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[2005] FCA 802
Federal Court of Australia
1997-10-17
Wilcox J, Lindgren J
Original judgment source is linked above.
INTRODUCTION 1 On 22 March 2005, in proceeding N 110 of 2004 in the original jurisdiction of the Court ('the primary proceeding'), Wilcox J made Mareva orders against, inter alia, the present applicants. They now apply, by notice of motion, for an extension of time in which to seek leave to appeal from his Honour's orders, and, an extension being granted, leave to appeal from those orders. 2 In the primary proceeding, the applicants were the present six respondents, together with 24 other applicants. I do not know why those 24 other applicants are not proposed to be respondents to the appeal, and have not been joined as respondents to the present motion. In the primary proceeding, the respondents were the present applicants ('the Sharman Companies') who were respectively the first and second respondents, LEF Interactive Pty Ltd ('LEF') as third respondent, Nicola Anne Hemming (Ms Hemming) as fourth respondent, and a further six respondents. 3 The primary proceeding arises out of an allegation by the applicants in that proceeding (for convenience, I will refer to them simply as 'Universal') of infringement, on a massive scale, of copyright in Universal's sound recordings, on the Kazaa file-sharing system which is supplied by the Sharman Companies. Universal alleges that the Sharman Companies participated in billions of infringements per month during the last three years. There was evidence before his Honour that, although Universal has not sought to calculate the amount of its damages, it was expected that the amount 'could be in the order of several billion dollars'. 4 On 4 February 2005, Ms Hemming and Richard Kilmer-Barber settled a sale of their home at Castle Cove in Sydney to John Simon Myers for $2,100,000. Title was transferred on 16 February 2005. Ms Hemming and Dr Kilmer-Barber continued to occupy the property. Ms Hemming's interest in the home was apparently her only substantial asset within the jurisdiction. There was evidence before his Honour that Mr Myers occupied some role such as accountant or bookkeeper of the Sharman Companies. Ms Hemming was the Chief Executive Officer of the Sharman Companies. Out of the proceeds of sale, $1,116,405.63 was transferred to a bank account in Vanuatu (of which more below), which is where the Sharman Companies are incorporated. LEF is incorporated in Australia, and Ms Hemming is an Australian resident. 5 It was that act of Ms Hemming's that prompted Universal to apply for Mareva relief by notice of motion filed in the primary proceeding on 1 March 2004. The orders made, however, were made against the Sharman Companies as well as against Ms Hemming and LEF. 6 In substance, the Sharman Companies wish to say that any Mareva relief should have been limited to an order against Ms Hemming, or against her and LEF. They wish to say that, at the time when his Honour made the Mareva orders, there was no evidence before the Court that the Sharman Companies had assets, let alone evidence of a threat by them to remove, conceal or dissipate assets.
THE FACTS IN MORE DETAIL 7 Each of the Sharman Companies is an international company limited by shares incorporated under the International Companies Act No 32 of 1992 of the Republic of Vanuatu. Sharman Networks Ltd ('Sharman Networks') was incorporated on 15 January 2002. It has two issued shares, one of which is held by Global Nominees Ltd and the other by Credit Facilities Ltd. Those companies hold the shares on behalf of Trustees International Ltd ('TIL'), formerly called 'Vanuatu International Trustee Co Ltd' ('VITCO'), as trustee of 'the Sharman Trust'. 8 TIL is a company owned and controlled by BDO Barrett & Partners, Chartered Accountants and Business Advisers of Port Vila, Vanuatu ('BDO'). One of the services provided by BDO is to assist in the formation of discretionary trusts in Vanuatu and the provision of TIL as a ready-made trustee for the purpose. 9 Sharman License Holdings Ltd ('Sharman Licence Holdings') was incorporated on 6 June 2003 and also has two issued shares. They are both held by Sharman Networks, but the beneficial owner of them is, again, TIL as trustee of the Sharman Trust. 10 The instrument constituting the Sharman Trust is not in evidence, notwithstanding efforts by Universal to compel production of it, but evidence referred to below reveals some aspects of the Sharman Trust. 11 The director of each of Sharman Networks and Sharman License Holdings is Worldwide Nominees Ltd. 12 Global Nominees Ltd, Credit Facilities Ltd and Worldwide Nominees Ltd are all incorporated in Vanuatu and are all 'BDO companies'. Each of Global Nominees Ltd and Credit Facilities Ltd has declared that it holds its shareholding in Sharman Networks on behalf of TIL as beneficial owner. 13 His Honour accepted that the Sharman Companies were controlled by Ms Hemming by reason of a 'client services agreement' between her and TIL dated 8 April 2002. By that agreement Ms Hemming purported to appoint TIL, 'the principals of the firm of BDO and any entities owned or controlled by them, together with the officers and employees of the firm', to provide certain services as requested by 'the Principal' from time to time. The expression 'the Principal' was defined to mean Ms Hemming, but also to include her 'nominees, successors and assigns as well as any companies or trusts created upon the instructions of such a person or persons and his or their nominees, successors and assigns, including those entities specified in Schedule A [to the client services agreement]'. In Schedule A appeared the names of Sharman Networks and the Sharman Trust. By the client services agreement, TIL undertook at its discretion to act on the instructions given or purporting to have been given by the Principal. The client services agreement provided that the agreement might be terminated by either party giving 14 days' prior written notice. 14 The payment of $1,116,405.63 referred to earlier was made to TIL by being transferred from Australia into TIL's bank account in Vanuatu. There was in evidence before his Honour a letter dated 3 February 2005 from TIL (signed by Mr Barrett of BDO) to Greenstein Shakenovsky, the solicitors who acted for Ms Hemming and Dr Kilmer-Barber as vendors on the sale, to the effect that that was the amount required to pay out 'the loan due by Nicola Hemming and Dr Richard Kilmer-Barber to Trustees International Limited on Friday 4 February'. An attachment to the letter showed an original loan of US$ 810,000.00 on 15 March 2003 and interest from that date to 4 February 2005 of US$ 53,651.40, none of which had been paid. 15 As noted earlier, the Sharman Companies were ultimately beneficially owned by TIL as trustee of the Sharman Trust, and, notwithstanding the reference to 'discretion' and the right of termination, the client services agreement provided evidence before his Honour that TIL, including TIL as trustee of the Sharman Trust, was likely to act at the direction of Ms Hemming. Since TIL, as trustee of the Sharman Trust was the ultimate beneficial owner of all the issued shares in the Sharman Companies, there was evidence before his Honour to show that they were also likely to act at her direction. 16 On 4 March 2005 Universal moved for Mareva orders, including an order requiring affidavits disclosing assets. Stone J accepted interim undertakings from, relevantly, the Sharman Companies, and at their request and with the consent of the primary judge, Wilcox J, adjourned the motion to 22 March 2005 before him. That date was the date on which final submissions were to be made to his Honour in the substantive proceeding.
17 On 22 March 2005 his Honour heard the motion, virtually in the course of hearing final submissions in the substantive proceeding. The Sharman Companies did not adduce evidence opposing the making of the Mareva orders. The orders which his Honour made can be summarised as follows: [amended n/m A]
That the Sharman Companies and LEF be restrained from disposing of, removing from Australia, or dealing with, assets in or outside Australia other than for the purposes specified in the order.
That Ms Hemming be restrained until further order from disposing of, removing from Australia, or dealing with, in any way, any of her money, property or other assets, including, without limitation, the Castle Cove property, together with any proceeds of sale of her interest in it and her shareholding in LEF, other than for the purposes specified in the order.
That the Sharman Companies, LEF and Ms Hemming be restrained until further order from causing any money, property or other assets of the Sharman Trust, whether located within or outside Australia, to be dealt with other than for the purposes specified in the order.
The Court noted that no person other than the Sharman Companies, LEF and Ms Hemming was to be affected by the orders or concerned to inquire whether any instruction was or might be in breach of them, unless the orders were enforced by the courts of the States or Territories in which any of the assets of the Sharman Companies, LEF or Ms Hemming were located.
That Ms Hemming make, file and serve an affidavit disclosing her assets by 1 April 2005.
That the Sharman Companies and LEF make, file and serve an affidavit disclosing their respective assets by 8 April 2005 (in fact the date appears to have been originally 1 April 2005, and to have been extended by Wilcox J on 23 March 2005 to 8 April 2005).
18 There are three proposed grounds of appeal. [amended n/m B] The first is that his Honour erred in law in that circumstances enlivening the jurisdiction to make Mareva orders did not exist. The second is an alternative ground: that his Honour erred in exercising discretion to make the orders or that they stand outside the limits of a sound discretionary judgment, or were inappropriate in the circumstances of the case. The third ground is that his Honour erred by failing to provide any, or alternatively, adequate, reasons for his decision. His Honour's reasons were not delivered in the conventional written form, but are to be discerned from the transcript of the oral proceedings before him, in particular, from the exchanges between his Honour and counsel on 22 March 2005.
19 Order 52 r 10(2)(b) of the Federal Court Rules provides that, where an application for leave to appeal is not made orally to the Judge who pronounced the judgment at the time of its pronouncement, the notice of motion seeking leave to appeal must be filed and served within seven days from the pronouncement, 'or within such further time as the Court or a Judge may allow'. In this case, the period of seven days expired on 29 March 2005, but the notice of motion was not filed until 12 April 2005 - 14 days late.
20 In order for the Court to allow further time for the filing and serving of an application for leave to appeal from an interlocutory judgment, the following conditions must be satisfied:
21 The Sharman Companies' notice of motion was supported by an accompanying affidavit of Simon Jacob Morris, a partner in Piper Alderman, the present solicitors for the Sharman Companies. Mr Morris, who was cross-examined, states that Piper Alderman were retained by the Sharman Companies on Wednesday 6 April 2005 - eight days outside the period for moving for leave to appeal. He states that prior to his firm's being retained, the Sharman Companies, LEF and Ms Hemming were represented by Clayton Utz.
22 In his affidavit, Mr Morris states that several days were required after 6 April 2005 to consider whether, in light of the material relating to the circumstances in which the Mareva orders were made, leave to appeal should be sought.
23 It will recalled that the Mareva orders were made by Wilcox J on 22 March 2005. At that time, the Sharman Companies were represented by senior and junior counsel and Clayton Utz. (Different senior and junior counsel appeared for the Sharman Companies before me.) The seven-day period for the filing of an application for leave to appeal expired on 29 March 2005. Subject to one qualification noted below, the evidence is silent in relation to the period from 22 March 2005 to 6 April 2005.
24 On 8 April 2005, the last day for the filing of the Sharman Companies' affidavits disclosing their assets, the Sharman Companies approached Hely J as Duty Judge seeking a stay of that order until 14 days after the handing down of reasons for judgment in a proceeding in the Vanuatu Supreme Court (which was later discontinued). Hely J dismissed the application ([2005] FCA 406]). Before Hely J, the Sharman Companies were represented by their new and present solicitors, Piper Alderman.
25 The Sharman Companies filed the present notice of motion and supporting affidavit of Mr Morris on 12 April 2005.
26 Pursuant to leave, Mr Morris gave oral evidence as to the circumstances in which his firm was retained in place of Clayton Utz. On Wednesday 6 April 2005, Mr Grieve, another partner in his firm, told him that the Mareva orders had been made ' in the context of conduct of ... one of Clayton Utz's other clients, and that in these circumstances the company felt that they ... needed separate representation, they needed separate advice'. I assume that the 'other clients' were Ms Hemming and LEF. Mr Grieve, although in Court, did not testify before me.
27 Mr Morris said that at the same time (on 6 April) he was instructed to apply for a stay of the order for an affidavit as to assets, and that it was only as he 'got on top of' the facts, that an appeal emerged as an appropriate course to pursue.
28 There was evidence that on Friday 8 April, Piper Alderman were put in substantial funds by TIL on behalf of the Sharman Companies, but Mr Morris did not agree that he had been waiting for the funds before doing any work. In any event, apparently the delay would have been one of only two days (from 6 to 8 April). He agreed that neither Sharman Networks nor Sharman License Holdings had its own bank account, and that TIL held funds as bare trustee at call for them, or at least for Sharman Networks.
29 It was put to Mr Morris that there was no conflict of interest between Ms Hemming and the Sharman Companies because:
(a) TIL as trustee of the Sharman Trust was the ultimate beneficial owner of all the shares in the Sharman Companies; and
Mr Morris accepted the correctness of (a). As to (b), senior counsel for the Sharman Companies indicated that, in the present application, the Sharman Companies did not make so bold as to seek to reagitate a finding made by his Honour that Ms Hemming was in a position to control the disposition of funds the subject of the Sharman Trust. In any event, Mr Morris also agreed that Wilcox J had appeared to accept that through the client services agreement referred to earlier, Ms Hemming controlled the Sharman Trust.
30 Mr Morris said that in a conversation, Mr Herron of Clayton Utz had told him (Mr Morris) that he (Mr Herron) 'had a perception of conflict, and that was a reason why the company sought separate advice'. Mr Morris added 'It [Mr Herron's explanation] didn't really go any further that that'. Mr Morris said that he did not question Mr Herron further about what he (Mr Herron) thought the conflict was, or ask him when the perception of a conflict arose. Accordingly, we know only that Mr Herron told Mr Morris that, at some (unidentified) time between 22 March 2005 and 6 April 2005, he (Mr Herron) perceived that there was a conflict of interest.
31 Mr Morris agreed that he had seen Mr Herron on each of the two days preceding the hearing before me but had not asked him to give evidence explaining what he perceived the conflict to be.
32 Finally, asked if he could explain 'how conceivably there could be a conflict', if Ms Hemming controlled the Sharman Trust, and the Sharman Trust controlled the Sharman Companies, Mr Morris said, 'Well, sitting here, no'.
33 In my opinion, the Sharman Companies have not satisfactorily explained their delay, not because they have not established that there was in fact a conflict, but because they have not established when the perception of a conflict arose and because I am not satisfied, in the light of the evidence pointing against the existence of a conflict, that the perception of a conflict explains the delay. The present application has been marked by the lack of testimony of all those who could have given a full and frank explanation: Ms Hemming, Mr Herron, and Mr Grieve.
34 The time at which Mr Herron perceived the existence of a conflict is important, particularly against the background that the Shaman Companies had available the best of legal advice. If, for example, Mr Herron perceived the existence of a conflict as early as 24 March, the question would arise why the change of solicitors did not occur until 6 April. If, on the other hand, he did not perceive the conflict until 6 April, the delay until then would remain unexplained.
35 Ordinarily, one would expect applicants for an extension of time placed as the Sharman Companies are to be forthcoming in seeking to explain to the Court the nature of the conflict of interest; the time when, and the circumstances in which, it came to light; and the necessity of separate legal representation.
36 The Sharman Companies' evidence in relation to the suggested conflict is that Mr Morris's firm was retained on 6 April 2005 in place of Clayton Utz because, at some unidentified time, Mr Herron had perceived a conflict between the interests of Ms Hemming and LEF on the one hand and the Sharman Companies on the other, but sitting in the witness box, Mr Morris could not explain 'how conceivably there could be a conflict'.
37 The point is not simply that the Sharman Companies rely on the hearsay evidence of Mr Morris. It is that, in the light of evidence pointing against the existence of any conflict, his evidence does not satisfactorily explain the Sharman Companies' delay. This is, of course, no criticism of Mr Morris, who testified to the extent that his own knowledge and involvement allowed.
38 Because the Sharman Companies' delay has not been satisfactorily explained, the extension of time sought should be refused with costs. Accordingly, it is unnecessary for me to consider either the arguability of the proposed grounds of appeal, or the application for leave to appeal itself.
39 For the above reasons, the motion brought by the amended notice of motion filed in Court on 26 May 2005 should be dismissed with costs.
I certify that the preceding thirty-nine (39) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lindgren.
Counsel for the Applicants: Mr J C Kelly SC and Mr A P Coleman
Counsel for the Respondents: Mr A J L Bannon SC, Mr M R Speakman SC and Mr S W Balafoutis
Sharman License Holdings Ltd
Universal Music Aust Pty Ltd
(1991) 33 FCR 397