Reches Pty Limited v Tadiran Limited

Introduction 1 On 17 October 2000 the New South Wales District Registrar ("the Registrar") of the Federal Court of Australia ("the Court") filed a notice of motion pursuant to O 40 r 5 of the Federal Court Rules alleging that Mr Isaac Reches and his wife, Mrs Yael Reches were in contempt of the Court and should be punished for the contempt. In the accompanying statement of charge it was alleged that Isaac and Yael Reches had breached their undertaking to the Court, dated 16 July 1998, which obliged them to keep certain property at identified premises as a means of providing security for costs.

Background 2 The following is an account of the background leading to the contempt proceedings based on matters of public record or evidence led in those proceedings. The background was, in any event, uncontentious. On 25 July 1995, Reches Pty Limited ("the applicant") instituted proceedings in this Court against Tadiran Limited ("Tadiran") seeking, among other things, orders pursuant to s 87 of the Trade Practices Act 1974 (Cth) ("the TP Act") varying an agency agreement between the applicant and Tadiran, damages pursuant to s 82 of the TP Act and damages for Tadiran's repudiation of the agency agreement. The applicant sought, and was granted on 15 August 1996, leave of the Court to serve the application and statement of claim on Tadiran in the State of Israel pursuant to O 8 r 2 of the Federal Court Rules. 3 On 7 April 1997, the Court ordered by consent that the applicant provide security for Tadiran's costs of the action in the sum of $50,000 and stayed the applicant's claim until the security was provided. Pursuant to that order the applicant paid the sum of $50,000 to the Registrar of the Court on 8 October 1997. 4 On 8 May 1998 Tadiran applied for additional security in the sum of $70,000 or such other sum as the Court considered fit. On the same day the applicant filed a notice of motion seeking to vacate the earlier order as to security for costs and seeking the return of the $50,000 security. Prior to the hearing of those motions, the applicant filed an affidavit of Isaac Reches dated 11 May 1998. In that affidavit, Isaac Reches explained that the financial position of the applicant was such that a large pre-tax loss was anticipated in the financial year ending 30 June 1998. Isaac Reches then indicated his willingness to offer a personal guarantee for costs. He stated: "10. Both myself and my wife (as the directors of the Applicant) are prepared to offer the Respondent our personal guarantees as security for costs awarded against the Applicant. These guarantees could be supported with our personal assets, being: 10.1 jewellery to the insured value $83,958. Valuations were provided to the insurer prior to obtaining this insurance; and 10.2 paintings and sculptures to the insured value of $90,250. Valuations were provided to the insurer prior to obtaining this insurance. 10.3 Jewish religious artefact to the insured value of $50,000." 5 The trial judge, Lehane J, gave reasons for judgment in respect of both motions on 11 June 1998 ((1998) 155 ALR 478) and orders were subsequently made on 25 June 1998. The first two orders dealt with a motion of the applicant for a Mareva injunction which was dismissed by his Honour. The remaining orders were: "3. Subject to order 4, the applicant provide further security for the respondent's costs of this proceeding in the sum of $70,000. 4. The obligation of the applicant to provide further security as provided by order 3 may be satisfied by: (a) the directors of the applicant, Isaac Reches and Yael Reches, entering into personal guarantees in favour of the respondent for the payment by the applicant of any costs which the applicant is ordered to pay to the respondents in this proceeding; and (b) the directors of the applicant, Isaac and Yael Reches, entering into a security over the items of personal property referred to in the schedule hereto, securing in favour of the respondent the obligations under the guarantees provided by sub paragraph (a) of this order. Such guarantees and security to be in a form agreed by the respondent, or approved by the court. 5. Upon the applicant providing security comprising either: (a) $120,000 in cash; or (b) $25,000 in cash, and the directors of the applicant entering into the guarantees and the security referred to in order 4 hereof, the order for security for costs made on 7 April 1997 be vacated. 6. Until the said further security is given, the proceedings on the applicant's claim be stayed. 7. The provision by the applicant of cash security in the amount of $25,000 pursuant to order 5(b) may be satisfied by the applicant providing to the Registrar a direction in writing that $25,000 from the cash security paid into Court pursuant to the orders made on 7 April 1997 be applied in satisfaction of order 5(b) hereof. 8. Upon the requirement of order 5(b) being complied with by the applicant, the Registrar to pay the applicant the sum of $25,000 out of the moneys paid into Court pursuant to the orders made on 7 April 1997. 9. .... The Schedule The property referred to in paragraph 10 of the affidavit of Isaac Reches affirmed on 11 May 1998 is the following: (a) jewellery to the insured value of $83,958 (b) paintings and sculptures to the insured value of $90,250 (c) Jewish religious artefact to the insured value of $50,000." 6 However after these orders were made, there were further developments concerning security and costs. On 16 July 1998, Isaac and Yael Reches signed an undertaking to the Federal Court, after proceedings before Lehane J that day, that provided as follows: "We, the directors of the Applicant in these proceedings, hereby undertake to the Federal Court of Australia: 1. That we shall comply with all covenants, obligations and provisions of the Bill of Sale dated 16 July 1998 granted by us to the Respondents in these proceedings, a copy of which is annexed hereto and marked "A". 2. That we shall keep the property referred to in the Schedule to the Bill of Sale in the premises occupied by us, namely Unit 12/442 Edgecliff Road, Edgecliff, New South Wales, but subject to those items listed as 'jewellery' being able to be removed from those premises from time to time in the course of their ordinary and reasonable day to day use." Attached to the undertaking was a deed of guarantee and bill of sale both signed by Isaac and Yael Reches and dated 16 July 1998. Listed in the schedule to the bill of sale were all the items of property and effects to which the bill related. Twenty two items were detailed under the heading "jewellery", sixteen items under the heading "sculptures", thirty one items under the heading "paintings" and one item under the heading "religious artefacts". 7 The undertaking assumed greater significance when, on 20 July 1998, Lehane J made the following consent orders reflecting acceptance of the undertaking: "1. the provision of the following documents, by the Applicant and its directors, constitutes adequate security, as ordered to be provided to this Court by the Applicant on 25 July 1998 (a) Bill of Sale from the directors of the Applicant to the Respondent dated 16 July 1998; (b) Personal Guarantee of the directors of the Applicant to the Respondent dated 16 July 1998; (c) Written undertakings from the directors of the Applicant to the Respondent dated 16 July 1998." The date of 25 July 1998 in the order appears to be an error and should have been 25 June 1998. In addition, his Honour ordered that the Registry of the Court was authorised to pay to the applicant the sum of $25,000, being part of the sum of $50,000 paid by the applicant to the Registry pursuant to the orders made on 7 April 1997. This was done. It can be seen that the undertaking given by Isaac and Yael Reches was accepted by the Court as part of an agreed arrangement to provide security for Tadiran's costs. Properly construed it was an undertaking to the Court and not simply an inter partes undertaking to Tadiran. 8 Lehane J delivered judgement in the matter on 14 July 1999 ([1999] FCA 952). His Honour made orders on 12 August 1999 dismissing the application and ordering the applicant to pay Tadiran's costs of the application including reserved costs. It was ordered that such costs be on a party to party basis until 8.30am on 18 December 1998 and thereafter on an indemnity basis. Those orders were entered on 13 August 1999. 9 Attempts were subsequently made by Tadiran's solicitors to recover its costs. On 2 September 1999 a without prejudice letter was sent to the solicitors who had acted for the applicant during the hearing, Packer &Austin, advising that an amount of $100,000 would be accepted as full satisfaction of Tadiran's entitlement under the costs order. No reply was received and further letters were sent on 24 September, 13 October and 10 December 1999. On 8 November 1999, Isaac Reches, in response to the 13 October letter, which had been forwarded to him, wrote personally to Tadiran's solicitors. He advised that following the judgement he had been in touch with the legal department of Tadiran and had been advised by them that their instructions to their Australian solicitors were to collect the $25,000 and not to take the matter further. Isaac Reches also stated that following the receipt of the 2 September letter, he had again contacted the legal department of Tadiran and confirmed that their position on costs remained as he earlier understood it. Tadiran's solicitors replied to Isaac Reches on 16 November 1999 advising that their instructions, as reflected in the correspondence sent to Packer & Austin, had not changed and attached a letter from Tadiran's general counsel, Layla Chertow, denying any contact with Isaac Reches and confirming her instructions had not altered. 10 On 10 December 1999 Tadiran's solicitors wrote directly to Isaac and Yael Reches requesting, in accordance with their obligations under the bill of sale, that they indicate the present location of each of the items of property in the schedule to that bill and that they provide them with details of insurances effected by the them against loss or damage to the charged property, including providing a copy of the most recent renewal receipt. No response was received to that letter and on 27 January 2000 further letters were sent to Isaac and Yael Reches repeating the request and warning that in the absence of a reply, Tadiran would seek to enforce the orders and undertakings in the proceedings. A meeting then took place, on 28 January 2000, between Isaac Reches and Tadiran's solicitor, Mr Phillip Brand. The costs issue was not resolved. 11 Tadiran's solicitors were informed on 1 May 2000 that Isaac Reches had become bankrupt on 26 April 2000 as a result of his filing a debtor's petition. 12 Having failed to recover any costs from the applicant, Tadiran filed a notice of motion on 13 June 2000, seeking payment of the $25,000 held by the Registry of the Court, being the balance of the moneys paid by the applicant pursuant to the orders made on 7 April 1997. To facilitate this payment, Tadiran also sought orders that part of its costs payable by the applicant be assessed as a gross sum, pursuant to O 62 r 4(2) of the Federal Court Rules, in the amount of $25,000. This amount was said to cover disbursements incurred by Tadiran subsequent to 8.30am on 18 December 1998, including senior counsel's fees, counsel's fees and transcript fees. 13 In his judgment on the respondent's motion given on 4 July 2000, ([2000] FCA 925) Lehane J was satisfied that the orders sought by Tadiran were reasonable in the circumstances and granted the respondent the relief sought. It was his Honour's view that the disbursements sought to be assessed at $25,000, but which actually totalled somewhat more than $30,000, "would be recoverable virtually in full upon taxation on the indemnity basis." After noting the dire financial circumstances of the applicant and its directors, his Honour went on to say (at par 4): "Those circumstances have, of course, the consequence that, if the respondent were compelled to tax its costs, it would simply be required to spend a substantial further amount of money which it would have no serious prospect of recovering. That is, of course, an additional circumstance favouring the making of the order which I have already indicated I shall make. It also makes it clear, in my view, that it is appropriate for me to order that the sum of $25,000 held by way of security for costs be paid out by the Registrar to the respondent as requested in paragraph 3 of the motion." 14 At the hearing of Tadiran's motion, there was no appearance by the applicant or the Reches. Having considered the evidence before him, his Honour said (at pars 9 and 10): "The respondent, in the circumstances and quite understandably, does not, I have been informed, propose itself to move in the proceeding for the punishment of Mr and Mrs Reches for the contempt which, on Mr Brand's evidence, appears to have been committed by way of breach of the undertaking. The question necessarily arises, however, whether the Court ought to take action of its own motion. The only action which it is open to the Court to take under the Federal Court Rules is, I think, that contemplated by O 40 r 10. That rule provides: '1. Where it is alleged, or appears to the Court on its own view, that a person is guilty of contempt of the Court, the Court may, by order, direct the Registrar to apply by motion for, or to commence a proceeding for, punishment of the contempt. 2. Sub‑rule (1) does not affect such right as any person other than the Registrar may have to apply by motion for, or to commence a proceeding for, punishment of contempt.' I have no wish unnecessarily to add to the misfortunes which plainly have befallen Mr and Mrs Reches since the conclusion of these proceedings. Inescapably, however, it seems to me that the Court ought not simply overlook what appears, on the basis of evidence given by a solicitor, to be a clear and apparently deliberate breach of undertakings given to the Court by two persons who, at the time they gave the undertakings, must have had available to them advice not only of solicitors but also senior counsel then appearing for the applicant. In other words, there is no reason why I should think it likely that Mr or Mrs Reches had any doubt as to the effect of the undertaking which they gave or as to the possible consequences of breach of it. Again, the evidence is that Mr Brand informed Mr Reches of the possible consequences of what he claimed to have done, and warned Mr Reches that he would bring the matter to the attention of the Court." Lehane J then ordered that The Registrar commence contempt proceeding against each of Isaac Reches and Yael Reches. It is those proceedings with which the Court is presently concerned.