Ryan v Wright [2004] NSWSC 749 | Case summary

4638/03 MICHAEL RYAN & ANOR v CRAIG WRIGHT & ANOR JUDGMENT 1 The defendants, Craig Wright and his wife Lynn Wright, were former shareholders of the second plaintiff, DeMorgan Information Security Systems Pty Ltd. It and its new shareholder, Michael Ryan the first plaintiff, brought proceedings against Mr and Mrs Wright. In the course of those proceedings on 4 September 2003, Mr and Mrs Wright gave undertakings to the Court. Mr Ryan and DeMorgan claim that Mr and Mrs Wright breached the undertakings and are guilty of contempt of court. The questions are whether the undertakings were enforceable and, if so, whether breaches of them have been proved beyond a reasonable doubt. Enforceability 2 The undertakings having been given to the court by the solicitor acting for Mr and Mrs Wright, they were their undertakings (Alexander v Crawford [2003] NSWSC 426 at [33]). 3 The undertakings were to refrain from: "(a) directly or indirectly carrying on a business in competition with the Second Plaintiff either through the defendants and/or any "Associates" (as that term is defined in Clause 1.1 of the Shareholder's Agreement dated 30 June 2003); (b) directly or indirectly approaching either through the Defendants and/or through any "Associates" (as that term is defined in Clause 1.1 of the Shareholder's Agreement dated 30 June 2003) any company, business, entity or person who is or was, as at 8 August 2003, a customer of the Second Plaintiff." 4 In Commissioner of Water Resources v Federated Engine Drivers' and Firemen's Association of Australasia Queensland Branch (1988) 2 Qd R 385 an injunction was granted restraining the second defendants from procuring a breach by a contractor of its contract with the Commissioner of Water Resources for the construction of a dam. At 390, McPherson J took the view that the injunction was formulated in terms that were not sufficiently precise to admit of its ready or convenient enforcement. By securing the incorporation of the contract in the order for injunction itself, his Honour observed that the applicant not only rendered it virtually impossible to establish breach of the order but also infringed the requirement that the persons to whom the court's order was directed must be left in no doubt as to what it was they must do or abstain from doing in order to comply with the order. It was submitted that this principle applied in the instant circumstances. I do not agree. The shareholder's agreement was not incorporated into the undertakings. Save as to the reference to the definition, the undertakings were drawn on a stand alone basis. They did not suffer the disability that was regarded as fatal in the Queensland case. 5 Mr and Mrs Wright were parties to the shareholder's agreement as were Mr Ryan and DeMorgan. The term "associate" was defined as having the meaning in the Corporations Act 2001 (Cth), s 10 to s 17. Mr and Mrs Wright were the sole shareholders, directors and secretaries of Ridges Estate Pty Ltd. They were, therefore, associates of Ridges since s 11 provided that if the primary person was a body corporate, the associate reference included a director or secretary. It follows that Ridges was an associate of Mr and Mrs Wright because s 15(1)(c) included in the associate reference a person with whom the primary person was or proposed to become associated. In this context a person included a body corporate (Acts Interpretation Act 1901 (Cth), s 22(1)(a)). 6 The undertakings given by Mr and Mrs Wright bore a close relationship to cl 13.1(a) of the shareholder's agreement which was in the following terms: "Notwithstanding any other provisions of this Agreement, the Shareholders must not do any of the following things during the period commencing on the date of this Agreement and ending three (3) years after a Shareholder ceases to be a Shareholder or a Director ceases to be a Director of the Company without the prior written approval of the holders of at least 90% of the Shares:- (i) directly or indirectly carry on a business in competition with the business of the Company or its Associates; (ii) directly or indirectly approach an agency who is a customer of the Company or its Associates." 7 In opening his case, counsel for Mr Ryan and DeMorgan said that the undertakings were based upon cl 13.1(a) of the shareholder's agreement and the factual matrix that informed the interpretation of the undertaking if there was ambiguity, included the agreement. 8 Counsel for Mr and Mrs Wright, submitted that cl 13.1(a)(i) of the shareholder's agreement was unenforceable. The term "business" was defined in cl 1.1 to mean the development and sale of the "product" in Australia and overseas. There was no definition of "product". He argued that Mr and Mrs Wright were only restrained from carrying on a business of development and sale of a product in competition with DeMorgan and since neither DeMorgan nor Ridge nor Mr or Mrs Wright carried on such a business, the provision was meaningless. DeMorgan and Ridge provided security services to users of computer systems. 9 I do not accept that construction. In this commercial document the parties intended that there should be a constraint upon the carrying on of business in competition with DeMorgan. It was its business that the parties intended to protect and, being inaccurate, the definition of "business" in cl 1.1 of the shareholder's agreement should be struck out under the falsa demonsrtatio non nocet (a false description does not injure) maxim. A classic example of its operation is Adamastos Shipping Co Ltd v Anglo-Saxon Petroleum Co Ltd [1959] AC 133. A charterparty contained a clause that stated: "This bill of lading shall have effect…". The House of Lords held that the words: "This charterparty" should be substituted for the misdescription (See, also: Lewison, The Interpretation of Contracts, Sweet & Maxwell, London, 1997, at [805]). 10 It was submitted that cl 13.1(a)(ii) of the shareholder's agreement was ambiguous because it could be read as an absolute embargo on approaching customers, or an embargo upon such approaches for the purpose of carrying on a business in competition with DeMorgan. It was submitted that in an on-going relationship the parties could not have intended that there be an absolute embargo against approaching customers of DeMorgan otherwise than with the prior written approval of 90% of the shareholders. On the other hand, it was submitted that such a restricted interpretation rendered cl 13.1(a)(ii) otiose because approaches to customers constituted the carrying on of business and fell within cl 13.1(a)(i). 11 The general proposition is that a defendant cannot be committed for contempt on the ground that upon one of two possible constructions of an undertaking, it has been broken (Redwing Ltd v Redwing Forest Products Ltd (1947) 177 LT 387 at 390). In Australian Consolidated Press Ltd v Morgan (1964-1965) 112 CLR 483 at 516, Owen J cited the above proposition and concluded that an undertaking not to publish any Gallop Poll results in respect of which the plaintiffs had copyright was ambiguous and lacked precision and the defendant should not have been fined for contempt. At 506, Windeyer J agreed in the result adopted by Owen J. In Microsoft Corporation v Marks (1996) 69 FCR 117 at 140 it was suggest that a majority of Windeyer and Owen JJ concluded that it was impossible to enforce an undertaking that was not clear and unambiguous. 12 In Morgan at 492, Barwick CJ expressed the view that if an undertaking bore a meaning which the court was satisfied was one which ought fairly to have been in the contemplation of the person to whom the order was directed, or who gave the undertaking, as a possible meaning, the fact that that meaning resulted from a process of construction and involved the choice of possible meanings did not preclude the court from enforcing the order or undertaking in the sense assigned to it by the court. As was pointed out in Evenco Pty Ltd v Australian Building Construction Employees and Builders Labourers Federation (Qld Branch) (2001) 2 Qd R 118 at 136, Windeyer J appears to have agreed with this view. At 503 of Morgan his Honour said that those who give undertakings to a court are bound by the language they use and if the true meaning, although not immediately plain, can be ascertained according to ordinary rules of construction, a person giving the undertaking is bound by it in that sense. 13 These considerations are not to be applied to cl 13.1 of the shareholder's agreement. While that provision might inform the undertakings given to the court, it is the undertakings that need to be construed. 14 It was submitted that the case for Mr Ryan and DeMorgan having been opened and conducted on the basis that the undertakings were based on cl 13.1 of the shareholder's agreement and were, relevantly, the same, they were bound by that conduct and could not make out a case for breach of the undertakings themselves. 15 I reject that submission. The court has before it a motion for a declaration that undertakings given to the court were breached. It does not have before it an action for breach of cl 13.1 of the shareholder's agreement. It is for the court to determine whether the undertakings were breached. In arriving at that determination considerations of how the undertaking might be construed in light of the existence of cl 13.1 will, no doubt, arise. But the submissions of counsel as to the relevance of cl 13.1 cannot alter the task the court is required to undertake. 16 In my view, the undertakings given to the court were clear and unambiguous. DeMorgan conducted a business. It was not a business of developing and selling a product in Australia and overseas. It was a business of providing security services for computer systems. An undertaking not to, directly or indirectly, carry on a business in competition with DeMorgan must have been understood by Mr and Mrs Wright as an embargo against competition with DeMorgan and the business it was, in fact, conducting. 17 Likewise, I regard the undertaking not to approach a customer of DeMorgan as equally clear and unambiguous. A customer was anyone who dealt with DeMorgan sufficiently proximate to the date the undertakings were given for the expectation of future dealings to form part of the goodwill of DeMorgan's business (Flocast Australia Pty Ltd v Purcell (2000) 176 ALR 354). It was not suggested that the use of the term rendered the undertakings vague or ambiguous. 18 Whether or not there was difficulty in construing the like provision in cl 13.1(a)(ii) of the shareholder's agreement as absolute in its terms, it must have been clear to Mr and Mrs Wright that their undertaking not to approach customers of DeMorgan was absolute in its terms. It was not an undertaking limited to approaches in the course of conducting a business. The embargo was general in its terms. 19 If I be wrong in this view and the drawing of the undertakings in terms of cl 13.1(a) of the shareholder's agreement requires them to be construed consistently with that provision, I prefer the analysis of Morgan in Evenco. Adopting the approach of Sir Garfield Barwick, an absolute embargo without prior written approval of 90% of the shareholders was a meaning that was fairly open and ought to have been in the contemplation of Mr and Mrs Wright when giving the undertakings. That an absolute embargo informed the undertakings is enforced by the deletion of the prior written approval condition in cl 13.1(a)(ii) from the undertakings. Hence, whether the second undertaking is construed on its face or by reference to cl 13.1(a)(ii), its embargo was absolute. 20 I am of the view, therefore, that the undertakings in the form proffered to the court were enforceable. Breaches of the undertakings 21 There was a deal of evidence of the activities of Mr and Mrs Wright and Ridges before the giving of the undertakings. 22 It was submitted that this material might be taken into account under a presumption of continuity it being said that communications with customers shortly before the giving of the undertakings could be presumed to have continued after the undertakings were given. 23 The presumption is but a convenient description of the process of reasoning involving the drawing of inferences from established facts (R v Noonan (2002) 127 A Crim R 599 at [18]). The description as a presumption is best avoided (Byrne and Heydon, Cross on Evidence, Australian edition, Butterworths, Sydney, 1996 at [1125]. 24 In Wigmore on Evidence, 3rd ed, Little, Brown & Co, Boston, 1979, vol 2 at [437] it is pointed out that the degree of probability of continuance depends on the chances of intervening circumstances having occurred to bring the existence to an end. In the instant circumstances there is, in my view, a high probability that the intervening circumstance of the giving of the undertakings brings to an end the logic of drawing the inference of continuance. After all, impugned conduct will always occur before an injunction is granted or an undertaking is given to the court. It should not be presumed that the injunction or undertaking will be breached simply because the impugned conduct occurred. 25 Particularly is this so in proceedings for contempt for alleged breach of the undertakings. Whether the contempt for which Mr and Mrs Wright are charged is criminal or civil, the charges must be proved beyond reasonable doubt (Witham v Holloway (1995) 183 CLR 525 at 534). If there is a reasonable doubt about the alleged breaches, the charge fails. It would be dangerous to base a judgment of contempt upon an inference of continuance. That presupposes that the undertakings were breached in the absence of direct proof of circumstances that existed after the undertakings were given. I prefer to base my judgment on the facts that emerged from the evidence of events that took place after the undertakings were given. 26 It was urged upon me that Mr and Mrs Wright were in deliberate defiance of their undertakings. If that were so, the breaches would constitute criminal contempt as wilful disobedience, unless the breaches were casual, accidental or unintentional (Australasian Meat Industry Employees Union v Mudginberri Station Pty Ltd (1986) 161 CLR 98 at 108, 113). 27 The undertakings were given to the court on 4 September 2004. The billing records for Mr Wright's mobile telephone were in evidence. They revealed that on 4 September 2003 two short calls were made from his mobile telephone to the Australian Stock Exchange, a customer of DeMorgan. Those calls were made about the time that Mr Wright is recorded in the ASX visitor pass register as visiting the Stock Exchange for about an hour on behalf of Ridges. 28 In an affidavit of 11 September 2003 read on behalf of Mr Ryan and DeMorgan, Mr Wright swore that on 5 September 2003 he had a conversation with a representative of Rail Infrastructure Corporation, another client of DeMorgan, in which he said that he would be happy to quote for some work requested by RIC when he was back at DeMorgan. He swore he completed audit reviews for both ASX and RIC and was involved in follow up work which was directly related to initial projects for which work DeMorgan was paid. 29 On 8 September 2003, a short call was made from Mr Wright's mobile to RIC. The ASX visitor pass register showed him there for approximately two hours on behalf of Ridges. Later in the day two telephone calls were placed from his mobile to RIC. 30 On 9 September 2003, an email was sent from Mr Wright's email address to RIC attaching vulnerability assessment results prepared by Ridges and dated 2 September 2003. The email also requested information on servers. Later in the day an email was sent by RIC to Mr Wright's email address providing some information and requesting advice if further information was required. Later in the day four telephone calls to RIC were charged to Mr Wright's mobile telephone account. A call was also placed to ASX and a visit of approximately four hours from 6 pm was recorded in the ASX visitor pass register of him representing Ridges. 31 On 10 September 2003, an email was sent by RIC to Mr Wright's email address. The message was: "What the??". A response was sent from Mr Wright's email address as: "Sorry?". Shortly thereafter a short telephone call to RIC was charged to Mr Wright's mobile telephone account. 32 Later in the morning, an email was sent to RIC from Mr Wright's email address. It was as follows: "Hi Dave. I will see you tomorrow (no charge as my error in missing the directory change). Also hours as requested. To update the system and have automatic drive monitoring (with alerts by email if the system goes over a certain threshold) and deletion of logs to make the system continue to run if there are issues (ie attacks which are filling the drive). 5 Hours." 33 Later that morning, an email was apparently sent from Mr Wright's email address to RIC and to another email address of Mr Wright at DeMorgan. The message was as follows: "More details to follow (ie proposal) But to monitor patching etc and provide documents for updates etc for 3 Linux checkpoint hosts 1 Patch info for systems and services 2 emergency fix info 3 support on updates inc procedures where necessary 4 help with upgrades $450 per month ex gst ($150 per system) Regards Craig S Wright" 34 A deal of argument centred around this email. A copy of it was found on Mr Wright's computer upon execution of an Anton Piller order. Mr Wright denied that he sent the email. An expert conceded that one possibility was that the email was also received at Mr Wright's email address. 35 The evidence established that the email was received by the named recipients. It was received at Mr Wright's email address at DeMorgan and it was received by RIC. In light of the other evidence of email communication between Mr Wright's email address and RIC, I draw the inference that this email was sent using Mr Wright's email address to RIC and to Mr Wright's email address at DeMorgan and that a copy of the message was retained on Mr Wright's computer. 36 Later on 10 September 2003, a further email was sent from Mr Wright's email address to RIC containing the following message: "Good. Let me know when you want the review done and I will also include the extra router tests Craig" 37 Early in the morning of 11 September 2003, an email was sent by RIC to Mr Wright's email address containing the message: "not sure what happened, but it's fine now…". 38 There was a response from Mr Wright's email address to RIC as follows: "I am in town today - so I will still stop by may just have been slow running As I said I will not charge for the visit (I am up the road anyway) Craig" 39 The visitor pass register at ASX for 11 September 2003 recorded Mr Wright on behalf of Ridges spending about an hour at the premises. A short telephone call to ASX was made from Mr Wright's mobile shortly before that visit. 40 In this period, Mr Wright's contacts with clients of DeMorgan were limited to ASX and RIC. That is consistent with his affidavit that he had been involved in follow up work directly related to initial projects for both organisations. What was not apparent from the affidavit was his identification with Ridges both in relation to his visits to the ASX and in the report on vulnerability assessment results for RIC. 41 On 15 September 2003, a short telephone call was placed on Mr Wright's mobile to RIC. Later in the morning a call was placed to News Ltd of over a minute. 42 Mr Ryan had identified customers of DeMorgan in an affidavit. The list did not include News. In cross-examination, Mr Ryan said that this omission was an oversight. In re-examination a file was tendered containing email communications between DeMorgan and News about computer security issues up to May 2003. I am satisfied that News was a customer of DeMorgan on 4 September 2003. 43 On 16 September 2003, immediately following the execution of the Anton Piller order, a telephone call was placed on Mr Wright's mobile to RIC. A further telephone call to RIC in excess of three minutes was placed on Mr Wright's mobile later in the day. It was followed by two further telephone calls to RIC charged to the mobile account on that day. 44 On 17 September 2003, two calls to RIC were charged to Mr Wright's mobile account. On 18 September 2003 there were five calls to RIC charged to the account and one short call to the Human Rights and Equal Opportunity Commission, another customer of DeMorgan. 45 On 23 September 2003, three calls to ASX and one call to News were charged to Mr Wright's mobile account. On 24 September 2003, one call to News was charged to the account. On 26 September 2003, one call to News and one call to ASX were charged to the account. One call to ASX and one call to RIC were charged to the account on 29 September 2003. 46 On 30 September 2003, the ASX visitor pass register recorded Mr Wright visiting the premises. RIC sent an email to Mr Wright's email address attaching a letter addressed to Mr Wright thanking him for submitting a quotation for block of security consultancy hours but indicating that RIC was to take up an offer of services from another organisation. The letter requested Mr Wright to arrange invoices for work recently performed. On the same day a letter was also attached to an email addressed by RIC to DeMorgan thanking them for submitting a quotation but indicating that an offer of services by another organisation was to be accepted. On that day, four telephone calls to Val Morgan, another client of DeMorgan, were charged to Mr Wright's mobile account. 47 On 1 October 2003, a call to each of RIC, News and ASX were charged to the mobile account of Mr Wright. On 2 October 2003, eight calls to RIC were charged to the account as was one call to ASX. On 9 October 2003, three calls to RIC, one call to ASX and four calls to News were charged to the account. On 10 October 2003, one call to RIC and on 14 October 2003, three calls to RIC were charged to the account. The ASX visitor pass register recorded Mr Wright attending the premises on 15 October 2003. 48 On 17 October 2003, by consent, I recorded an undertaking by Mr Wright, pending further order, not to provide consulting services directly or indirectly to the ASX or any related corporation including but not limited to providing any of the services set out in a draft intrusion detection service agreement a copy of which was annexed to the consent order. 49 On 17 October 2003, ASX wrote to Mr Wright informing him that they had received a copy of the court order. The letter stated: "The Order means that you cannot, pending any further order, directly or indirectly provide consultancy services to Australian Stock Exchange Limited or any related company. This includes attendance at ASX premises, or contact with any ASX personnel to discuss any business matters. Accordingly, I am informed by our legal department that the informal arrangements in place between us must cease immediately."

On that day two calls were made to ASX from Mr Wright's mobile. 50 On 20 October 2003, two telephone calls to RIC were charged to Mr Wright's mobile account. 51 Mr Ryan gave evidence that on 21 October 2003 he called a representative of News and asked whether Mr Wright was working there. He received a positive response. When told that Mr Wright was restricted from performing work for DeMorgan clients, the representative said: "I guess I had better cancel his contract". On that day two telephone calls to RIC were charged to Mr Wright's mobile account. 52 On 22 October 2003, an email was sent from Mr Wright's email address to News setting out the address, telephone and facsimile numbers, ABN and bank details of Ridges. 53 On 23 October 2003, an email was sent from Mr Wright's email address to News in response to an email from News requesting a copy of the original scope of work and proposal sent by Mr Wright stating that there were a total of five days worked at $10,000 ex GST. The email message continued: "I have to go in and install scripts on the mgmt server. This is complete after this". A tax invoice dated 23 October 2003 from Ridges to News for $10,000 plus GST for five days mentoring and handover from ex staff was received by News on 27 October 2003. A telephone call to RIC and a telephone call to News were charged to Mr Wright's mobile account on 23 October 2003. 54 On 30 October 2003, McDougall J made orders in terms of the undertakings given on 4 September 2003 and on 17 October 2003 under a notice of motion filed by leave on 23 October 2003. The charges of contempt were restricted to the period ending on 23 October 2003. 55 There was no sufficient evidence connecting Mrs Wright with the activities of Mr Wright. She had been an active director at DeMorgan working closely with Mr Wright. There were numerous telephone conversations between Mr and Mrs Wright charged to Mr Wright's mobile account. That evidence comes nowhere near the burden of establishing beyond a reasonable doubt that Mrs Wright breached the undertakings or aided and abetted Mr Wright in doing so. 56 It was submitted that a reasonable doubt existed in the absence of direct proof that Mr Wright sent the emails or conducted the telephone conversations charged to his mobile. It was submitted that anyone with access to the internet could have sent the emails using Mr Wright's email address. It was submitted that anyone with access to his mobile could have made the telephone calls. 57 But it is not necessary to establish a conclusion beyond a reasonable doubt that each individual piece of evidence relied upon is proved on that standard. In cases depending upon circumstantial evidence a jury should not reject one circumstance because, considered alone, no inference of guilt can be drawn from it. The jury must consider the weight that is to be given to the united force of all circumstances put together (Chamberlain v The Queen (No 2) (1983-1984) 153 CLR 521 at 535, Shepherd v The Queen (1990) 170 CLR 573 at 580). 58 When the evidence is viewed as a whole the inescapable inference is that Mr Wright sent the emails and Mr Wright made the telephone calls. He was the party with the interest in performing services for ASX, RIC, News, Val Morgan and HREOC. He was the person who signed himself in at ASX on behalf of Ridges. He was the person identified by ASX and News as providing services to them. 59 There is no reasonable doubt in my mind that someone else made the telephone calls. The pattern was persistent and no one else could reasonably be supposed to have had the interest and established the pattern of calls revealed by the evidence. The numerous calls charged to the mobile account between Mr and Mrs Wright establishes beyond reasonable doubt that he spoke with her. If someone else had the mobile, Mrs Wright would not have been party to so many calls to and from Mr Wright's mobile. 60 Like considerations apply to the emails. It was Mr Wright on behalf of Ridges who had the interest in the messages relayed. Mr Wright was working at News' premises. News received an invoice from Ridges in an amount identified in an earlier email sent from Mr Wright's email address. The inference is inescapable that the email was sent by him. The vulnerability assessment results prepared by Ridges for RIC makes it plain that Mr Wright was performing services to which the emails passing to and from Mr Wright's email address from and to RIC were received and sent by him. The letter from ASX terminating the informal arrangements and the pattern of attendance by Mr Wright at their premises leads to the inevitable conclusion that the emails passing to and from Mr Wright's email address with respect to ASX were sent and received by him and not some unidentified third party. 61 A business has been described as activities engaged in for the purpose of profit on a continuous and repetitive basis (Hope v Bathurst City Council (1980) 140 CLR 1 at 8-9). The expression "carrying on business" has been described as a course of conduct involving the performance of a succession of acts, and not simply the effecting of one solitary transaction (Smith v Capewell (1979) 142 CLR 509 at 517). In my view the pattern of activity revealed by the above evidence constituted the carrying on of a business by Mr Wright or by Ridges through the agency of Mr Wright. 62 In my view, the charges against Mrs Wright should be dismissed and a declaration that Mr Wright is guilty of contempt of court in terms of paragraph 1 of the notice of motion should be made. 63 I will hear the parties on costs and on the appropriate form of punishment that should be meted out to Mr Wright.

Ryan v Wright

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Judgment (7 paragraphs)

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