Plaintiffs v Defendant

Supreme Court of Victoria|2009-08-21|Before: Kyrou J

Application to discharge injunction granted on 14 July 2009 - Injunction prevents defendant from leaving Victoria - Application by solicitor to be released from undertaking given on 14 July 2009 - Undertaking requires solicitor to hold defendant's passports until Court orders otherwise - Defendant's failure to comply with discovery obligations.

1 On 30 July 2009, Byrne J found that the defendant was in contumelious breach of paragraph 11 of my order of 23 June 2009 ('Order 11'), which required the defendant to provide copies of certain tax returns to the plaintiffs. His Honour ordered that the injunction in paragraph 6 of his order of 14 July 2009, as varied by his order of 15 July 2009, continue until further order. The order of 30 July 2009 stated that it was intended that the injunction remain in force until the defendant had complied with Order 11.

2 The injunction, as now in force, prevents the defendant from leaving Victoria, attending any point of international departure or applying for any new passport until further order ('Injunction'). The defendant's current Australian and Czech passports are held by his solicitor, Michael Witt, subject to an undertaking not to return them to the defendant unless the Court so orders or the plaintiffs so consent ('Undertaking').

3 The defendant has now applied for a discharge of the Injunction and Mr Witt has applied to be released from the Undertaking.

4 For the reasons that follow, I have concluded that the defendant has not complied with Order 11 and that the applications should be refused, with liberty to renew them.

5 In the event that the defendant's remaining defences are unsuccessful, the key issue for determination by this Court at the hearing scheduled to commence on 5 October 2009 is the amount of equitable compensation to which the plaintiffs are entitled. It is central to the plaintiffs' case that the equitable compensation should be assessed by reference to the value of certain properties located in the Czech Republic, Slovakia and Germany ('Properties') and the income that the defendant has earned from the Properties.

6 The defendant has been aware since Osborn J's preliminary judgment on liability dated 24 April 2008[1] that amongst the documents he was required to discover, were tax returns showing income and expenditure in relation to the Properties. On 22 August 2008, Osborn J ordered the defendant to give discovery, within 76 days, 'of all documents relating to income derived from the ... properties by the defendant since the acquisition by him of an interest in each such property'. The defendant did not comply with this order and the matter was mentioned before Osborn J on 7 November 2008. In his ruling of that date, Osborn J said: 'it seems to me that there are certain core documents which one would expect the defendant to have ... In particular, I would expect him to have some taxation records relating to the properties which are in issue'.

7 I assumed the management of interlocutory steps in the proceeding on 11 March 2009. As at that date, the defendant had not complied with Osborn J's order of 22 August 2008. I heard submissions on discovery on that date and on 25 March 2009 I ordered the defendant to file and serve, by 14 May 2009, a consolidated affidavit of documents relating to the income derived from and the expenditure incurred on the Properties since the acquisition by him of any interest in each such property.[2]

8 The defendant did not comply with my order of 25 March 2009. He applied for an extension to 14 July 2009 on the basis of an affidavit sworn on 12 May 2009 which set out the steps he had taken to comply with my order of 25 March 2009. He said that all of the documents are in the Czech Republic. In my ruling of 20 May 2009, I said that the defendant's efforts to comply with his discovery obligations were inadequate and unacceptable. Nevertheless, on that day, I extended the time for the filing and serving of a consolidated affidavit of documents to 19 June 2009, provided that the defendant filed and served a preliminary affidavit of documents by 5 June 2009 in respect of 'all relevant leases and tax returns'.

9 On 5 June 2009, the defendant swore a preliminary affidavit of documents ('Preliminary Affidavit') listing a number of leases and tax returns. Insofar as it discovered tax returns, the affidavit listed the following in part 1 of schedule 1:

Tax return for 2002
Tax return for 2003
Tax return for 2004
Tax return for 2005
Tax return for 2006
Tax return for 2007

The affidavit stated that the defendant did not have in his possession, custody or power: 'Tax returns for years prior to 2002'.

10 The defendant swore a consolidated affidavit of documents on 19 June 2009 ('Consolidated Affidavit'). This affidavit listed the following under column headings 'Doc. No.', 'Title of document' and 'Date':

1581. Tax return entitled "Crisis". 24/01/2007

2037. Tax return for land holdings. 2006

2038. partial tax return towards tax from real estate for year 1996. 31-Jan-96

2039. Tax return for 1996. 1996/1997

2040. Tax return for building. 2003

2049. Tax document from 1997 - Agreed. 29/04/1997

2057. Tax return for tax from real estate for year 1994. 28/03/1994

2067. Tax return - tax from real estate for year 1996. 1996

2072. Tax return relating to tax from buildings. 2003

2081. Tax return for tax from buildings. 2004

2096. Tax return for 1993. 1993

2102. Tax return document. without date

2112. Tax return for year 1992. 15/06/1993

2134. Tax return. 27/01/1995

3046. Tax return for calculation of income of physical persons. 2003

3047. Tax return for calculation of income of physical persons. 2004

3048. Tax return for calculation of income of physical persons. 2005

3049. Tax return - supplement. 2006

3050. Tax return - supplement. 2007

3052. Letter from Tax Collector concerning income tax. 2/15/1998

3053. Tax return - supplement. 2005

3580. Tax return related to tax from real estate. 1994

3581. Tax return: disclosure of land income. 24/03/1994

3582. Tax return: Disclosure of tax from real estate. 24/03/1994[3]

11 It is noteworthy that whereas the Preliminary Affidavit stated that the defendant did not have any tax returns for the years preceding 2002, the Consolidated Affidavit listed a number of such documents.

12 In both the Preliminary Affidavit and the Consolidated Affidavit, the defendant objected to production of all the discovered documents on various grounds. I heard preliminary submissions on the objections on 11 June 2009. The further consideration of the objections was adjourned to the directions hearing on 23 June 2009.

13 For the purposes of the directions hearing on 23 June 2009, Mr Witt swore an affidavit on 22 June 2009. In that affidavit, Mr Witt said:

I am informed by the Defendant and believe that his tax return typically runs to over 100 pages as, unlike Australia, it is a requirement of Czech tax law that details of each relevant transaction be provided ... I am also advised by the Defendant and believe that the detailed information ... is the same for all tax returns submitted by him.

14 In the course of argument on 23 June 2009, senior counsel for the defendant, Mr Berglund QC, said: 'I think the tax returns are extensive, I think a hundred pages is one tax return'.

15 For the purposes of the directions hearing on 23 June 2009, counsel for the plaintiffs, Mr Howells, filed written submissions which included the following:

[T]he Plaintiffs submit that the Defendant should be ordered to make available immediately all of the documents for inspection, or at the very least, the tax returns. In particular the Plaintiffs seek documents numbered 1581, 2037, 2038, 2039, 2040, 2049, 2057, 2067, 2072, 2081, 2096, 2102, 2112, 2134, 3046, 3047, 3048, 3049, 3050, 3052, 3053, 3580, 3581 and 3582 in [the Consolidated Affidavit].

16 Mr Howells also provided to the Court minutes of proposed orders which included the following:

The ... Defendant shall produce copies ... of the documents numbered 1581, 2037, 2038, 2039, 2040, 2049, 2057, 2067, 2072, 2081, 2096, 2102, 2112, 2134, 3046, 3047, 3048, 3049, 3050, 3052, 3053, 3580, 3581 and 3582 in [the Consolidated Affidavit] by 26 June 2009.

17 During the directions hearing on 23 June 2009, I made the following ruling:

In relation to the tax returns specifically, I have considered the affidavit material in support of the ground[s] of objection and I am not satisfied that a proper basis for objection has been made in relation to those documents. I therefore order the defendant to produce copies of all the tax returns that he has discovered and which are enumerated in Paragraph 11 of Mr Howells' minutes of proposed order.

18 This ruling was reflected in Order 11, which was in these terms:

By 7 July 2009, the Defendant provide to the Plaintiffs copies of documents numbered 1581, 2037, 2038, 2039, 2040, 2049, 2057, 2067, 2072, 2081, 2096, 2102, 2112, 2134, 3046, 3047, 3048, 3049, 3050, 3052, 3053, 3580, 3581 and 3582 in [the Consolidated Affidavit]. The Defendant may in the first instance block out the name of any tenant appearing in any such document.

19 On 13 July 2009 the plaintiffs filed a summons seeking an order that the defendant be dealt with for contempt on the grounds that he had breached various orders. As the plaintiffs apprehended that the defendant intended to leave the jurisdiction, they obtained an arrest warrant from Bongiorno J on 13 July 2009. The defendant was brought before Bongiorno J on the evening of 13 July 2009 and was remanded in custody to appear before Byrne J in the Practice Court on the morning of 14 July 2009.

20 When the defendant was brought before Byrne J the next morning, his Honour dismissed the summons. However, the plaintiffs filed an identical summons on the same day ('Contempt Summons') and the defendant was brought before Byrne J again in the afternoon. His Honour granted the Injunction. As varied on 15 July 2009, the Injunction was initially expressed to remain in force until the hearing and determination of the Contempt Summons or further order. The Contempt Summons was subsequently amended so that the sole alleged contempt was breach of Order 11. As discussed below, the Contempt Summons was heard by Byrne J on 30 July 2009.

21 Mr Witt swore an affidavit on 23 July 2009. In relation to the production of the tax documents, Mr Witt explained which of the documents listed in Order 11 had been provided to the plaintiffs. He referred to document 3050 (which the Consolidated Affidavit described as 'Tax return - supplement. 2007') as 'the Defendant's 2007 Czech Tax Return'. He then stated:

... I believe that the Defendant has now produced all documents referred to in [Order 11] other than document numbers 3046, 3047, 3048, 3049 and part of document 3050 ("the missing returns").
... I believe the following to be the case:

(a) With the exception of the documents already produced to the Plaintiffs, the Defendant does not have in his possession any of the unproduced returns;

(b) That the pages produced of document 3050 represent only the "base" tax return for 2007. In addition to those pages, there are a large number of pages which make up a "supplement" to that return which contain more detailed information in relation to that particular year. The defendant's understanding is that his tax return for each year, at least for the last several years, comprises both the "base" tax return and the "supplement", and that both of those documents are filed annually with the Czech taxation authorities on his behalf (although not necessarily at the same time as each other) by the Defendant's tax agent, Mrs. Obrhelova;

(c) The Defendant does not have in his possession the pages that comprise the "supplement" to his 2007 tax return but he believes that they are with his tax agent, Mrs. Obrhelova;

(d) None of the unproduced returns are in the Defendant's house in Prague, nor are any of them held by his attorney, Ms. Buresova. Rather, all of the missing returns are held by Mrs. Obrhelova and the Defendant does not believe that he has ever been provided with copies of the unproduced returns; ...

22 Mr Witt's affidavit went on to say that Mrs Obrhelova is a sole practitioner who works from her home in Prague, that she was on holidays in South America and that the defendant had been attempting to contact her since 23 June 2009 without success.

23 At the hearing of the Contempt Summons on 30 July 2009, Byrne J found that the defendant was in contumelious breach of Order 11. His Honour declined to commit the defendant for contempt. Instead, his order of 30 July 2009 extended the Injunction until further order and granted the defendant liberty to apply before me. The order of 30 July 2009 stated that it was intended that the Injunction remain in force until the defendant had complied with Order 11. Both the Injunction and the Undertaking are extant.

24 At the directions hearing on 10 August 2009, the defendant applied to discharge the injunction and Mr Witt applied to be released from his undertaking.

25 In support of the above applications, Mr Witt swore an affidavit on 6 August 2009. In that affidavit, Mr Witt stated that since 23 July 2009, he had provided copies of further tax returns to the plaintiffs, namely documents 3046, 3047, 3048, 3049 and 3053. He said that the defendant was able to obtain these further tax returns from the Czech tax office through his Czech attorney, Dr Burešová, who relied on a further power of attorney given to her by the defendant. Mr Witt went on to say:

For all years other than the 2002 year the Defendant ... has not been able to obtain the more detailed "supplements" which comprise the working papers and ledgers that the figures in his tax returns are based on. I am further informed by the Defendant and believe that these "supplements" are not held by him either in Australia, the Czech Republic or anywhere else but that they are only held by his tax agent Mrs Obrhelova who is currently on holidays in South America.

26 Mr Witt's affidavit then set out the steps taken by the defendant to obtain the supplements, including extensive efforts to contact Mrs Obrhelova. According to the affidavit, the defendant has not yet succeeded in contacting Mrs Obrhelova, who continues to be on holidays in South America. Mr Witt exhibited copies of all of the tax return documents that had been progressively provided to the plaintiffs. All of them were in the Czech language.

27 Before me, Mr Williams, who appeared for the defendant, submitted that the defendant had provided copies of the specific documents listed in Order 11, that he had therefore complied with Order 11 and that the Injunction should be discharged. In the alternative, Mr Williams submitted that the defendant had substantially complied with Order 11 and that the interests of justice, including the defendant's fundamental human right to return to his home in the Czech Republic, demanded the Injunction be discharged. Mr Williams emphasised that the defendant is not facing any criminal charges and that it is inappropriate for a party to a civil proceeding involving a monetary amount to be prevented from travelling overseas. He submitted that I am not bound by the statement of intention set out in Byrne J's order of 30 July 2009 and that I have a general discretion in dealing with the applications.

28 Mr Howells, who appeared for the plaintiffs, submitted that the defendant has not demonstrated compliance with Order 11. He provided me with a schedule which listed the documents referred to in Order 11 and pointed out that some of them were incomplete because they only comprised a few pages whereas the defendant had previously stated that each of his tax returns typically exceeds 100 pages. Mr Howells also pointed to copies of some of the documents which he submitted were of poor quality. He also submitted that, given the defendant's recent conduct, if his passports were returned to him, he would leave the jurisdiction and not comply with any orders of the Court, including any final judgment.

29 In my opinion, the defendant has not fully complied with Order 11. There are two aspects to the non-compliance.

30 The specific aspect is that the defendant has not provided legible and complete copies of some of the documents. The copies of documents 1581, 2037, 2038, 2057, 2134, 3052, 3580, 3581 and 3582 are illegible in part. The copies of documents 2067, 2072 and 2081 contained information that was cut off. Many others are hard to read. Further, document 2040 does not look like a tax return and document 2102 is a blank form. It appears that the copies of all of the abovementioned documents that were provided to the plaintiffs were made from copies held by the defendant in the Czech Republic. It was not clear whether better copies could be made. What was clear, however, was that the copies of the further documents that were obtained from the Czech tax office were all legible and did not contain any information that was cut off.

31 Notwithstanding the evidence that was presented on behalf of the defendant that his tax returns typically exceed 100 pages, only one document was of this length. That was the 2002 tax return, which was listed in the Preliminary Affidavit but not the Consolidated Affidavit. All other documents comprised less than 13 pages, with many of them not exceeding a single page. Furthermore, one of the defendant's original grounds of objection to producing his tax returns was that they would disclose the names of tenants and how much rent they paid. In light of this, Order 11 permitted the defendant to block out the names of tenants. Yet, none of the documents, other than the 2002 tax return, contain any blocked out information.

32 I am not sure of the reasons for the discrepancy between the defendant's evidence about the length and contents of the tax returns and their actual length and contents. The answer may lie, at least in part, in what documents constitute an annual tax return. I now turn to discuss this in the context of the more general aspect of the defendant's non-compliance with Order 11.

33 The more general aspect is that the defendant has not provided copies of the supplements for any of the years other than 2002. My perusal of copies of all the tax returns which the defendant has provided to the plaintiffs indicates that the information in the supplements is highly relevant and of great significance to the issues in the proceeding. Yet, they have not been produced, other than for 2002. Even for that year, many pages are illegible. At the time that I made Order 11, the parties' lawyers and I were proceeding on the basis that the defendant's tax returns for each year comprised over 100 pages and included the supplements.

34 In the Preliminary Affidavit, the defendant discovered the tax returns by the generic description 'Taxation return' for each of the years 2002 to 2007. He did not distinguish between the 'base' tax return and the supplement. By contrast, in the Consolidated Affidavit, the defendant used a variety of descriptions for the tax returns and dispersed the documents throughout the list, rather than describing them consistently and listing them consecutively.

35 It has been clear since at least 7 November 2008 that the plaintiffs are keen to obtain copies of the defendant's tax returns and that the Court considers that these documents should be discovered as a matter of priority. Prior to the directions hearing on 23 June 2009, the plaintiffs and their lawyers obviously combed through the Consolidated Affidavit with a view to identifying any document whose description indicated that it may be a tax return. It is clear that the plaintiffs - and the defendant and his lawyers - regarded the supplements as part of the tax returns. What the plaintiffs sought on 23 June 2009, and what Order 11 intended to compel, was the provision by the defendant to the plaintiffs of copies of the defendant's tax returns since 1992 (when the defendant first acquired an interest in some of the Properties). Although Order 11 listed specific documents, this was done to make it abundantly clear that the defendant had to provide copies of those documents. It was never intended, however, that the defendant be obliged to provide only those documents. It was apparent to the defendant's lawyers who were in court that I had determined that the defendant was obliged to provide copies of his tax returns to the plaintiffs by 7 July 2009.

36 As the plaintiffs and the Court were led to believe by the defendant and his lawyers that references to tax returns included both the base returns and the supplements and that the only tax return documents which the defendant discovered were those listed in paragraph 11 of Mr Howells' minutes of proposed order, it is clear that it was intended that Order 11 encompass all of the defendant's tax returns since 1992, including the supplements. Insofar as the specific documents listed in Order 11 do not comprise all the defendant's tax returns that are discoverable, this is because of the misunderstanding referred to above or because the defendant has not yet discovered all the tax returns which he is obliged to discover.

37 Nothing that I have said above is intended to suggest that either the defendant or his lawyers have deliberately misled the Court. Events have moved fairly quickly in the last two months, giving rise to areas of possible breakdowns in communication and inadvertent errors.

38 Be that as it may, I need to deal with the situation as it currently exists. The stark reality is that the hearing is now just over six weeks away. The defendant's tax returns are crucial evidence for the hearing and the defendant has been aware of that for at least a year. The number of tax returns is not significant in the context of this proceeding.

39 Since the defendant has been required to remain in Victoria, he has taken active steps to provide copies of the tax returns to the plaintiffs and to comply with Court orders generally. Various things which were previously said by him not to be available or possible have become available or possible. He has given explanations for the various changes in position.

40 I am satisfied that the defendant's continued presence in Victoria will result in ongoing steps being taken by him to provide copies of the outstanding tax returns to the plaintiffs and better copies of documents if better copies are available. I am confident that he will continue in his efforts to contact Mrs Obrhelova in order to obtain copies of the outstanding tax returns for the plaintiffs.

41 I have taken into account Mr Williams' submissions about the defendant's human rights. The defendant's right to travel overseas is not an absolute right. Among other things, it is subject to what the interests of justice require in this proceeding. In my view, the interests of justice in this case overwhelmingly require that the defendant comply with his discovery obligations, which he has persistently failed to do, and, in particular, to comply with Order 11.

42 For the above reasons, the applications to discharge the Injunction and to release Mr Witt from the Undertaking will be refused.

43 This judgment is based on the material referred to me and the submissions made by the parties at the directions hearing on 10 August 2009. Since then, the defendant has filed additional material. As I have not had the benefit of further submissions from the parties on the additional material, I have not taken it into account.

44 I grant liberty to the defendant and Mr Witt to renew the applications in light of the additional material and any further matters they wish to rely upon.

[1] Talacko v Talacko [2008] VSC 128.

[2] Talacko v Talacko [2009] VSC 98.

At a glance

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Judgment (59 paragraphs)

Parties