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[2005] VSC 138
Supreme Court of Victoria
2005-04-22
CUMMINS, J
Original judgment source is linked above.
CONTEMPT OF COURT - Civil contempt - Non-compliance with Court Orders as to dealing in property - Further encumbrance upon property - Fines imposed.
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1 The principal proceeding concerns the repayment of a loan by the plaintiffs on behalf of the fifth defendant and the plaintiffs' claim for contribution from the first to fourth defendants as co-guarantors of the loan or indemnity from the fifth defendant, in relation to the sum of $406,945.46.
2 The plaintiffs are Mr Peter Neil Ferrier and Mrs Janis Heather Ferrier and the defendants are respectively George Raymond Kelada, first defendant, Kerry Leanne Kelada, second defendant, Patrick Lou D'Urso, third defendant, Lisa Margot D'Urso, fourth defendant and Datacord Services Pty Ltd, fifth defendant. The first and third defendants are and at all relevant times were businessmen, engaged in commercial litigation. Each gave evidence before me and was cross-examined. The first defendant swore affidavits on 19 September 2003, 31 August 2004 and 15 September 2004 and the third defendant swore an affidavit on 15 September 2004.
3 Before Dodds-Streeton J on 22 September 2003 in the matter, counsel appeared for the plaintiffs and counsel appeared for the defendants. In consequence of the removal of caveats which had been lodged by the plaintiffs and upon the giving of the usual undertaking by the plaintiffs her Honour ordered as follows:
"(1) Until the trial of this proceeding or further order, the first and second defendants be restrained from in any way dealing with or disposing of the land contained in Certificate of Title Volume 7239 Folio 776 and known as 14 Pascoe Avenue, Bentleigh ("the property") save insofar as the first defendant and the second defendant have leave to encumber the property by borrowing a sum not exceeding $15,000 to be secured against the property.
(2) Until the trial of this proceeding or further order, the third and fourth defendants be restrained from in any dealing with or disposing of the land contained in Certificate of Title Volume 9808 Folio 801 and known as 11 Brulu Close, Mt Eliza ("the said property") save insofar as the third and fourth defendant have leave to encumber the said property by borrowing a sum not exceeding $15,000 to be secured against the said property."
4 I consider it was, and would have been, plain that the terms "restrained from in any way dealing with or disposing of the land" involved that no other encumbrance than that specified in the Order would be permitted without appropriate application. That is plain from the ample and extensive terms "dealing with in any way"; and also from the disjunctive "or disposing." True it is that the Order did not state in terms "from encumbering"; but "dealing with any way" is comprehensive. Further, there was limited power in the Order to encumber, which would have been entirely unnecessary if there was inherent in the Order an unfettered power to encumber. Indeed, the defendants ten months later returned to the Court to further encumber. It is plain beyond argument in my view that the words "in any way dealing with" meant, and any reasonable reading of them would have made it clear, not otherwise to encumber. For reasons I shall come to, I consider that was known, and clearly known, to the defendants.
5 On 27 July 2004 the defendants through Mr Gil Boffa & Associates their then solicitor - who was not the solicitor on their behalves in these contempt proceedings - applied to the Court for a variation of the Order. The variation of the Order was in the case of Mr Kelada increasing from $15,000 to $60,000 the amount permitted to be secured, and in the case of Mr D'Urso from $50,000 to $90,000.
6 When that summons, and the supporting affidavit of Mr Boffa of 27 July 2004 were received by Mr M.J. Kenny, instructing solicitor in this proceeding for the plaintiffs and the plaintiffs' solicitors throughout the principal proceeding, as appears from paragraph 37 to 42 of his affidavit of 27 July 2004 Mr Kenny caused searches immediate to be undertaken of the property owned by the Keladas and the D'Ursos. I was most impressed by Mr Kenny and his evidence before me and by his conduct on behalf of the plaintiff. He appeared to me to be a responsible and competent solicitor and an honourable solicitor as well. Mr Kenny said that when he read the affidavit and application he "felt sick." His searches were revealed in paragraphs 37 to 42 of the affidavit of 27 July 2004. As a consequence, and in my view entirely appropriately, the plaintiffs through Mr Kenny promptly caused the summons to be issued for contempt of the Order of Dodds-Streeton J which is the matter before me.
7 The summons of 27 July 2004 sought the following orders: that the first to fourth-named defendants be dealt with by the Court as the Court sees fit in respect of the breach by the first to fourth defendants of the order made by Her Honour Justice Dodds-Streeton on 22 September 2003; and consequential orders including costs.
8 That summons was amended pursuant to an Order of Justice Ashley on 28 July 2004 to seek the following. That:
(2) The third and fourth-named defendants be dealt with by the Court as the Court sees fit in respect of the following breaches by the third and fourth-named defendants of the Order made by Her Honour Justice Dodds-Streeton on 22 September 2003:
9 Before me the relief sought in paragraph (1)(a) was not pursued and throughout these proceedings, properly and responsibly in my view, the plaintiffs have sought relief only in relation to the first and third defendants, and not their spouses.
10 In my view it is clear on the evidence before me that the first and third defendants have reduced the equity secured by the Order of Dodds-Streeton J..
11 The Keladas' property is their residence at 14 Pascoe Street, Bentleigh and described in Certificate of Title 7329 Folio 776. The Keladas mortgaged that property to Banic Nominees Pty Ltd and Twentyfirst Dexquay Pty Ltd on 16 April 2004 to secure the mortgage advance of $90,000. They further mortgaged their property to Daryl and Gwen Beer on 3 May 2004 to secure the mortgage advance of $50,000. On 2 April 2004 they entered into an agreement with their parents, Exhibit GRK6 by which (Clause 4) an interest in land was granted by way of a right to call for a mortgage over the property but which mortgage was limited to the sum secured by the Liberty Finance mortgage at the time of the making of a Mareva order in the principal proceedings, which sum was $380,454.14. As at 19 September 2003 Mr G. Kelada had deposed that the Keladas' property was worth some $600,000. The equity available at that date was $194,545.14. The net equity now available is $79,545.86. The effect of the transactions after 22 September 2003 has resulted in lessening of the net equity available in the Keladas' property in the quantum of $114,999.28.
12 Likewise, but to a lesser quantity, with the D'Ursos. Their property is the residence situated at 11 Brulu Close, Mt Eliza and described in Certificate of Title Volume 9808 Folio 801. The D'Ursos mortgaged the property to CDC (Australia) Pty Limited on 7 July 2004 securing an amount of $90,000. That advance was in part applied to discharge an earlier mortgage advance made by Balata & Co of $40,000. Mr Kelada deposed that he was informed that the D'Ursos' property was worth about $700,000 and at that time $580,000 was owing under the mortgage and a further $25,000 was owing to Shara Pike, resulting in a net equity as at 22 September 2003 of $95,000. The net equity presently available is $55,000. This follows an increase in overall indebtedness of $65,000. The net effect of the transactions after 22 September 2003 has resulted in a dissipation of the net equity available on the D'Urso property of $40,000.
13 The net equity of the combined properties at the time of the Order of Dodds-Streeton, J. was $289.545.14. It is now $134,545.86. That is a reduction in the amount of $154,999.28 - a significant matter to the plaintiffs, and a significant matter to the Court.
14 In evidence before me each of the first and third defendants stated that his understanding of the Order of Dodds-Streeton J. was that "disposing of" meant selling and that "dealing with" meant increasing the monetary value of indebtedness secured. Each said that he did not understand the prohibition upon "dealing with" to include transactions which did not increase the monetary value of indebtedness secured and that effectively the secured indebtedness had not increased.
15 It is plain from the relevant authorities[1] that a party which brings proceedings for contempt bears the onus of proof; and further, that the elements of the charge must be proved beyond reasonable doubt. The authorities establish that it is necessary for a plaintiff to prove: first, that an Order was made by the Court; second, that the terms of the Order were clear and unambiguous and capable of compliance by a layperson such as these two defendants; third, that the Order was served on the person, or excused in the circumstances, or service was dispensed with pursuant with the Rules; fourth, that the person had knowledge of the terms of the Order; and finally that the person breached the terms of the Order. I am satisfied to the requisite degree of each of those elements as to Mr Kelada and as to Mr D'Urso.
16 The plaintiffs in this case contend that the terms of the Order are clear, unambiguous and capable of compliance. I wholly agree for the reasons I have stated. The Order speaks for itself. Both defendants were represented before Dodds-Streeton J by competent and experienced counsel and also by their solicitor. The first defendant was present at the making of the Order. The third defendant was in contact telephonically with the first defendant. The Order was served upon the solicitor on the record for the defendants on the day the Order was made. There was no personal service upon the defendants of the Order but in the circumstances I have cited, including in particular the knowledge of each of the defendants of the terms of the Order and their active participation in the case at hand, that lack of personal service is inconsequential and ought be excused. The Court has power to dispense with that requirement and in relation to the first and third defendants I do so. In relation to the first defendant, as I have stated, he was present in Court when the Order was pronounced. His solicitor was served with the Order on the same day. He received an email from his counsel, although there was a problem with the annexure being opened. Significantly, on 27 July 2004 there was the application which I have recited to vary the terms of the Order. It is clear beyond doubt that the first defendant was aware of the Order and of its terms and meaning.
17 The third defendant also, it is clear beyond doubt, was aware of the Order and its terms and meaning. He was not present on the day but he was in telephonic communication with the first defendant. He also was a party to the 27 July 2004 application to vary the Order. His solicitor was served, as I have stated. He received an email albeit with the difficulty with the attachment as I have stated. In all the circumstances I am satisfied that the third defendant, although not as close to the centre of the action as the first defendant in those proceedings, was aware of the Order and of its terms and meaning. Each acted under the pressure of significant financial stress. I have had regard to the affidavits of the first defendant sworn 19 September 2003 and of 31 August 2004 and 15 September 2004 and of the third defendant sworn 15 September 2004 and their evidence given before me. I consider each of the first and third defendants as businessmen engaged in commercial litigation well knew the plain meaning of the terms of the Order of Dodds-Streeton J, and understood both its legal effect and purpose.
18 The breaches of the Order by the first defendant are the agreement between the first and second defendants and Mr and Mrs Kelada senior dated 2 April 2004, Clause 4, constituting a dealing as it gives the parents of Mr Kelada the right to call for a mortgage over the Keladas' land; by the mortgage of $90,000 secured against the Keladas' land in favour of Banic Nominees and Twenty First Dexquay; and by the mortgage of $50,000 secured against the Keladas' land in favour of Mr and Mrs Beer.
19 The breaches of the Order by the third defendant are the mortgage of $40,000 in favour of Balata & Co secured against the D'Ursos' land; and the mortgage of $90,000 in favour of CDC (Australia) secured against the D'Ursos' land.
20 There was in this case no Rule 66.10 endorsement. In my view that is a formal irregularity in this case which does not involve imprisonment. As stated in Primelife Corporation Ltd v Newpark Pty Ltd[2], the Court has power to waive that irregularity and excuse it in circumstances in which imprisonment is not involved.
21 The plaintiffs seek, as well as the penalty to be imposed, an Order in relation to each defendant to restore the equity in the respective properties. There is an amplitude of power in the Court so to order: see Australian Consolidated Press Ltd v Morgan & Anor[3], cited and considered in Witham v Holloway[4].
22 However, in the exercise of discretion I decline so to order. I consider the utilisation of the spectre of imprisonment in this case in the circumstances of personal and financial difficulty of the two defendants is inappropriate. Such an order could involve the potential of a term of imprisonment, which is not appropriate in this case; and it would certainly involve significant stress upon each defendant of the potential of imprisonment, which is unfair on the defendants in my view, particularly the third defendant, and I should not distinguish the first defendant from him.
23 I consider both the first and the third defendants are decent family men. Both have suffered financially and emotionally as a consequence of the contempt proceedings. Each has offered an unreserved apology to the Court. Both are in difficult financial positions and without ready availability to access substantial future further finance. The action constituting the contempt in each case was serious in itself in that, first, it disregarded the known meaning to each defendant of the Court Order; and, further, that it readjusted downwards and lessened the secured equity ordered by the Court and justifiably relied upon by the plaintiffs in the principal proceedings. However, in my view, the contempts were not contumacious in that there was a reduction but not an extinguishment of the secured equity. For those reasons I previously have announced that I do not consider this is a criminal contempt but is a civil contempt.
24 Nonetheless the contempts were in each case knowing and serious. The reduction as distinct from extinguishment of the security was of itself a matter of significance both in terms of the formal Order of the Court, which was not to be put aside as the defendants did, and further, in the interests of the plaintiffs which interests were adversely affected.
25 On the question of penalty I have taken into account the affidavits of the first and third defendants sworn 27 October 2004 and also the psychological report of Mr Geoffrey Cummins concerning the third defendant of 14 September 2004. I find and order as follows:
26 The reasons I have fined Mr D'Urso half the amount I have fined Mr Kelada are first, the D'Urso reduction in equity was one-third of the reduction of Mr Kelada; second, Mr D'Urso was substantially less central to the conduct of the proceedings than was Mr Kelada; and, thirdly, there are matters personal to Mr D'Urso, including the matters rehearsed in the psychological report of Mr Cummins, which I also take into account in relation to Mr D'Urso.
27 In summary, this is not a criminal contempt; no order as to imprisonment is made; Mr Kelada is fined $12,000; and Mr D'Urso is fined $6,000. I grant a stay of 28 days to each of the two defendants for the payment of those respective fines.
28 I turn to the question of costs. I order that the first and third defendants pay the costs of the plaintiffs of the contempt proceedings on an indemnity basis. That is because this is a contempt proceeding and the contempt was a serious one in each instance, and indemnity costs are appropriate in those circumstances.
29 Further, I consider that it is just and appropriate that I fix the costs, rather than refer costs to taxation which involves further delay and cost.
30 By reference to Exhibit MJK8 of Mr Kenny's affidavit of 25 October 2004 I fix the costs at $36,561.95 plus the NTS transcription costs of 27 October 2004 and 22 April 2005, that is today. I consider those costs are fair and reasonable and responsible. Mr Kenny has not sought to claim a number of items under indemnity costs which he might have claimed but has claimed the main and essential items. I consider the Order is appropriate to be made in that sum, together with the two days of transcription, being 27 October last and today.
31 I grant a stay of 28 days in respect of the payment of those costs and I order that each defendant, being the first and third defendants, pay the costs fixed in that amount.
32 I regret my delay in handing down this judgment. As counsel know, I left on a substantial circuit the day after the last hearing and unfortunately that circuit continued until after the end of the legal year, and I have been occupied in a group of matters during first term.
# Ferrier
Kelada \[2005\] VSC 138
(1995) 183 CLR 525
(1986) 161 CLR 98
(1964) 112 CLR 483