they be punished for such contempt, that they be removed as trustees and a replacement trustee be appointed. 7 On 8 July the trustees filed a notice of motion seeking the following relief: (a) An order declaring whether, upon the true construction of Ryan J's order, a stay of all proceedings under the sequestration order came into effect, and if so, when. (b) An order declaring whether, upon the true construction of the order, any stay of the proceedings under the sequestration order can ever become effective. (c) A declaration that the transmission of the letters of 2 July 2010 did not cause the trustees to breach the stay order. (d) An order that the undertakings given by the appellants on 1 July 2010 that they will not deal with their assets during the period of any stay, save to fund the costs of ordinary living or with the consent of the trustees or as ordered by the Court, stand as if they were embodied in the order of 1 July 2010 or be embodied in the orders to be made on the present motion.

CONSTRUCTION OF THE STAY ORDER 8 The appellants submitted that the stay came into effect upon the making of the order, but would be dissolved if the condition was not fulfilled. They said the condition was in the nature of a contractual condition subsequent. 9 The trustees' primary submission, as contained in the 2 July letter, was that the order was ineffective because the 14 day period had expired, and it was no longer possible for statements of affairs to be lodged "in conformity with" s 54. 10 The trustees' fall back position, and that propounded by the respondent, was that the stay did not become effective until the statements of affairs were filed and furnished. 11 I do not accept the trustees' primary submission. Justice Ryan was aware that the appellants had not filed their statements of affairs within time. I am not prepared to treat him as making an ineffective or inutile order, as would be the case if the words "in conformity with" s 54 required the statements to be filed and furnished within 14 days from the date on which the appellants were notified of the bankruptcies. The words "in conformity with" are perhaps unfortunate. However they should not be read as requiring compliance with an impossible condition. Rather Ryan J should be understood as requiring the provision of statements of affairs as a condition of the stay. 12 Nor do I accept the appellants' construction of the order. It is not, in my view, the natural reading of the words. Rather than by reading the order as a whole, it proceeds by claiming that Ryan J first ordered a stay, which came into effect forthwith, and then attached a condition which, having regard to the operative stay, could not be treated as if it were a condition precedent to the stay becoming operative. The appellants' construction also suffers from the difficulty that it does not contain any mechanism for determining when the stay dissolves if no statements are provided. 13 In my view the true construction is that advanced by the respondent which, as I have said, was adopted by the trustees as their fall‑back position. I think it is the most natural reading of the words used. It requires no dissolution date, because the stay will only come into being upon the provision of statements of affairs. On this view his Honour was in effect saying to the appellants: "If you want a stay, you must provide the statements. The sooner you do, the earlier the stay will come into force. The timing is up to you". 14 The context in which the order was made supports the preferred construction. Mr Hall, the appellants' solicitor, informed Ryan J that he had mistakenly thought the appellants had to file and furnish the statements within 28 days rather than 14 days. His Honour then asked what was the appellants' position "now about filing the statements of affairs? Are they prepared to do that …". Mr Hall replied: "In exchange for a stay, your Honour, yes". That was the basis on which the order was made. The "exchange" involved the provision of the statements and the contemporaneous grant of a stay. 15 On what I regard as the proper construction of the order, no stay was in force when the letter of 2 July was dispatched. The writer correctly stated that "the condition of the stay has not been satisfied because statements of affairs have not been lodged". He was, in my view, wrong to assert that "the condition can never be satisfied because statements of affairs cannot now be lodged within 14 days of notification of the bankruptcy". But that is neither here nor there. What matters is that for want of filing of the statements, no stay was in operation when the letter was written. Accordingly there is no basis for the appellants' claim that the trustees "purposively and deliberately breached the orders of the Court" in the manner set out in their "Points of Claim".

POINTS OF CLAIM 16 In case I am wrong in my construction of the order, I now consider the particulars of the claim that the trustees "purposively and deliberately breached the orders". I do this on the basis that the stay was in force on 2 July 2010. The particulars are as follows: (i) writing to the bankrupts informing them that there was no stay; (ii) demanding that by close of business that day, the Bankrupts provide full and free access to the Bankrupts' home, to their property, to their books and records, and to all of their assets, informing the Bankrupts that they intended to commence seizing all of their physical assets, forthwith and immediately; (iii) told the Bankrupts that if they failed to comply with their unlawful demands, the Trustees would engage compulsory court process so as to force the Bankrupts to comply with their, (unlawful) demands; (iv) told the Bankrupts that they were under a Statutory Duty and had no option but to administer the Bankrupts' estates in the said way; (v) falsely told the Bankrupts that the Bankrupts had misled the Court on 1 July 2010, by failing to tell the Court that the 14 day period in which they had to file a Statement of Affairs, had expired, (whereas they had).

STANDARD OF PROOF 17 The parties differed as to the standard of proof applicable to the present case. The appellants contended that the civil standard applied, though the degree of satisfaction may vary according to the gravity of the fact to be proved. It was said that this was the view of Brennan, Deane, Toohey and Gaudron JJ in Witham v Holloway (1995) 183 CLR 525. The trustees submitted that as all proceedings for contempt, whether for civil or criminal contempt, must realistically be seen as criminal in nature, all charges of contempt must be proved beyond reasonable doubt. 18 In the course of the plurality's discussion of the standard of proof, their Honours referred to cases that support the appellants' position: see for example Jendell Australia Pty Ltd v Kesby [1983] 1 NSWLR 127, discussed in Witham v Holloway at 530. However, the plurality in Witham at 534 rejected that approach. The other member of the Court, McHugh J at 535, formulated the standard in the same way as the plurality, namely that in all proceedings for contempt, the charge must be proved beyond reasonable doubt.

WAS THE ORDER COERCIVE OR INJUNCTIVE? 19 The trustees submitted that in order to found a charge of contempt of court the orders said to have been breached must be coercive or injunctive. In Webster v Southwark London Borough Council [1983] QB 698 (Webster) the plaintiff was a candidate at a parliamentary by‑election. As such he was entitled to the use of a room in which to hold an election meeting. The local authority, aware of this entitlement, refused to make a room available. The plaintiff obtained a declaration that he was entitled to the use of a room. Notwithstanding this, the local authority continued to refuse to provide it. The plaintiff took proceedings against the authority for contempt. He was unsuccessful because the order was declaratory and not coercive. Forbes J at 706 said: where a court makes only a declaratory order it is not contempt for the party affected by the order to refuse to abide by it. If he does so refuse no doubt the other party can go back to court and seek an injunction to enforce the order; but mere refusal of one party to an action to abide by a declaratory order is not, as I understand it, contempt of court. 20 His Lordship then referred to decisions supporting the proposition that persons who contumaciously incite others to defy a court order in such a way that they are deliberately treating the order of the court as unworthy of notice are themselves in contempt whether the order of the court is mandatory or merely declaratory. Forbes J then said: [Counsel for the defendant's] answer to that is that in any case in which the defendant is a company or, for that matter, a local authority, the company's defiance of a declaratory order cannot, of itself, be contempt in the company, and it would be a little odd if those through whom alone the company can act, namely, the directors, could be found guilty of contempt in their private persona for doing that which, in their corporate persona, is not contempt. I confess I have found this argument convincing. Despite the broad terms in which the law was stated [in the earlier decisions], I think that this can only apply to cases where the order of the court requires the defendant to do, or refrain from doing, something. 21 These aspects of Webster are treated as authoritative in the textbooks on contempt. See Borrie & Lowe, The Law of Contempt 3rd ed (1996) 557, Miller, Contempt of Court 3rd ed (2000) 14.12 and Arlidge, Eady & Smith on Contempt 3rd ed (2005) 14‑117. 22 The stay order, though not a declaration, was not coercive or injunctive. It did not require the trustees to do or refrain from doing anything. Conduct by the trustees in furtherance of their administration of the appellants' estates may have been rendered ineffective by the stay order, assuming it to be operative, and may have exposed them to civil consequences. However, the appropriate means of enforcement of a stay, as with the declaration in Webster, is to seek an injunction to enforce the order. Breach of the injunction will found contempt. Accordingly, I do not consider that the trustees conduct complained of can be the subject of contempt.

PARTICULARS OF CONTEMPT 23 In case I am wrong thus far, I now consider whether the particulars of contempt are made out beyond reasonable doubt. All the charges are predicated upon the claim that the trustees "purposively and deliberately breached the orders of the Court". There is no evidence of this. The uncontradicted evidence of Mr Burness is that the trustees did not deliberately breach the order. Mr Burness, the trustee with the day to day carriage of the administration, deposed that his understanding of the order was that contained in his solicitor's letter of 2 July 2010. He said he has acted in accordance with his understanding of how the order operates. He denied that he has ever defied or breached the order. He never intended to do so. I accept that evidence. The trustees took legal advice as to the effect of the order. They did not communicate their own, non‑expert, view of it. Their solicitors advised them as to the effect of the order, and wrote to their counterparts accordingly. The correctness of the advice is not the matter in issue.

Charge (i) 24 I do not accept that a letter from the trustees' solicitors containing the solicitors' opinion as to the construction of the order, which the trustees thought was the proper construction, amounts to a breach of the order. I am at present assuming that the stay was in operation at the relevant time. However, I am unable to accept that the view that it was not, which is my view, is not a view that the solicitors could reasonably hold. As I have said earlier, I do not agree with the solicitor's added observation that the condition in the order "can never be satisfied".

Charges (ii) and (iii) 25 These charges are not made out. The 2 July letter did not demand full access to the appellants' home, property etc. It did not say the trustees intended to commence seizing all their assets, forthwith and immediately. What was said appears at [4]. The trustees asked for confirmation by the close of business that the appellants would voluntarily give the trustees free access and permit them to seize and remove property. Charge (ii) is a seriously overblown rendering of the contents of the letter, and is simply not made out. Nor is charge (iii). The letter did not tell the appellants that the trustees would engage compulsory court process to force them to comply with the trustees' demands. As appears from [4], the letter said "it may be necessary" for the trustees to rely on specified provisions of the Bankruptcy Act, including applying for a warrant "authorising them to lawfully enter and search the farm to take possession of property and books of the bankrupts".

Charge (iv) 26 This falls with charges (ii) and (iii). The words of charge (iv) "in the said way" are a reference back to charges (ii) and (iii).

Charge (v) 27 I need not pursue whether the evidence establishes the charge that the trustees breached the order by falsely telling the appellants that they had misled the Court on 1 July, by failing to tell Ryan J that the 14 day period prescribed by s 54 had expired, whereas they had so informed his Honour. That is because, even if the appellants had established that the two assertions in the 2 July letter were inaccurate, that would not constitute a contempt of the stay order. All it would show is that the trustees' account of what transpired before Ryan J was erroneous. 28 For the foregoing reasons, the appellants have not established beyond reasonable doubt that the trustees "purposively and deliberately breached the orders of the Court" in any of the respects particularised in claims (i) to (v). The appellants' motion, insofar as it seeks orders that the trustees are in contempt of court and consequential orders for their punishment, removal and replacement, must be dismissed. On that motion I will order that the trustees be joined as parties to the appeal proceedings for the purposes only of the two motions.

APPELLANTS' ORAL UNDERTAKING 29 On 1 July the appellants gave undertakings to Ryan J that they would not deal with their assets save for normal living expenses or with the consent of the trustees or order of the Court. Those undertakings were not recorded or noted in the order of 1 July. Mr Washington renewed the oral undertakings given on 1 July. I will note that in any orders consequent upon the disposal of the motions before me.

POST‑HEARING SUBMISSIONS 30 After I had completed the above reasons the appellants and the trustees both filed unsolicited further submissions. In their submissions the appellants drew my attention to Australian Securities and Investments Commission v Albarran (2008) 169 FCR 448 in support of the proposition that it is not a defence to a contempt charge that the person charged acted on the advice of solicitors. In their submission the trustees relied on two authorities for the proposition that an ambiguity in an order renders the order incapable of founding a contempt charge: Australian Consolidated Press Ltd v Morgan (1965) 112 CLR 483 and Universal Music Australia Pty Ltd v Sharman Networks Ltd (2006) 150 FCR 110. 31 On many occasions the High Court has said that the hearing is the time and place to present arguments, and has explained why unauthorised post‑hearing submissions will generally not be received. See for example Carr v Finance Corporation of Australia Ltd (No 1) (1981) 147 CLR 246 at 258, Eastman v Director of Public Prosecutions (ACT) (2003) 214 CLR 318 at [27]-[31] and Re Chief Commissioner of Police (Vic) (2005) 214 ALR 422 at [22]. However the trustees' supplementary submission is directly applicable to the facts of the case, and should not go unnoticed. In view of that, I will in fairness entertain the appellants' submission as well. 32 Albarran is distinguishable. The question there was whether reliance on legal advice constituted a "reasonable excuse" under s 219 of the Australian Securities and Investments Commission Act 2001 (Cth). Subsection (1) required a person appearing as a witness at a hearing before the Companies Auditors and Liquidators Disciplinary Board to answer questions as required by the Board. Subsection (2) provided that subs (1) did not apply to the extent that the person had a reasonable excuse. Justice Jacobson held that reliance on legal advice did not constitute a reasonable excuse, on the ground that the Board's statutory functions would be rendered otiose if reliance on legal advice were to constitute reasonable excuse. That is not the issue raised by the present case. In any event, the trustees did not contend that their solicitors' advice absolved them from responsibility. They relied on the advice only to support their case that they did not intend to breach the order. In other words, that they did "not purposively and deliberately" contravene the order. 33 I turn to the trustees' further submission. In Morgan at 515 Owen J, with whom Windeyer J agreed, referring to Redwing Ltd v Redwing Forest Products Ltd (1947) 177 LT 387, said: The defendant in a passing off action had given certain undertakings which were embodied in an order of the Court. The plaintiff alleged that the undertakings had been broken and sought to have the defendant's directors attached for contempt of court and the defendant's property sequestrated. Jenkins J. refusing the application, said: "I cannot say I think that the undertakings contained in the order were clearly drawn and I cannot say I regard the questions of construction involved in them as entirely easy questions, but in my judgment, a defendant cannot be committed for contempt on the ground that upon one of two possible constructions of an undertaking being given he has broken his undertaking. For the purpose of relief of this character I think the undertaking must be clear and the breach must be clear beyond all question". With these statements of general principle I agree. In my opinion the ambiguity of and lack of precision in the appellant's undertaking … are such that a finding of contempt should not be made. 34 In Universal Music at [36] the Full Court (Branson, Lindgren and Finkelstein JJ) described the ratio decidendi of an earlier Full Court decision in Microsoft Corp v Marks (No 1) (1996) 69 FCR 117 as: an appeal from a dismissal of a charge of contempt will fail for want of proof if the order alleged to have been disobeyed is, on its proper construction, of uncertain application in the circumstances giving rise to the alleged disobedience. 35 Miller puts the matter well in Contempt of Court 3rd ed (2000) at 14.36: The necessity of determining whether there has been a factual breach of an order or undertaking on the part of the body or person brought before the court demands that the terms of the order itself be expressed in clear and unambiguous language. In so far as possible that person should know with complete precision what it is they are required to do or to abstain from doing. The requirement of clarity has been admirably stated in a leading American case [Collins v Wayne Iron Works 227 Pa 326, 76 A 24 at 25], where it was said of an injunction that: it should be as definite, clear and precise in its terms as possible, so that there may be no reason or excuse for misunderstanding or disobeying it; and, when practicable, it should plainly indicate to the defendant all of the acts which he is restrained from doing, without calling on him for inferences or conclusions about which persons may well differ. 36 It will be apparent from what I have said at [8] to [15], that quite apart from any other difficulties in the appellants' path, the uncertainty attending the true construction of the order in question here is such that the contempt charge must fail. 37 In addition to the further submissions, my associate received a four page letter from the first appellant dated 19 July 2010. The letter was to be given to me and any other parties "if it is appropriate". The letter does not appear to have been endorsed by the appellants' solicitors. It begins: 'We note our solicitor and [the trustees' counsel] are making various representations we would also like to do so as well'. I have read this letter but have not taken it into account.

conclusion 38 On the appellants' motion I will order that the trustees be joined as parties to the appeal for the purposes only of the motions. Otherwise the motion is dismissed. On the trustees' motion I will declare that the stay of proceedings under the sequestration orders came into effect on 7 July 2010, and that the trustees' solicitors two letters to the appellants' solicitors of 2 July did not cause the trustees to breach the stay order. I will also on that motion note in my orders that the appellants' oral undertakings given to Ryan J on 1 July, though not recorded in the written orders, were in fact given and were renewed before me. I certify that the preceding thirty-eight (38) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Sundberg.