TZ Ltd v ZMS Investments Pty Ltd [2009] NSWSC 1465 | Case summary

4286/09 TZ LTD V ZMS INVESTMENTS PTY LTD JUDGMENT 1 HIS HONOUR: By a Notice of Motion dated 27 November 2009 and an amended Statement of Charge dated 30 November 2009, the plaintiff as applicant seeks an order that the first and third defendants, ZMS Investments Pty Ltd ("ZMS") and Andrew Sigalla (Mr Sigalla) be found guilty of contempt for failing to comply with orders made by the court on 16 September 2009, and that they be convicted and made liable to such punishment as the court thinks appropriate. 2 Part 55 of the Supreme Court Rules governs such an application. Part 55 rule 6 stipulates that the application is to be made by a notice of motion where (as here) the contempt is in connection with proceedings in the court, and rule 7 requires a statement of charge specifying the contempt of which the contemnor is alleged to be guilty. These rules have been satisfied in the present case. Part 55 rule 8 says that the evidence in support of the charge is to be by affidavit. Affidavits were read on the application, and oral evidence was given. 3 The relevant principles concerning such an application were conveniently summarised by Finn J in Metcash Trading Ltd v Bunn (No 5) [2009] FCA 16 at [9], in terms that have been applied in this court on several occasions (for example, by Barrett J in ASIC v Matthews [2009] NSWSC 77 at [5]): " First , the order alleged to be breached must be clear and unambiguous: see Australian Consolidated Press Ltd v Morgan (1965) 112 CLR 483 at 515-516; and be capable of being complied with: see Australian Prudential Regulation Authority v Siminton (No 7) [2007] FCA 1609 at [40]. Secondly , the proper construction of an order is not a matter of fact but a question of law: Universal Music Australia Pty Ltd v Sharman Networks Ltd (2006) 150 FCR 110 at [19]. Thirdly , it is not necessary for an applicant to prove that an alleged contemnor intended to disobey the order: ibid, at [17]; nor is it necessary to prove that the alleged contemnor understood the true meaning of the terms of an order or that he or she was aware that his or her conduct constituted a breach of the order: Microsoft Corporation v Marks (No 1) (1996) 65 FCR 117 at 143. Nonetheless it may be highly relevant to the question of penalty that the alleged contemnor disobeyed an order because he or she placed a construction on it that was not it is s true construction: Universal Music Australia Pty Ltd at [38]. Fourthly , deliberate conduct which is in breach of a court order will constitute wilful disobedience of the order, and therefore a civil contempt, unless the conduct be casual, accidental or unintentional: Louis Vuitton Malletier SA v Design Elegance Pty Ltd (2006) 149 FCR 494 at [6]. Fifthly , the facts in issue in a contempt charge must be proved beyond reasonable doubt: Witham v Holloway (1995) 183 CLR 525 at 534." 4 ZMS is a company formed in Australia and its directors are Mr Sigalla and Melissa Anne Sigalla, Mr Sigalla's wife. The sole shareholder is identified in an ASIC historical company extract as Melissa Anne Caplice, who has the same residential address as Mr and Mr Sigalla. Mr Sigalla's evidence in cross-examination implies that Melissa Anne Caplice is Melissa Anne Sigalla, his wife. He said that ZMS is a company of himself and his wife, controlled by them, and that both he and his wife make decisions on behalf of the company. 5 On 16 September 2009, after a hearing at which each party was represented by Senior Counsel, the court made interlocutory freezing orders against ZMS under UCPR 25.11, with effect until 19 March 2010. The orders included (in para 1(a)(ii)) an order restraining ZMS, by its directors, officers, agents, employees or others acting on its behalf, from: "selling, charging, mortgaging or otherwise dealing with or disposing of or causing or permitting to be sold, charged, mortgaged or otherwise dealt with or disposed of, all or any of its assets whether located within Australia or outside Australia". 6 Para 1(b)(ii)(A) of the orders stipulated that for the purposes of sub-paragraph (a), the expression "its assets" included, specifically, a number of identified properties including units 6, 12, 18 and 19 at 19 Aero Rd Ingleburn NSW 2565. Relevant "carve-out" provisions are considered below. In my view there is no basis for doubting that the orders are clear and unambiguous and capable of being complied with, therefore satisfying the first requirement is stipulated in the Metcash Trading case. 7 It seems to me clear from the evidence, including Mr Sigalla's evidence in cross-examination, that he knew and understood the terms of the freezing orders when they were made. He acknowledged that he was present, instructing his solicitor and senior counsel, on 16 September, and that he consented to the orders. He had the benefit of legal advice then and at all times subsequently. It is appropriate to infer, and I do infer, that he was properly advised as to the terms and effect of the orders by his legal representatives. 8 Mr Sigalla said he consented to the orders were on the assumption that he would have access to over $500,000 in the Netherlands bank account, and apparently he later discovered that the Netherlands bank with whom he had margin lending arrangements would not allow him access to those funds. But his evidently false belief in the availability of the Netherlands account does not detract from the fact that he was aware of and understood the nature and content of the freezing orders. 9 In cross-examination Mr Sigalla agreed that on 16 September he understood that ZMS could not sell or deal with or otherwise dispose of any of its assets, and he understood that this included any unit at Ingleburn, and that under the orders ZMS was not permitted to exchange contracts for the sale of any of those units. He also gave evidence in cross-examination indicating that he understood the effect of the "carve-out" provisions of order 2(b), which are discussed below. He understood that if he wanted to, he could go back to the court and have the court vary its orders. 10 The allegation in the Notice of Motion and the amended Statement of Charge is that in breach of the court's orders, ZMS entered into a contract for the sale of Unit 6, 19 Aero Road, Ingleburn on 10 November 2009, and Mr Sigalla caused ZMS to enter into that contract and therefore was involved in the breach of the orders. I turn to consider the evidence supporting that allegation. 11 ZMS purchased the land at 19 Aero Road Ingleburn and constructed 18 industrial units, all of which were sold except for units 6, 12 and 18. Mr Sigalla gave evidence that he intended ZMS to keep those three units because they had high rental returns. ZMS borrowed from ING on a building and construction facility, and when the building was completed, the loan was refinanced in 2006 with Perpetual Trustee Company Ltd ("Perpetual"), which obtained a registered first mortgage over the title to those properties. 12 On about 27 July 2009, Perpetual served a default notice on ZMS under s 57(2)(b) of the Real Property Act 1900 (NSW), claiming a total amount due of $1.815 million comprising principal of $1.759 million together with interest and fees. On 28 September 2009 Perpetual's solicitors, Gadens, served a notice on the tenant of Unit 6 under s 63 of the Real Property Act, requiring that rent be paid to it. The tenant of Unit 6 was described in the letter as Tommy Li, Bestwin Quality Furniture, though in fact the tenant was Bestwin Enterprises Pty Ltd. 13 According to Mr Sigalla, early in August 2009 the solicitors who were acting for ZMS on the conveyancing transaction, Kemp Strang, prepared a contract for sale of Unit 6 in favour of Bestwin Enterprises. He said the contract was signed by Bestwin Enterprises and was held by Kemp Strang with a deposit cheque for $91,000. That is confirmed by Ex A5, which is a letter to Kemp Strang from the purchasers' solicitors, Allan Wong & Co, enclosing the contract and deposit, except that the purchasers described in the contract were Yuanhui Li and Honghui Li, who are the directors of Bestwin Enterprises. 14 Mr Sigalla said that in late October 2009 (although perhaps it was later, in November: T 28), he had a conversation with Tommy Li, as follows: Mr Li : "I have received a letter from Gadens instructing me to pay the rent directly to Perpetual, trust account. I have been advised by my solicitor that that's not legal and that it shouldn't have to pay that and it's clear that you are in some financial difficulties so I am going to withdraw from exchanging on this contract and wait for Perpetual to go mortgagee-in-possession and then buy the property off them. I can get the property cheaper that way." Mr Sigalla : "I am not in default and I want the sale to go through but I need permission from ASIC and TZ to consent to the sale." 15 Mr Sigalla said in cross-examination that his understanding at the time of this conversation was that unless he obtained the consent of ASIC and TZ, the sale would be in breach of the court's orders. He said he sought TZ's consent but was informed that it had not been given. 16 Mr Sigalla (affidavit of 4 November 2009, para 6) that after that conversation he instructed Kemp Strang "to seek an instruction from Gadens and Perpetual to write a letter to me stating that if the exchange of contracts did not take place that Perpetual would sell the unit as mortgagee-in-possession". He said he sought that letter because he wanted to ensure there was no suggestion that any mortgagee sale was at his behest in contravention of the freezing orders. However, the facts are open to the alternative construction that he sought the letter because he wanted to provide a justification for selling at the negotiated price, notwithstanding the freezing orders. 17 Gadens had in fact written to Kemp Strang on 28 October 2009, saying that Perpetual's current intention was to accept $910,000 less reasonable agent's commission and vendor legal costs, and inquiring as to whether contracts had been exchanged. On 29 October Kemp Strang wrote to Gadens saying ZMS was keen to proceed to exchange immediately, but: "On advice given to our client by the firm representing him in the ASIC proceedings, to ensure there is no issue as regards the ASIC proceedings, could you please seek instructions and advise if Gadens or Perpetual could provide a letter along the lines of the following. It can be 'without prejudice' and I understand is intended to be produced to ASIC for consent so that the Unit 6 sale can proceed immediately." 18 The e-mail attached a draft letter, which was substantially the same as the letter in fact subsequently written by Gadens on 9 November, and referred to below. There is no suggestion in the evidence that ASIC's "consent" was sought or obtained. 19 By their letter dated 9 November 2009 (apparently transmitted early in the morning of 10 November) the solicitors for Perpetual, Gadens, wrote to Kemp Strang saying that Perpetual as mortgagee had, on a without prejudice basis, approved the sale of Unit 6 for $910,000, with all proceeds of sale (less agent's commission and legal costs) being paid to the mortgagee. The letter ended as follows: "We are instructed to confirm that due to the current ASIC proceedings and that the loan has expired and is in default, in the event that the mortgagor is unable to proceed with the exchange and settlement of Unit 6 in a timely manner, the mortgagee intends to take whatever action necessary under the security document as is necessary, most likely resulting in the mortgagee taking possession of and disposing of the assets as mortgagee in possession." 20 Mr Sigalla gave evidence (affidavit of 14 December 2009) that he interpreted the letter as meaning that if the sale did not take place in a "timely manner", the mortgagee would sell the unit itself, and would do so almost immediately. He said there was a real prospect that if the property was sold under a mortgagee sale, the contract sum would be less than $910,000, and he noted that as a guarantor he would be personally liable for the shortfall. 21 In his affidavit of 4 November 2009, Mr Sigalla said there was a real risk that Perpetual would step in and sell the real property at Ingleburn, and as a director ZMS, he did not wish to have any of the properties sold by a mortgagee in possession. He said the freezing orders were not preserving his asset position, but instead they were destroying it. 22 He also gave evidence that on the weekend of 7-8 November 2009, units 6 and 12 at Ingleburn were advertised for auction sale on 3 December 2009. The advertisement in realestate.com.au, which is in evidence (page 51 of AS-4), does not say that the sale is a mortgagee sale. However, according to his solicitor's e-mail to the plaintiff's solicitor on the evening of 10 November 2009, Mr Sigalla visited the lots on the weekend of 7-8 November and observed a sale sign posted in front of them indicating a mortgagee in possession sale. 23 Mr Sigalla also gave some rather vague oral evidence about conversation he had with Paul Burns of Perpetual in which Mr Burns told him that Perpetual's intention was that Unit 6 about to be "taken out from underneath" him. 24 In fact contracts for the sale of Unit 6 to Yuanhui Li and Honghui Li were exchanged no later than 10:16 a.m. on 10 November 2009 for the purchase price of $910,000, the deposit being $91,000 (see p 47 of Ex AS-4 to Mr Sigalla's affidavit of 20 November 2009). Mr Sigalla gave evidence (affidavit of 20 November 2009, para 16) that he instructed Kemp Strang to exchange on the sale, though he incorrectly gave the date as 11 November. He said in cross-examination that decision to exchange contracts on Unit 6 was made by him and not by his wife. He said in his affidavit evidence he gave the instruction in order that the property not be sold under "fire sale conditions" by the mortgagee. He explained (affidavit of 20 November 2009, para 20): "I was left with no alternative in my view but to undertake this step. Had I not done this it was clear to me from the correspondence passing between Kemp Strang and Gadens that Perpetual would have used its powers as mortgagee in possession to sell the property. Had this happened ZMS would have suffered a greater loss. The mortgagee sale would have been driven by a desire to liquidate the property quickly without proper consideration being given to its true market value." 25 It appears that settlement of the sale has not yet taken place. Mr Sigalla said all of the proceeds of sale after deducting real estate agent's commission's and legal fees and statutory adjustments, would be paid on settlement to Perpetual, and he is prepared to give an undertaking to that effect. 26 On 9 or 10 November Mr Sigalla gave instructions to Kemp Strang to exchange contracts for the sale of Unit 6 for $910,000. I accept his evidence that he believed he had no practical alternative to proceeding with the exchange, because if he had not done so, Perpetual would have sold the property as mortgagee, and that the sale would have been at a lower price, to the detriment of ZMS as mortgagor and himself as guarantor. However, he is evidence indicates to me that when he gave those instructions, he was aware that the exchange of contracts was prohibited by the freezing orders. He accepted that he had not exchanged contracts earlier, even though a signed contract and the deposit were held by Kemp Strang, because he understood the orders were an obstacle to doing so. In his conversation with Mr Li in late October, he referred to obtaining the consent of ASIC and TZ, and in cross-examination he accepted that he believed at the time that in the absence of that consent, exchange of contracts would breach the orders. 27 In cross-examination he gave evidence to the effect that he was aware of and understood the orders on 16 September, but he said that when he gave instructions to exchange contracts he was not thinking clearly, as he was trying to preserve his asset in face of the likelihood that if he did not act, the mortgagee would sell it, and he was not thinking about the court's orders (T 23-4). 28 I reject Mr Sigalla's evidence that he was not thinking about the court's orders when he gave the instruction to exchange. He gave evidence (T 24-25) that he had a meeting with his solicitors and barrister before exchanging contracts, in which he was told that their interpretation of the orders was that it was necessary to "put the other party on notice". That evidence implies that the question whether the exchange of contracts would be in compliance with the orders was in fact a matter of concern to him shortly before he gave instructions to effect the exchange, notwithstanding his evidence that he was not thinking about the court's orders when he gave the instruction to exchange. That implication is supported by the terms of Gadens' letter to Kemp Strang of 9 November, which notes that Kemp Strang was holding the signed contract and deposit and was awaiting confirmation from ZMS that proceeding with the sale would not be in breach of "current ASIC proceedings". In cross-examination Mr Sigalla accepted that when he read that part of the letter he appreciated that it was saying that exchange would not happen until such time as ZMS was satisfied that the exchange would not constitute a breach of the court's order (T 26). Mr Sigalla accepted that he had seen that letter before giving his instructions to exchange. 29 Therefore, by giving instructions for the exchange, Mr Sigalla as agent for ZMS intentionally and knowingly caused ZMS to contravene the freezing orders: specifically, by selling an asset of ZMS contrary to order 1(a)(ii), the asset in question being specifically identified in order 1(b)(ii)(A). The breach was deliberate and constituted civil contempt. There is no basis for arguing that his conduct in authorising the exchange was "casual, accidental or unintentional" for the purposes of the fourth principle stated by Finn J in the Metcash Trading case. Although the Metcash Trading decision, and other cases, indicate that it is not necessary to demonstrate that the contemnor knew that their conduct constituted a breach, my finding in the present case is that Mr Sigalla had that knowledge at the time when he issued the instructions to exchange. 30 In my opinion, his false evidence that he had not been thinking about the court's orders when he authorised exchange of contracts, adds to the seriousness of the contravention. Later in his cross-examination, while continuing to insist that he was not thinking about the court's orders when he gave the instruction to exchange contracts, he said, "In retrospect I know now it's a breach of the court's order and I apologise". Any benefit he might otherwise have obtained from apologising to the court is heavily qualified by the fact that he continued to insist, falsely, that the court's orders were not a matter under consideration by him when he gave the instruction to exchange. 31 Senior counsel for ZMS and Mr Sigalla made the incredible submission that an exchange of contracts for sale does not constitute a breach of order 1(a)(ii) because an exchange of contracts is not a "sale" for the purposes of the order. "Sale" is defined in Butterworths' Australian Legal Dictionary (1997) as including an agreement to transfer property, and there is no basis for concluding that this ordinary meaning was intended to be departed from in favour of a narrower concept; on the contrary, the scope of the order is expanded in various ways in order 1(b). Additionally, upon the exchange of contracts for the sale of land the purchaser acquires an immediate equitable interest in the property and an enforceable right to possession on completion, and so there is a dealing and disposal of property at that time, contrary to the order. 32 The solicitor acting for ZMS and Mr Sigalla in these proceedings is Damian Ward of HWL Ebsworth Lawyers, whereas Kemp Strang was acting on the conveyancing matter. After the exchange of contracts on 10 November 2009, there was correspondence between Mr Ward and Mr Pozniak of Landerer & Co, who acts for the plaintiff, from which it appears that both solicitors were under the impression that an exchange of contracts was in contemplation but had not occurred. 33 First, in an e-mail written to Mr Pozniak on the evening of 10 November, after contracts had in fact been exchanged on Unit 6, Mr Ward purported to notify ZMS that although Mr Sigalla had refrained from exchanging contracts with Bestwin on the basis of the freezing orders, it had become "immediately necessary" for the exchange to be completed, and accordingly ZMS would be entering into a contract for sale with Bestwin as soon as possible, pursuant to the exclusion provided by order 2(b)(iii). 34 Order 2(b)(iii) is one of the "carve-outs" to the freezing orders. It needs to be considered in context. Para 2 begins by saying that the orders do not prevent ZMS from doing several things. The first permitted step, in para 2(a), is to withdraw the whole of the amount standing to the credit of a specified bank account in the Netherlands and transferring that amount into a specified St George bank account in Sydney in the name of Mr Sigalla. The second permitted step (para 2(b)) is to pay from the St George bank account "whatever the amount standing to the credit of that account exceeds $500,000, amounts not to exceed $500,000 in the aggregate" for certain permitted purposes. The permitted purposes are reasonable living expenses and reasonable legal expenses, and also: "(iii) business expenses bona fide and properly incurred; and (iv) discharging obligations bona fide and properly incurred under a contract entered into before this order was made, provided that before doing so the Sigalla defendants give the plaintiff's solicitors and ASIC's solicitors, if possible, at least two working days written notice of the particulars of the obligation". 35 It seems to me that the word "whatever" is a typographical error, and the word should be "whenever". Importantly for present purposes, what is permitted by para 2(b) is payment out of a specific bank account in accordance with money limits. As noted above, Mr Sigalla has given evidence (affidavit of 14 December 2009) that when he agreed to the orders on 16 September 2009, he believed he had access to an amount in excess of $500,000 in the Netherlands bank account, but he was wrong. Since, therefore, no amount has been transferred from the Netherlands to the St George bank account, the "carve-out" orders in para 2(b) are inapplicable, and it was plainly wrong for Mr Ward to invoke para 2(b)(iii) as a justification for entering into the contract notwithstanding the freezing orders. 36 Even if the "carve-out" orders in para 2(b) were not confined to a particular St George bank account, in my view subparas (iii) and (iv) would not have any application. The exchange of contracts was hardly a matter of business expenses for the purposes of subpara (iii). The obligations under the sale contract were not incurred before the making of the orders, for the purposes of subpara (iv). In a letter dated 26 November 2009, Mr Ward advanced a confused argument to the effect that the sale was permitted by subpara (iv), because of the pre-existing loan contract between ZMS and Perpetual. But it cannot be seriously contended that the exchange of contracts on 10 November was in discharge of an obligation arising in the loan contract. It might have been regarded by Mr Sigalla as a desirable or even necessary step, as a commercial matter, to secure the purchase price of $910,000 for the purpose of reducing the debt to Perpetual by that amount less costs, but it was a voluntary step undertaken on his instructions, and he had no contractual obligation to take that step under loan contract. In any event, para 2(b)(iv) only permits payments out of the St George bank account, as explained above. 37 Mr Pozniak correctly responded to Mr Ward, by e-mail on the morning of 11 November, saying that the "proposed sale" did not fall within any of the exceptions in the freezing orders, and therefore a sale would be in breach of those orders. He said contempt proceedings would immediately be issued. 38 Mr Ward responded shortly afterwards on 11 November, apparently questioning whether the sale would be contrary to the freezing orders because of their "natural and ordinary effect", and concluding that the matter would have to be raised with the court urgently should the plaintiff's position remained unchanged. In my opinion if, contrary to the fact, the sale had been merely proposed at the time of this correspondence, the critical question to be considered would have been whether it was prohibited by the orders, not whether the plaintiff would consent to a breach. The same point was made, emphatically, by Mr Pozniak in a later letter (13 November 2009), in which he said that Mr Ward's correspondence proceeded on the [incorrect] assumption that the plaintiff could somehow "consent" to a clear breach of the court's orders, whereas in fact it was up to the defendants to seek an appropriate variation of the orders. 39 Mr Posniak's letter of 11 November 2009 referred to the terms of the orders and the "carve-outs", and correctly said that the question whether a mortgagee sale would be at a lower price is irrelevant to the issue whether the negotiated sale was permitted by the orders. Mr Pozniak pointed out that no attempt had been made to approach the court for a variation of the orders so as to permit the sale to occur. 40 Mr Ward's next letter, dated 12 November 2009, seems to me quite extraordinary. Without making any express reference to the terms of the orders, he complained that "it cannot be the reasonable contemplation of your client that the effect of the freezing orders is to cause a mortgagee sale of the property". He alleged that the plaintiff's approach in relation to the freezing orders was "obstructionist and uncooperative". He asserted that the transaction would not involve a dissipation of assets, but it is unclear whether that was intended to imply that there would be no contravention of the orders. He said that the plaintiff's "unreasonable" position was a matter that his clients would need to raise with the court, but he did not appear to contemplate any application to the court to vary the orders so as to permit the sale, or to test his apparent interpretation of the rules which was at odds with Mr Pozniak's. 41 According to Mr Pozniak's evidence, he was not made aware that contracts had been exchanged on Unit 6 until he reviewed Mr Sigalla's affidavit of 20 November 2009. 42 As I have explained, I regard the evidence as showing that Mr Sigalla knowingly and intentionally caused to ZMS to exchange contracts on Unit 6 in breach of the court's orders, and that his false evidence in cross-examination, to the effect that he was not thinking of the court's orders when he gave the instruction to exchange, made the breach all the more serious. In my view the correspondence by his solicitor adds to the seriousness of the breach. The natural inference from the fact that a solicitor engages in correspondence on behalf of a client, in the absence of contrary evidence (and there is none here), is that the solicitor has his or her clients instructions to do so. Mr Ward's correspondence contained ill-considered contentions that the exchange of contracts was permitted by order 2(b)(iii) or (iv), and senior counsel for ZMS and Mr Sigalla advanced the amazing proposition at the hearing that an exchange of contracts is not a sale. Therefore on the one hand Mr Sigalla's own evidence amounts to an admission of breach of the orders, and yet his legal representatives advanced on his behalf highly implausible contentions to the effect that the exchange was permitted by the orders. 43 My findings are that ZMS acted in contempt of the court's orders by the action of its agent, Mr Sigalla, in causing it to exchange contracts for the sale of Unit 6, and that the breach of the order occurred by virtue of Mr Sigalla's conduct in giving instructions to Kemp Strang for the exchange to occur. Plainly one consequence is that ZMS is in contempt of the orders, and consequently the court is authorised by the Supreme Court Rules, Part 55 rule 13(2), to punish it by sequestration or fine or both. 44 The position regarding Mr Sigalla is more complicated. The Notice of Motion and Amended Statement of Charge seek orders that he caused ZMS to enter into the contract for the sale of Unit 6 and therefore was involved in the breach of the orders. 45 In the course of final submissions, I raised the question whether it would be permissible and appropriate to treat the same conduct as constituting a primary contravention of the orders by the corporate respondent to the application, as well as accessory liability for breach of the orders by the director who personally engaged in that conduct. I was thinking of such cases as Mallan v Lee (1949) 80 CLR 198; [1949] HCA 48, at 216 per Dixon J, Yorke v Lucas (1985) 158 CLR 661; [1985] HCA 65 and Hamilton v Whitehead (1988) 166 CLR 121; [1988] HCA 65. I referred counsel to my extra-curial discussion of these cases in Austin, Ford and Ramsay, Company Directors: Principles of Law and Corporate Governance (2005) (the relevant discussion is at [13.32-[13.36], concerning the directors' statutory liability for misleading and deceptive conduct), and I invited brief supplementary written submissions. Counsel for the plaintiffs added a reference to Houghton v Arms (2006) 225 CLR 553; [2006] HCA 59 at [45]-[46]. Counsel for the respondents referred to Wright v Wheeler Grace & Pierucci Pty Ltd (1988) ATPR 40-865; [1988] FCA 129 at 49,377 per French J. 46 In some contexts, particularly in the criminal sphere, it is not permissible to "make the person actually committing the forbidden acts an accessory to the offence consisting in the vicarious responsibility for his acts", to use the words of Dixon J in Mallan v Lee (at 216). However, the High Court distinguished Mallan v Lee in Hamilton v Whitehead. There a company was convicted of offering interests in a managed investment scheme to the public in contravention of statutory company law. Its managing director, Mr Whitehead, who placed an advertisement relating the scheme and made contact with potential investors, was charged with involvement in the company's contravention. The trial judge noted that the prosecution had relied on the "directing mind and will" theory and had contended that Mr Whitehead's actions were the actions of the company, and in those circumstances he said it would be wrong and oppressive to prosecute Mr Whitehead personally for the identical acts and decisions that were relied upon as acts of the company. But the High Court (Mason CJ, Wilson and Toohey JJ) held that Mr Whitehead had been properly charged with involvement in his company's contravention and should have been convicted. The statutory provisions under which the company had been convicted prohibited "a person" from issuing or offering interests. In the High Court's view, those provisions were directed to the company, which was the person who issued and offered the interests. In contrast with Mallan v Lee, the company's liability was not vicariously ability for acts performed by a servant, but was direct liability. Mr Whitehead was the embodiment of the company, and the company was directly rather than vicariously liable as a principal by virtue of his conduct. Consistently with that conclusion, Mr Whitehead's conduct made him liable as an accessory, under statutory provisions defining liability for involvement in the contravention. The High Court said there was nothing conceptually wrong with treating the managing director as having acted in two capacities, first as the embodiment of the company and second as an individual knowingly concerned in the company's acts. 47 In the present case ZMS has direct liability for contempt of court, because the relevant order expressly restrained it from selling the asset, by its directors, agents etc. Mr Sigalla's conduct in giving instructions for the exchange of contracts to occur was conduct attributable directly to ZMS, for while (according to his evidence) both he and his wife each made decisions for ZMS, nevertheless in relation to the relevant matters, namely consent to the making of the freezing orders and the subsequent sale of Unit 6, he was plainly the directing mind and will of ZMS. 48 Additionally, Mr Sigalla was personally involved in the contravention by virtue of his conduct. There is no express provision in the Supreme Court Act 1970 (NSW) or the Civil Procedure Act 2005 (NSW), or the rules made under them, expressly declaring that where an order of the court is directed to one party in proceedings, and another party causes that party to breach the order, the latter party is punishable for contempt because of his or her involvement in the contravention by the former party. But if that were not the case, the efficacy of the court's orders would be put into question, particularly in a case where the order is directed to a corporate entity under the control of another party. The court's power to deal with contempt flows from the inherent jurisdiction and the general conferral of jurisdiction by s 23 of the Supreme Court Act 1970 (NSW) (John Fairfax & Sons Pty Ltd v McRae (1955) 93 CLR 351; [1955] HCA 12). The court's power is sufficiently broad to extend to an individual's involvement in conduct constituting a contempt by the company that he or she controls. Therefore in my view, it is appropriate to conclude that Mr Sigalla is in contempt of court by virtue of his involvement in the breach of the orders by ZMS. Consequently under Part 55 rule 13(1), the court is empowered to punish that contempt by committal to a correctional centre or fine or both. 49 The cases to which I have referred depend very much upon the statutory provisions that were to be construed. The judgment of French J in Wright v Wheeler Grace was concerned with liability under s 52 of the Trade Practices Act 1974 (Cth) and accessory liability under s 75B of that Act, and French J construed those provisions so that accessory liability would arise only if there was some conduct distinct from that constituting the contravention of s 52. That statutory environment is not replicated in the law concerning civil contempt of court. I therefore regard Wright v Wheeler Grace as distinguishable, and I see the present case as governed by the principles in, though not the statutory context of, Hamilton v Whitehead. 50 I turn now to the question of the appropriate orders and punishment. First, I agree with the plaintiff that the court should formally record its finding of contempt by declaring that ZMS and Mr Sigalla are guilty of contempt, in the terms set out in para 1 of the Notice of Motion: Crane Distribution Ltd v Schellebeeck [2009] NSWSC 263 at [39]; Adlam v Noack [1999] FCA 1606 at [31]. 51 Having regard to the findings I have made concerning the breach of the orders and other matters (in particular, that the breach was deliberate, Mr Sigalla gave false evidence on the question whether the orders were in his mind at the time, and his legal representatives subsequently made implausible submissions contending that there was no breach), I am persuaded that the breach by both ZMS and Mr Sigalla is a serious matter that needs to be dealt with by punishment, so that the authority of the court is maintained: Pelechowski v The Registrar, Court of Appeal (1999) 198 CLR 435; [1999] HCA 19 at 463 per McHugh J; ASIC v Michalik (2004) 52 ACSR 115; [2004] NSWSC 1259 at [25]-[29]; ACCC v World Netsafe Pty Ltd (2003) 133 FCR 279; [2003] FCA 1501 at [9]-[17]. 52 The plaintiff does not contend that a term of imprisonment is warranted in the present case. It submitted in its written submissions that an order that the defendants pay a sum of money in the range of $3,000-$5,000 would be appropriate (referring to Crane Distribution at [36]). In oral submissions and in light of Mr Sigalla's cross-examination, the plaintiffs submitted that a higher fine in the vicinity of $10,000 would be appropriate. 53 I am persuaded that in the present case both ZMS and Mr Sigalla should have a fine imposed upon them. I have some doubt as to whether it would be appropriate or even permissible to impose a fine on them jointly and severally, even though the same conduct has led to their respective contraventions. I have decided that the correct course is to impose a fine on the company (which will have to be borne indirectly by its shareholder if the company is solvent), and a separate fine on Mr Sigalla for his involvement in the contravention. Having regard to the findings that I have made, pointing to the seriousness of the contraventions, my view is that a total fine of $10,000 would be appropriate, and that this should be constituted by separate fines of $5,000 each imposed upon ZMS and Mr Sigalla. 54 I have taken into account the circumstances in mitigation to which senior counsel for the respondents drew attention in final submissions. As he pointed out, this is not a case where breaches of the orders has been shown to have caused the plaintiff substantial prejudice. On balance, I accept the evidence that the entire proceeds of sale, less agent's commission and legal costs, will go to reduce the company's mortgage and will not be frittered away by ZMS or Mr Sigalla. But the fact remains that "[a]ny contempt is serious": Deputy Commissioner of Taxation v Hickey (1999) ATC 5124; [1999] FCA 259 at [35], and the court would expect a person subject to its orders to comply with them strictly: ASIC v Reid [2002] FCA 84 at [31]. In the present case the court's expectation was that if Mr Sigalla perceived that there was a commercial necessity to sell Unit 6, he should have made an application to the court either for variation of the orders or (if he genuinely believed that the orders permitted the sale, as a matter of proper though doubtful construction) for a determination that he could proceed consistently with the orders. It was unacceptable for him to go ahead with the sale without approaching the court. 55 Mr Sigalla has subsequently apologised for the contravention and has instructed his lawyers to seek a variation (affidavit of 14 December 2009, para 24), but only after the application for punishment for contempt was filed. While his present attitude is of some relevance, it must be borne in mind that even at the hearing of the contempt application, submissions were made on his behalf that there was no contravention, and he gave evidence, found to be false, that the court's orders were not in his mind when he gave instructions to exchange contracts. 56 The plaintiffs submitted that the court should order the respondents to the application to pay its costs on the indemnity basis. In NCR Australia v Credit Connection [2005] NSWSC 1118 at [102], Campbell J observed that in imposing a costs order for contempt, the court aims so far as it can to provide full indemnity to the party who obtained a court order that has been breached in a way that amounts to contempt, and so the usual order for costs is that the contemnor pay the applicant's costs on the indemnity basis. There is no reason to depart from the usual order in the present case. Liability to pay costs on the indemnity basis will be imposed upon ZMS and Mr Sigalla jointly and severally. **********

TZ Ltd v ZMS Investments Pty Ltd

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Judgment (12 paragraphs)

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Legislation Cited (4)

Cases Cited (29)

Cited By (6)