FEDERAL COURT OF AUSTRALIA

Australian Securities and Investments Commission v One Tech Media Limited (No 3) [2018] FCA 1071

ORDERS

THE COURT DECLARES THAT:

1.    The fourth defendant (Eustace Senese) is guilty of contempt as alleged in charges A6, A15, A24, A33, A42, A51, A72, A78, A80, A82, A84, A86, A88, A90, A92, A94, A96, A98, A100, A102, A104, A106 and A108 as set out in the plaintiff’s amended statement of charge dated 18 December 2017 (the amended statement of charge).

2.    The sixth defendant (Transcomm) is guilty of contempt as alleged in charges F2, F5, F8, F11, and F14 as set out in the amended statement of charge.

3.    The ninth defendant (Cameron Senese) is guilty of contempt as alleged in the following charges set out in the amended statement of charge:

(a)    charges A9, A18, A27, A36, A45 and A54;

(b)    charges B109 to B162, B509 to B600;

(c)    charges C11 to C15;

(d)    charges D251 to D375, D720 to D891; and

(e)    charge F1.

THE COURT ORDERS BY CONSENT THAT:

4.    All other charges against Eustace Senese, Transcomm and Cameron Senese be dismissed.

5.    The plaintiff’s amended interlocutory application dated 18 December 2017 (the contempt application) as against the third defendant (Allianz) and all charges against Allianz be dismissed.

6.    The contempt application as against the eighth defendant (Bianco) and all charges against Bianco be dismissed.

7.    The costs as between the plaintiff and Allianz, Eustace Senese, Transcomm, Bianco and Cameron Senese be reserved.

8.    The matter be listed for a hearing on penalties and costs on a date to be fixed.

THE COURT ORDERS THAT:

9.    The contempt application as against Kalus Kenny Intelex and all charges against Kalus Kenny Intelex be dismissed.

10.    Within seven days, the plaintiff and Kalus Kenny Intelex file any agreed order in relation to costs.

11.    If the parties are unable to agree, within 14 days of these orders, each party file a written submission (of no more than three pages) on costs.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

MOSHINSKY J:

Introduction

1    On 1 May 2017, the plaintiff (ASIC) filed an interlocutory application alleging contempt of court against five of the defendants to the proceeding and the firm of solicitors that had acted for them, Kalus Kenny Intelex (Kalus Kenny or KKI). The five defendants named in the contempt application are:

(a)    the third defendant, Allianz Metro Pty Ltd (Allianz);

(b)    the fourth defendant, Eustace Anthony Senese (Eustace or Tony);

(c)    the sixth defendant, Transcomm Global Pty Ltd (Transcomm);

(d)    the eighth defendant, Bianco Pty Ltd (Bianco); and

(e)    the ninth defendant, Camera David Senese (Cameron).

2    ASIC subsequently filed, with leave, an amended interlocutory application dated 18 December 2017 (the contempt application) and an amended statement of charge dated 18 December 2017 (the amended statement of charge).

3    ASIC alleged in the contempt application that the five defendants breached various orders made by this Court during the period August 2016 to February 2017. The orders, made pursuant to provisions of the Corporations Act 2001 (Cth), restrained the defendants referred to above from dealing with certain assets and property. It is convenient to refer to these orders as “freezing orders”. It was alleged that the defendants breached those orders in various ways. The amended statement of charge is a lengthy document, divided into a number of sections and containing a large number of charges.

4    In March 2018, ASIC and the five defendants referred to above reached an agreed position in relation to the contempt application. In summary, Eustace, Transcomm and Cameron admitted that they were guilty of contempt of court as set out in a number of the charges in the amended statement of charge. In relation to Allianz and Bianco, ASIC agreed, in effect, to withdraw the charges against them. Two statements of agreed facts, admissions and proposed penalties (each referred to as a statement of agreed facts) were prepared. The first related to the position of Allianz, Eustace and Transcomm. It is annexed as Annexure “A” to these reasons. The second related to the position of Bianco and Cameron. It is annexed as Annexure “B” to these reasons. It was arranged that there would be a hearing on the issue of liability, with the issues of penalties and costs deferred, to be dealt with on a later occasion.

5    The main question to be considered in relation to the agreed proposed orders is whether I am satisfied that there is a proper basis to make the orders proposed by the parties. For the reasons set out below, I consider there to be a proper basis to make orders substantially in the terms proposed by ASIC and the five defendants. In summary, I will make declarations that Eustace, Transcomm and Cameron are guilty of contempt of court as set out in certain charges in the amended statement of charge, and I will make orders dismissing the remaining charges against those defendants and all of the charges against Allianz and Bianco.

6    In relation to Kalus Kenny, ASIC alleges that the firm breached certain court orders by causing or procuring Transcomm to deal with its assets or property in contravention of the court orders.

7    In order to explain the allegations against Kalus Kenny, it is necessary to refer to the relevant breaches alleged against (and admitted by) Transcomm. On 3 August 2016 and 15 November 2016, freezing orders were made against Transcomm. Each of these orders included what it is convenient to refer to as a “general freezing order”, namely an order restraining Transcomm from selling, transferring, encumbering, disposing of or otherwise dealing with any of its assets or property. These freezing orders were subject to exceptions, which it is convenient to refer to as “carve outs”. The relevant exceptions were contained in orders made on 22 August 2016 and 14 December 2016. The effect of these carve outs was to permit Transcomm to pay legal expenses for the proceeding up to a cumulative total of $53,037.69.

8    It is alleged that, in the period between 20 December 2016 and 6 February 2017, Kalus Kenny made five payments from its trust account on behalf of Transcomm that were not permitted by the carve outs. In respect of four of the payments, it is alleged that the payments caused the total amount applied by Transcomm to legal expenses for the proceeding to exceed the cumulative total permitted by the carve outs, and hence the payments were in breach of the orders. In respect of one payment, it is alleged that the payment related to another legal matter, and hence was not permitted by the carve outs, and breached the orders. The total of the five payments is $11,351.08.

9    There is no real issue that at least three, if not all five, of the five payments were not permitted by the carve outs, and therefore involved breaches by Transcomm of the court orders. The real question is whether Kalus Kenny, as the firm of solicitors acting for Transcomm, is liable for contempt of court.

10    ASIC’s charges against Kalus Kenny are formulated on two alternative bases. As explained in ASIC’s written submissions: the primary charges assume that Kalus Kenny’s liability for contempt of court is essentially strict; and the alternative charges assume that some mental intent must be proved. Each of the alternative charges alleges that Kalus Kenny breached the court orders by causing or procuring Transcomm to deal with its assets or property in contravention of the court orders “knowing that to be in contravention of the Court Order”.

11    In my view, for the reasons set out below, the primary basis upon which ASIC puts its case against Kalus Kenny is inconsistent with the judgment of Drummond J in CCOM Pty Ltd v Jiejing Pty Ltd (1992) 36 FCR 524 (CCOM). CCOM and the authorities to which it refers establish that a person who is not a party to the proceeding and not bound by a court order is not subject to the strict liability for contempt that applies to a person bound by a court order that is breached; an additional element of intention needs to be established. Further, I consider CCOM to be authority for the proposition that these principles apply to a solicitor in circumstances where the solicitor is acting for a party to a proceeding who is bound by a court order, but the solicitor is not himself or herself bound by the court order. It follows that I reject the primary charges brought by ASIC against Kalus Kenny. In relation to the alternative charges against the firm, it is not established that the partner responsible for the matter (or anyone else at the firm) effected the relevant payments knowing this to be in contravention of the court orders. Accordingly, the alternative charges are not established.

12    It follows that the contempt of court charges against Kalus Kenny are to be dismissed.

13    These reasons are structured under the following headings:

(a)    The hearing of the contempt application.

(b)    Applicable principles – contempt of court.

(c)    Applicable principles – declarations and orders by consent.

(d)    The proceeding and the relevant orders.

(e)    The agreed declarations and orders.

(f)    The contempt charges against Kalus Kenny.

The hearing of the contempt application

14    The hearing of the contempt application commenced on 26 March 2018. The first matter dealt with was the agreed proposed orders. After submissions had been made on his aspect, Mr R Peters, counsel for the five relevant defendants, sought to be, and was, excused from the hearing. The hearing of ASIC’s charges against Kalus Kenny then proceeded, occupying the balance of that day and the next day. Judgment was then reserved. On 15 May 2018, my chambers sent an email to the parties raising a factual question for the parties, and indicating that the matter would be listed for mention. In short compass, the question was whether the four relevant payments from Kalus Kenny’s trust account on 25 January 2017 and 6 February 2017 had been made on behalf of Transcomm or Eustace. The parties had proceeded on the basis that the payments had been made on behalf of Transcomm, but the evidence indicated that the source of funds for the payments was Eustace. On 18 May 2018, a mention took place. Each of the parties to the contempt application was represented (with Kalus Kenny represented by its junior counsel, Mr A Herskope). The matter was left on the basis that ASIC and the five relevant defendants would consider whether any amendments were needed to the statements of agreed facts, and ASIC would either: (a) by consent, amend the amended statement of charge; or (b) make an application for leave to amend the amended statement of charge. Subsequently, ASIC filed an interlocutory application seeking leave to amend the amended statement of charge. ASIC maintained, as its primary position, that the four payments had been made on behalf of Transcomm, but now proposed, as an alternative, that the payments had been made on behalf of Eustace. The hearing of the interlocutory application took place on 27 June 2018. ASIC and Kalus Kenny appeared at that hearing; the defendants did not appear. Kalus Kenny opposed the amendments. In the course of doing so, Kalus Kenny made clear that it accepted that the four payments had been made on behalf of Transcomm. In circumstances where this matter was now clearly common ground between the parties, ASIC did not press its interlocutory application for leave to amend, and that application was dismissed. In light of these matters, I am prepared to proceed on the basis that it is common ground, as between ASIC and Kalus Kenny, that the four payments were made on behalf of Transcomm.

15    Included in the materials filed for the hearing on 27 June 2018 were proposed amendments to the statements of agreed facts. The effect of the proposed amendments was to include an alternative characterisation of the four payments, namely that they had been made on behalf of Eustace. The primary position remained that the payments had been made on behalf of Transcomm. I am prepared to proceed on the basis of the primary position, making it unnecessary to have regard to the proposed amendments to the statements of facts.

Applicable principles - contempt of court

16    In Australian Competition and Consumer Commission v ACN 117 372 915 Pty Limited (in liq) (formerly Advanced Medical Institute Pty Limited) [2015] FCA 1441, I summarised the applicable principles in relation to contempt of court. For ease of reference, I set out, in the following paragraphs, that summary of the applicable principles.

17    This Court’s power to punish for contempt of its power and authority is contained in s 31(1) of the Federal Court of Australia Act 1976 (Cth). The power is the same as that of the High Court to punish for contempt of that Court. The High Court’s power in this regard is the same as that of the Supreme Court of Judicature in England at the commencement of the Judiciary Act 1903 (Cth): s 24 of that Act.

18    An application by a party who alleges a contempt of court is governed by Div 42.2 of the Federal Court Rules 2011. If a party alleges that a contempt has been committed by a person in connection with a proceeding in this Court, an application for punishment for the alleged contempt is to be made by the party by interlocutory application in the proceeding: r 42.11(1). An application that a contempt has been committed must be accompanied by a statement of charge, specifying the contempt with sufficient particularity to allow the person charged to answer the charge, and the affidavits on which the person making the charge intends to rely to prove the charge: r 42.12.

19    A distinction is drawn between civil and criminal contempt. An alleged breach of a court order generally falls to be considered under the principles applicable to civil contempt. 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 is casual, accidental or unintentional: see Australasian Meat Industry Employees’ Union v Mudginberri Station Pty Ltd (1986) 161 CLR 98 at 113 per Gibbs CJ, Mason, Wilson and Deane JJ; Hurd v Zomojo Pty Ltd [2015] FCAFC 148 at [90]-[91] and [97]-[101] per Besanko and Gilmour J, at [164] per Beach J. Whether the charge be for civil or criminal contempt, it must be proved beyond reasonable doubt: Witham v Holloway (1995) 183 CLR 525 at 534 per Brennan, Deane, Toohey and Gaudron JJ; Construction, Forestry, Mining and Energy Union v Boral Resources (Vic) Pty Ltd (2015) 256 CLR 375 at [42] per French CJ, Kiefel, Bell, Gageler and Keane JJ, at [59] per Nettle J.

20    In Advan Investments Pty Ltd v Dean Gleeson Motor Sales Pty Ltd [2003] VSC 201, Gillard J set out the elements necessary to establish a civil contempt involving a breach of an order of the court. His Honour said (at [31]):

In order to prove a civil contempt of court involving a breach of an order of the court, the plaintiff has to prove the following:

(i)    that an order was made by the court;

(ii)    that the terms of the order are clear, unambiguous and capable of compliance;

(iii)    that the order was served on the alleged contemnor or excused in the circumstances, or service dispensed with pursuant to the Rules of Court;

(iv)    that the alleged contemnor has knowledge of the terms of the order;

(v)    that the alleged contemnor has breached the terms of the order.

21    The principles set out above apply to a party to the litigation who is bound by a court order. The principles that apply to a person who is not a party to the proceeding and is not bound by the court order will be discussed below, in relation to the contempt charges against Kalus Kenny.

Applicable principles - declarations and orders by consent

22    The principles relating to the making of orders by agreement and as regards declarations were summarised by Gordon J in Australian Competition and Consumer Commission v Coles Supermarkets Australia Pty Ltd [2014] FCA 1405 at [70]-[79], in the context of a proceeding under the Australian Consumer Law, being Sch 2 to the Competition and Consumer Act 2010 (Cth). Her Honour said:

2.3.1    Orders sought by agreement

…

70    The applicable principles are well established. First, there is a well-recognised public interest in the settlement of cases under the [Competition and Consumer Act]: NW Frozen Foods Pty Ltd v Australian Competition & Consumer Commission (1996) 71 FCR 285 at 291. Second, the orders proposed by agreement of the parties must be not contrary to the public interest and at least consistent with it: Australian Competition & Consumer Commission v Real Estate Institute of Western Australia Inc (1999) 161 ALR 79 at [18].

71    Third, when deciding whether to make orders that are consented to by the parties, the Court must be satisfied that it has the power to make the orders proposed and that the orders are appropriate: Real Estate Institute at [17] and [20] and Australian Competition & Consumer Commission v Virgin Mobile Australia Pty Ltd (No 2) [2002] FCA 1548 at [1]. Parties cannot by consent confer power to make orders that the Court otherwise lacks the power to make: Thomson Australian Holdings Pty Ltd v Trade Practices Commission (1981) 148 CLR 150 at 163.

72    Fourth, once the Court is satisfied that orders are within power and appropriate, it should exercise a degree of restraint when scrutinising the proposed settlement terms, particularly where both parties are legally represented and able to understand and evaluate the desirability of the settlement: Australian Competition & Consumer Commission v Woolworths (South Australia) Pty Ltd (Trading as Mac’s Liquor) [2003] FCA 530 at [21]; Australian Competition & Consumer Commission v Target Australia Pty Ltd [2001] FCA 1326 at [24]; Real Estate Institute at [20]-[21]; Australian Competition & Consumer Commission v Econovite Pty Ltd [2003] FCA 964 at [11] and [22] and Australian Competition & Consumer Commission v The Construction, Forestry, Mining and Energy Union [2007] FCA 1370 at [4].

73    Finally, in deciding whether agreed orders conform with legal principle, the Court is entitled to treat the consent of Coles as an admission of all facts necessary or appropriate to the granting of the relief sought against it: Thomson Australian Holdings at 164.

2.3.2    Declarations

74    The Court has a wide discretionary power to make declarations under s 21 of the Federal Court Act: Forster v Jododex Australia Pty Ltd (1972) 127 CLR 421 at 437-8; Ainsworth v Criminal Justice Commission (1992) 175 CLR 564 at 581-2 and Tobacco Institute of Australia Ltd v Australian Federation of Consumer Organisations Inc (No 2) (1993) 41 FCR 89 at 99.

75    Where a declaration is sought with the consent of the parties, the Court’s discretion is not supplanted, but nor will the Court refuse to give effect to terms of settlement by refusing to make orders where they are within the Court’s jurisdiction and are otherwise unobjectionable: see, for example, Econovite at [11].

76    However, before making declarations, three requirements should be satisfied:

(1)    The question must be a real and not a hypothetical or theoretical one;

(2)    The applicant must have a real interest in raising it; and

(3)    There must be a proper contradictor:

Forster v Jododex at 437-8.

77    In this proceeding, these requirements are satisfied. The proposed declarations relate to conduct that contravenes the ACL and the matters in issue have been identified and particularised by the parties with precision: Australian Competition & Consumer Commission v MSY Technology Pty Ltd (2012) 201 FCR 378 at [35]. The proposed declarations contain sufficient indication of how and why the relevant conduct is a contravention of the ACL: BMW Australia Ltd v Australian Competition & Consumer Commission [2004] FCAFC 167 at [35].

78    It is in the public interest for the ACCC to seek to have the declarations made and for the declarations to be made (see the factors outlined in ACCC v CFMEU at [6]). There is a significant legal controversy in this case which is being resolved. The ACCC, as a public regulator under the ACL, has a genuine interest in seeking the declaratory relief and Coles is a proper contradictor because it has contravened the ACL and is the subject of the declarations. Coles has an interest in opposing the making of them: MSY Technology at [30]. No less importantly, the declarations sought are appropriate because they serve to record the Court’s disapproval of the contravening conduct, vindicate the ACCC’s claim that Coles contravened the ACL, assist the ACCC to carry out the duties conferred upon it by the Act (including the ACL) in relation to other similar conduct, inform the public of the harm arising from Coles’ contravening conduct and deter other corporations from contravening the ACL.

79    Finally, the facts and admissions in Annexure 1 provide a sufficient factual foundation for the making of the declarations: s 191 of the Evidence Act; Australian Competition & Consumer Commission v Dataline.Net.Au Pty Ltd (2006) 236 ALR 665 at [57]-[59] endorsed by the Full Court in Australian Competition & Consumer Commission v Dataline.Net.Au Pty Ltd (2007) 161 FCR 513 at [92]; Hadgkiss v Aldin (No 2) [2007] FCA 2069 at [21]-[22]; Secretary, Department of Health & Ageing v Pagasa Australia Pty Ltd [2008] FCA 1545 at [77]-[79] and Ponzio v B & P Caelli Constructions Pty Ltd (2007) 158 FCR 543.

23    Although the present case involves a contempt application rather than consumer law or other statutory provisions, I consider the principles set out above to be generally applicable.

The proceeding and the relevant orders

24    On 26 July 2016, in anticipation of the commencement of a proceeding, ASIC made an ex parte application for injunctions to: prohibit certain of the defendants from carrying on a financial services business; and preserve certain bank accounts and other assets pending its investigation into suspected contraventions of the Corporations Act and the Australian Securities and Investments Commission Act 2001 (Cth) (the ASIC Act). The suspected contraventions related to the operation of a website (www.titantrade.com). In broad terms, ASIC’s investigation concerned whether customers of the website had been induced to invest money in ‘binary options’, which were said to be essentially bets on the movement in prices of certain assets, such as shares. ASIC was concerned that a number of Australian customers may have lost substantial amounts of money by these investments.

25    A Judge of this Court made orders on 26 July 2016. Those orders included, in paragraph 3(b), an order pursuant to s 1323(1) of the Corporations Act freezing certain bank accounts and, in paragraph 3(e), a general freezing order as follows:

3.    Until 4pm on 3 August 2016, or further order:

…

e.    pursuant to section 1324(4) of the [Corporations Act], the first to eleventh defendants be prohibited from selling, transferring, encumbering, disposing of or otherwise dealing with any of their assets or property.

26    On 3 August 2016, ASIC formally commenced this proceeding and the matter returned to court on an inter partes basis. Certain of the defendants were represented at this hearing. Orders were made to similar effect as the earlier orders, with the injunctions now lasting until 4.00 pm on 16 November 2016. The orders also included, in paragraph 2, a carve out for Bianco and Cameron. There was no carve out, at this stage, for Transcomm. The orders relevantly provided:

1.    Until 4pm on 16 November 2016:

…

(e)    pursuant to section 1324(4) of the [Corporations Act], the first to eleventh defendants be prohibited from selling, transferring, encumbering, disposing of or otherwise dealing with any of their assets or property.

2.    Paragraph 1 of this Order does not prohibit the ninth defendant (Cameron Senese) from withdrawing from the Bianco Account or the CS Account:

(a)    each calendar month commencing in August 2016, funds for living expenses not exceeding a total of $12,000 per calendar month; and

(b)    a total amount of $20,000, to be deposited in the trust account of Kalus Kenny Intelex on account of, and to be applied to pay for, future legal expenses of [Bianco] and [Cameron].

27    On 22 August 2016, further orders were made by this Court, the effect of which was to create further carve outs. Although the 22 August 2016 orders refer to “paragraph 3(e)” of the previous orders and to the date of the previous orders as being “26 July 2016”, it is common ground that they should refer to “paragraph 1(e)” of the previous orders of “3 August 2016”. As so corrected, the 22 August 2016 orders were to the following effect:

1.    Order [1(e)] of the Orders … made [3 August 2016] be varied by inserting the following subparagraphs:

(i)    [Transcomm] be permitted to pay $19,000.00 out of account [details omitted] held by [Transcomm] with Westpac Banking Corporation (“the account”) to Messrs Kalus Kenny Intelex (“the firm”) on account of legal costs and disbursements that have been incurred to date;

(ii)    [Transcomm] be permitted to pay the sum of $25,000.00 out of the account to the firm which sum is to be held in the trust account of the firm for the sole purpose of the sum being applied on account of legal costs and disbursements … hereafter [to] be incurred until 16 November 2016 or further order;

(iii)    [Transcomm] be permitted to pay the sum of $15,000 per month out of the account to be applied to the ordinary living expenses of [Eustace] and [Sandra Senese] until 16 November 2016 or further order.

These orders contained the first and second carve outs for Transcomm in relation to legal expenses (expressed as “legal costs and disbursements”). It will be observed that the orders permitted expenditure on legal expenses of two amounts – $19,000 and $25,000 – making a total, at this stage, of $44,000. It is convenient to note at this point that the seventh defendant was Sandra Senese (Sandra), who is married to Eustace.

28    On 15 November 2016, a further hearing in the proceeding took place. Further freezing orders were made on this occasion. These orders were expressed to continue until 4.00 pm on 2 February 2017. Paragraph 1(b) of the orders contained a specific freezing order and paragraph 1(e) contained a general freezing order. Paragraph 2 contained carve outs for living expenses. The orders relevantly provided as follows:

1.    Until 4.00 pm on 2 February 2017:

…

(e)    pursuant to section 1324(4) of the [Corporations Act], the first to eleventh defendants be prohibited from selling, transferring, encumbering, disposing of or otherwise dealing with any of their assets or property.

2.    Paragraph 1 of this Order does not prohibit:

(a)    the ninth defendant (Cameron Senese) from withdrawing from the account [details omitted] held by [Bianco] with the Commonwealth Bank of Australia or the account [details omitted] held by the ninth defendant with the Commonwealth Bank of Australia funds for living expenses not exceeding a total of $12,000 per calendar month until the earlier of 2 February 2017 or further order;

(b)    [Transcomm] from paying the sum of $15,000 per month out of the account [details omitted] held by the sixth defendant (Transcomm) with Westpac Banking Corporation to be applied to the ordinary living expenses of the fourth (Eustace Senese) and seventh defendants (Sandra Senese) until the earlier of 2 February 2017 or further order.

The orders of 15 November 2016 did not contain any carve out for legal expenses (as distinct from living expenses).

29    On 14 December 2016, orders were made providing further carve outs. Paragraph 2 of the orders provided as follows in relation to Eustace and Sandra’s legal expenses:

2.    Paragraph 1 of the Order made on 15 November 2016 does not prohibit the sixth defendant (Transcomm Global Pty Ltd) from withdrawing from the account [details omitted] held by the sixth defendant with Westpac Banking Corporation a total amount of $9,037.69 to be deposited into the trust account of Kalus Kenny Intelex on account of, and to be applied to pay for, legal expenses incurred and to be incurred by the fourth defendant (Eustace Senese) and seventh defendant (Sandra Senese).

These orders contained the third carve out for Transcomm in relation to legal expenses. Taking into account the $44,000 already allowed, the cumulative total of the carve outs for Transcomm to pay legal expenses was $53,037.69.

30    On 2 February 2017, this Court made further freezing orders, extending to 4.00 pm on 5 May 2017. Paragraph 1(b) of the orders was a specific freezing order. Paragraph 1(e) was a general freezing order, as follows:

1.    Until 4.00 pm on 5 May 2017:

…

(e)    pursuant to section 1324(4) of the Act, the first to eleventh defendants be prohibited from selling, transferring, encumbering, disposing of or otherwise dealing with any of their assets or property.

A carve out for living expenses and legal expenses of Cameron was included in paragraph 2 of the orders.

31    It is unnecessary for present purposes to refer to the subsequent court orders.

The agreed declarations and orders

32    The amended statement of charge is arranged in a number of sections as follows:

(a)    Edge Premium Funding Loan Agreement (charges A1 to A108).

(b)    The Ubank Internal Transfers (charges B1 to B876).

(c)    Transfers from the Ubank Savings Account (charges C1 to C15).

(d)    Transfers from the Ubank Transaction Account (charges D1 to D891).

(e)    Cameron Senese CBA Account Transactions (charges E1 to E6).

(f)    Kalus Kenny Trust Account Transactions (charges F1 to F16).

33    Eustace has admitted liability for contempt of court as alleged in charges A6, A15, A24, A33, A42, A51, A72, A78, A80, A82, A84, A86, A88, A90, A92, A94, A96, A98, A100, A102, A104, A106 and A108 in the amended statement of charge.

34    Transcomm has admitted liability for contempt of court as alleged in charges F2, F5, F8, F11 and F14.

35    Cameron has admitted liability for contempt of court as alleged in the following charges:

(a)    charges A9, A18, A27, A36, A45 and A54;

(b)    charges B109 to B162, B509 to B600;

(c)    charges C11 to C15;

(d)    charges D251 to D375, D720 to D891; and

(e)    charge F1.

36    As noted above, two statements of agreed facts have been prepared. Copies of these statements are annexed to these reasons as Annexures “A” and “B”. The first statement of agreed facts relates to the position of Allianz, Eustace and Transcomm. The second relates to the position of Bianco and Cameron. Although each of the statements of agreed facts annexes proposed orders, the parties provided my chambers with revised forms of proposed orders on 5 April 2018.

37    The effect of the orders proposed by the parties is as follows:

(a)    orders would be made that Eustace, Transcomm and Cameron are guilty of contempt as alleged in the charges referred to above;

(b)    the balance of the charges against Eustace, Transcomm and Cameron would be dismissed;

(c)    all of the charges against Allianz and Bianco would be dismissed;

(d)    costs would be reserved as between ASIC and Allianz, Eustace, Transcomm, Bianco and Cameron;

(e)    the matter would be listed on a date to be fixed to deal with penalties and costs.

38    In relation to (a) above, the parties’ proposed orders express these as “orders”, but I consider it more appropriate for these matters to be dealt with as declarations.

39    The statements of agreed facts set out in detail the relevant facts and matters relating to the contempt charges. As these statements are annexed to these reasons, I do not consider it necessary to describe or summarise these facts in these reasons.

40    On the basis of the facts set out in the statements of agreed facts, and the admissions made in those documents, I am satisfied that each of Eustace, Transcomm and Cameron is guilty of contempt as set out in the charges identified in [33]-[35] above. I consider that it is appropriate to make declarations to this effect. I also consider it to be appropriate to make the consent orders proposed by the parties.

The contempt charges against Kalus Kenny

The charges

41    ASIC’s charges against Kalus Kenny are set out in Annexure “C” to these reasons (including an agreed correction to a figure in particular (v) to charge F12). The charges are grouped in pairs, as follows:

(a)    charges F3 and F4, which relate to a payment of $4,158.06 on 25 January 2017;

(b)    charges F6 and F7, which relate to a payment of $757.02 on 20 December 2016;

(c)    charges F9 and F10, which relate to a payment of $2,266 on 25 January 2017;

(d)    charges F12 and F13, which relate to a payment of $1,750 on 6 February 2017; and

(e)    charges F15 and F16, which relate to a payment of $2,420 on 6 February 2017.

42    Each pair of charges is formulated in a similar way. In each case, the primary charge assumes that Kalus Kenny’s liability for contempt of court is essentially strict. And in each case, the alternative charge assumes that some mental intent must be proved. For example, charges F3 and F4, without the particulars, are as follows:

Charge F3

On 25 January 2017, Kalus Kenny breached paragraph 1(e) of the Court Orders made on 15 November 2016 (as varied by the Orders made on 14 December 2016), by causing or procuring [Transcomm] to deal with its assets or property in contravention of the Court Orders made on 15 November 2016.

…

Charge F4

Alternatively to Charge F3, on 25 January 2017, Kalus Kenny breached paragraph 1(e) of the Court Orders made on 15 November 2016 (as varied by the Orders made on 14 December 2016), by causing or procuring [Transcomm] to deal with its assets or property in contravention of the Court Orders made on 15 November 2016, knowing that to be in contravention of the Court Order.

(Emphasis added.)

43    The following table sets out, for each pair of charges, the amount of the payment upon which the charge is based, the date of payment, and a summary of ASIC’s contentions as to breach of the court orders:

The evidence

44    ASIC relied on the following affidavits in support of its contempt application against Kalus Kenny:

(a)    two affidavits of Bruce Standfield, a senior investigator in Financial Services Enforcement at ASIC, dated 1 May 2017 and 7 December 2017; and

(b)    three affidavits of James McAllister-Harris, a lawyer employed by ASIC in the Financial Services Enforcement team, dated 22 August 2016, 13 December 2016, and 31 January 2017.

Neither Mr Standfield nor Mr McAllister-Harris was required to attend for cross-examination.

45    In addition to the above affidavits, ASIC tendered four affidavits of Michael Jonathan Kenny (Mr Kenny), the partner of Kalus Kenny responsible for the matter. These were Mr Kenny’s affidavits dated 19 August 2016, 13 December 2016, 4 May 2017 and 2 March 2018.

46    Kalus Kenny relied on Mr Kenny’s affidavits dated 4 May 2017 and 2 March 2018, which had already been tendered by ASIC. Mr Kenny was cross-examined by ASIC.

47    In final submissions, ASIC challenged Mr Kenny’s credibility. I found Mr Kenny to be a credible witness. He generally gave clear and precise answers and indicated when he was unable to recall something. He was consistent in his position as to whether or not certain acts constituted a breach of the court orders. I therefore accept his evidence. That said, Mr Kenny’s own evidence establishes serious deficiencies in the processes adopted by Kalus Kenny to ensure that payments out of its trust account were permitted by the court orders. I discuss these deficiencies below.

Factual findings

48    In this section, I set out my factual findings in relation to the charges against Kalus Kenny.

The period between 26 July and 31 December 2016

49    On 26 July 2016, this Court made freezing orders against the first to eleventh defendants. These orders have been described in [25] above.

50    Shortly thereafter, Kalus Kenny was retained to act for the third to the eleventh defendants to the proceeding. The partner of Kalus Kenny responsible for the matter was Mr Kenny.

51    On 3 August 2016, an affidavit of Cameron was filed in the proceeding. In this affidavit, Cameron deposed at paragraphs 9-12:

9.    I currently have no income other than consultancy fees of $20,000.00 inclusive of GST, payable to Bianco Pty Ltd by Allianz Metro Pty Ltd and Transcomm Global Pty Ltd for my work which is IT operations and help desk support and writing computer programs and the design of the system on which the software will operate. The software program I am writing is for an online credit card payment gateway which is not operational. I know from my work, that Transcomm has not operated for the last 7 months.

10.    Given this matter that income will cease.

11.    I refer to paragraph 76 of Ms Miller’s affidavit in which there is a reference to a transfer of $122,475 to Bianco Pty Ltd. The amount referred to represents payment to Bianco Pty Ltd of consultancy fees. I was unaware that these payments had been made by Allianz until this investigation commenced. I have no knowledge of the source of the funds used to pay the Bianco’s consultancy fees.

12.    Other than providing my services to Transcomm and IT help desk assistance to Allianz, Bianco conducts no other business and neither do I.

52    Further, in paragraph 23 of that affidavit, Cameron deposed that Mr Kenny had told him, and he (Cameron) believed, that the costs he had incurred with Kalus Kenny so far, and would incur on 3 August 2016, would be about $15,000. He stated that he had not paid those fees given paragraph 3(e) of the 26 July 2016 orders.

53    On 3 August 2016, further freezing orders were made by this Court. These orders have been described in [26] above.

54    On 11 August 2016, Kalus Kenny sent a letter to ASIC. The letter commenced by stating that, in respect of Eustace and Sandra, Kalus Kenny was instructed as set out in the letter. The letter relevantly stated:

3.    The only funds Tony and Sandra Senese have other than the funds in the personal account, are minimal funds in a debit card they use for expense [sic] in Italy. The current balance in the debit card is EUR9,640.

…

5.    If $15,000 is applied for legal costs as requested above, the balance in [Transcomm’s bank account] will be $113,213.68.

…

7.    Monthly expenses include rent in Italy of 1,300 Euro per month (about AUD$2,000) and Australian mortgage payments of $7,300 per month. Other bills and living expenses equal about $6,000 per month for both of them.

8.    Had it not been for this matter, Sandra Senese would have used funds in the Transcomm Account for the living expenses by way of salary or loan account.

9.    Without the funds, she has no other access to funds.

55    On 22 August 2016, further orders were made by this Court, the effect of which was to create further carve outs. These orders have been described in [27] above. As noted above, the effect of these carve outs was to permit Transcomm to apply $44,000 towards legal expenses.

56    On 10 November 2016, ASIC sent a letter to Kalus Kenny. The letter addressed, among other things, the continuation of carve out orders for the defendants’ legal expenses. It was noted that, in a letter to ASIC of 26 September 2016, Kalus Kenny had sought an extension of time on behalf of the defendants for compliance with an ASIC document production notice on the basis that Eustace had “business travel commitments”. ASIC stated that, based on this letter, it appeared that the defendants were now conducting business in Italy and had an income there. The letter requested that, if that was not the case, sworn evidence be provided from the defendants as to their business activities in Italy (or any other place).

57    On 15 November 2016, a further hearing in the proceeding took place and further orders were made, as described in [28] above. These orders included a general freezing order in relation to Transcomm. It is this order (as varied by the orders made on 14 December 2016) that is alleged to have been breached by Kalus Kenny.

58    Following the 15 November 2016 order, further correspondence was exchanged between ASIC and Kalus Kenny regarding carve outs.

59    On 14 December 2016, a further hearing in the proceeding took place. The topic of carve outs was raised in the course of this hearing. Junior counsel for ASIC indicated to the Judge that further carve outs for legal expenses had been sought by Cameron, Eustace and Sandra, but ASIC wanted substantiation of the costs that they had incurred and evidence about their financial position and access to funds. Ultimately, orders were made on 14 December 2016 as described in [29] above. The effect of these orders was to permit Transcomm to apply a further $9,037.69 to the legal expenses of Eustace and Sandra, bringing the cumulative total that Transcomm could apply to legal expenses to $53,037.69.

60    On 20 December 2016, a payment of $757.02 was made from Kalus Kenny’s trust account. This payment is the subject of charges F6 and F7 against Kalus Kenny. The most useful record of the relevant trust account transactions is a three-page document on the letterhead of Kalus Kenny, expressed to be a statement of account for the period to 8 September 2017, which forms part of annexure “BCS-4” to Mr Standfield’s 7 December 2017 affidavit (the Statement of Account). The Statement of Account sets out relevant receipts, payments and transfers in respect of the firm’s trust account during the period from 26 August 2016 to 6 February 2017. The document states that the client was “Senese”, the matter details were “Dispute with ASIC” and the matter number was 161550 (which Mr Kenny said was the firm’s matter number for Eustace). The Statement of Account is arranged in six columns, with the following headings: date; receipt/payment/journal; from/to reason; debit amount; credit amount; and balance. Mr Kenny said during cross-examination, in relation to the Statement of Account, that “I didn’t effect the transactions or create the document, but I believe that it’s accurate”.

61    The payment of $757.02 on 20 December 2016 appears as follows in the Statement of Account (omitting the last two columns):

62    It is common ground that this payment was applied, not for legal expenses for this proceeding, but for another legal matter. In my view, the carve outs for legal expenses in the court orders dated 22 August 2016 and 14 December 2016 (set out at [27] and [29] above) were for legal expenses in relation to the present proceeding. Although not stated expressly in the orders, I consider that this goes without saying. This was not seriously challenged by Kalus Kenny. Accordingly, the payment of $757.02 from Kalus Kenny’s trust account was not permitted by the carve outs for legal expenses, and involved a breach by Transcomm of the general freezing order. (I note that this is admitted by Transcomm. Of course, that admission is not evidence in the contempt application against Kalus Kenny.)

63    On 21 December 2016, an examination pursuant to s 19 of the ASIC Act (section 19 examination) of Cameron took place. At this examination, Cameron informed ASIC, for the first time, that he held bank accounts at a bank named “UBank” and had received regular monthly payments of income into one of these accounts.

The period between 1 January and 3 March 2017

64    On 25 January 2017, ASIC sent a letter to Kalus Kenny. This letter referred to statements made by Cameron during the section 19 examination. On the basis of these statements (as summarised in the letter), ASIC stated that the defendants did not appear to require any further carve outs from the frozen accounts. It was stated that ASIC would oppose any application for carve outs for Cameron, Eustace or Sandra.

65    On 27 January 2017, Kalus Kenny sent an email to ASIC in response to the 25 January 2017 letter. The email indicated that carve outs would be sought as follows: $15,000 per month for living expenses for Eustace and Sandra; and $12,000 for living expenses for Cameron. The email did not respond to the substance of the matters raised in ASIC’s 25 January 2017 letter.

66    On 30 January 2017, ASIC sent a letter to Kalus Kenny. In relation to the issue of carve outs for Cameron, the letter referred to ASIC’s letter dated 25 January 2017, and stated that Kalus Kenny had not addressed the substantive matters raised in that letter, nor had it sought to justify with supporting sworn evidence why Cameron needed further carve outs from the frozen accounts. In relation to carve outs for Eustace and Sandra, the letter stated that Kalus Kenny’s email of 27 January 2017 had not addressed the issue raised by ASIC in its earlier letter, which suggested that Eustace did not require access to the frozen accounts for living and legal expenses.

67    On 1 February 2017, an affidavit of Cameron of that date was served, in anticipation of a hearing in the proceeding to take place the next day. In this affidavit, Cameron provided the following details in relation to his financial position:

4.    On about 25 August, 2016 I opened account number [details omitted] with U Bank (Ubank account 1) which is an interest bearing account and I also opened account number [details omitted] which is a transaction account (Ubank account 2).

5.    The only reason I did so was to overcome difficulties and significant delays in withdrawing funds from the Commonwealth Bank accounts referred to in paragraph 2 of the Orders made on 3 August, 2016, which difficulties and delays were directly attributable to the orders affecting that account.

6.    I opened two UBank accounts to avoid those delays and so that I could regularly withdraw funds for living expenses.

7.    At the time I opened the accounts I did not appreciate that I was required to inform my solicitor or ASIC about the existence of these accounts.

8.    In or about late August, 2016 I commenced providing IT Services to the Comersa Group at an agreed fee of $15,000.00 per month. I received my first monthly payment of $15,000 from the Comersa Group at the end of August 2016.

9.    I deposited that amount and the monthly income received by me thereafter into UBank account 1.

10.    Since then my spending from the account has been about as follows:

The reference to the “Comersa Group” is explained in Mr Kenny’s affidavit, referred to in the next paragraph of these reasons. In oral submissions on the hearing of the contempt application, ASIC submitted that, by the steps described in the above passage, Cameron had effectively circumvented the orders that had been made in the proceeding.

68    An affidavit of Mr Kenny dated 1 February 2017 was also served on 1 February 2017. In this affidavit, Mr Kenny deposed:

2.    At about 6 pm Melbourne time (8 am Rome time) I had a telephone discussion with Eustace Senese who told me, and I believe as follows.

3.    Comersa Group is a business he is trying to develop. At this stage its only activity is retaining Cameron Senese to develop software. It has never traded, it has no funds, and it has never generated any income.

4.    The funds used to pay Cameron Senese’s remuneration have come from loans Eustace Senese has secured from friends.

5.    Eustace Senese has not to date obtained any loans for himself or for Sandra Senese for living expenses.

6.    He has very recently obtained a loan of $15,000 for legal fees which was paid into the trust account of my firm in the last few days.

7.    Prior to and on 14 December, 2016 he did not have access to any funds for legal expenses other than the funds that were in the Transcomm account.

ASIC submitted at the hearing of the contempt application that the statements in this affidavit were contrary to the statement in the 11 August 2016 letter to the effect that Eustace had no source of funds other than funds in his and Sandra’s personal account and minimal funds in a debit card.

69    On 2 February 2017, a hearing in the proceeding took place. Senior counsel for ASIC indicated that ASIC opposed any further carve outs in favour of Cameron. It was submitted that: the earlier carve outs had been permitted because Cameron had sworn that he was in receipt of no income; Cameron had now told ASIC that, in the entire period since August 2016, he had been receiving $15,000 a month; and this had not been disclosed to this Court on 22 August 2016, 15 November 2016 or 14 December 2016. Counsel for the third to eleventh defendants sought a carve out for living expenses for Cameron. Counsel submitted that, given the general freezing order in paragraph 1(e) of the 15 November 2016 orders, absent a carve out, Cameron could not withdraw money from his bank accounts.

70    In the course of submissions on 2 February 2017, senior counsel for ASIC submitted that this Court had been misled over a long period of time. Her Honour observed that, “[i]f there has been the withholding of information about moneys that [Cameron] received which was not disclosed [it] is a very serious matter”. Her Honour also said that, if the freezing order was being extended, it was still necessary, nonetheless, for Cameron to have access to certain funds for living expenses. Ultimately, the Judge made further freezing orders on 2 February 2017, as described in [30] above.

71    On 17 February 2017, Cameron filed and served an affidavit setting out further details of his financial position.

72    On or about Tuesday, 28 February 2017, Mr Kenny became aware that payments had been made from Kalus Kenny’s trust account that may have exceeded the carve outs for legal expenses in the court orders. He raised this issue in a letter to ASIC on Wednesday, 1 March 2017. The letter sought agreement from ASIC on three issues: an increase in the amount of the carve outs for legal expenses; an extension of time to serve certain affidavits; and in relation to a confidentiality issue. The letter stated in part:

Amount of carve out for legal costs

In the course of preparing for Friday’s hearing [ie on 3 March 2017] I have prepared a detailed analysis. That process has [led] me [to] the conclusion that $20,000 is not sufficient.

Attached is a summary of funds my firm has received, paid out, and billed.

Carve out orders for legal fees for Eustace and [Sandra] Senese have to date been :

You will see from the analysis that bills rendered so far total $76,439.72 which includes $6,949.06 for gst.

The shortfall is $23,402.03 although the amount owing to us is $18,223.63.

That means we have inadvertently received $5,178.40 more than allowed in the carve outs.

I note that we have received $5,292.37 so far for gst, and not for legal costs.

I did not appreciate that until I had undertaken the [analysis] in the past day.

I will inform the Court at the next opportunity.

We currently have $8,548.12 in trust for our fees, which I have not applied due to the carve out limit to date.

Fees rendered so far do not allow for the costs of obtaining instructions and preparing the 2 affidavits.

There should also be a buffer so I do not need to seek consent every time, or seek a court order every time.

I suggest an appropriate carve out should now be $38,000 to allow for the following:

The above is designed to avoid this type of issue arising again before the next hearing on 5 May.

Please advise if ASIC agrees to the amount of the carve out being $40,000.

This request does not involve or include accessing the frozen assets.

(Emphasis added.)

73    The figure of $53,037.69 referred to in the letter reflects the cumulative total of the carve-outs for Transcomm for legal expenses. In relation to the statement that Kalus Kenny had “inadvertently received $5,178.40 more than allowed in the carve outs”, I note that this figure does not include GST. There is also a difference between Mr Kenny’s calculations in the 1 March 2017 letter, and his later calculations, in his evidence in response to the contempt application.

74    Attached to the 1 March 2017 letter was a document headed “Trust Account Statement – Tony Senese”. This was a typed extract from the firm’s trust account for Eustace. However the information in that extract does not appear to be correct in some respects. The Statement of Account (referred to in [60] above) provides a more reliable record of the movements in Kalus Kenny’s trust account.

75    The Statement of Account shows that, on 25 January 2017, $8,000 was paid into the trust account by Eustace and that, on 31 January 2017, a further $7,000 was paid into the trust account by Eustace. Mr Kenny was cross-examined about these payments into the trust account. The general line of questioning was as to whether someone in the firm had realised that there was not enough money in the trust account to pay the outstanding invoices and had requested further funds to be paid into the account. Mr Kenny said that he did not know. He said that he thought that Eustace had borrowed the $15,000 and paid it into the trust account in two tranches, and that he had done so because there was significant further work to do.

76    On 25 January 2017, payments in the amounts of $4,158.06 and $2,266 were made out of Kalus Kenny’s trust account. On 6 February 2017, payments in the amounts of $1,750 and $2,420 were made out of the trust account. These four payments are the subject of charges F3, F4, F9, F10, F12, F13, F15 and F16 against Kalus Kenny. The payments appear as follows in the Statement of Account (omitting the last two columns):

77    Three of the four payments were transfers from Kalus Kenny’s trust account to its office account by way of payment of Kalus Kenny’s invoices. One of the payments was a payment of counsel’s fees. It is common ground that the payments were made on behalf of Transcomm: see [14] above.

78    There is an issue as to whether one takes GST into account in calculating the amount permitted to be paid for legal expenses under the carve outs. In other words, were the carve out amounts GST-inclusive or GST-exclusive figures? If the carve out amounts were inclusive of GST, then all four payments exceeded the cumulative total (by the amounts contended for by ASIC and set out at [43] above) and were in breach of the court orders. If the carve out amounts were exclusive of GST, then the last two payments exceeded the cumulative total and were in breach of the court orders. I discuss the GST issue later in these reasons.

79    I note that Transcomm admits that the four payments involved a breach of the court orders. Of course, this is not evidence in the contempt application against Kalus Kenny.

80    On 3 March 2017, a further hearing of the proceeding took place. Mr Kenny appeared for Eustace and Sandra at this hearing. At this hearing, Mr Kenny informed the Judge that payments out of the firm’s trust account may have exceeded the carve outs. He also sought a further carve out for legal expenses. Referring to the letter dated 1 March 2017, which had been annexed to an affidavit he had sworn, Mr Kenny explained the position to the Judge as follows:

So your Honour, exhibit … [M]JK4 is the letter dated 1 March. So under the first heading, Carve-Out for Legal Costs[,] [w]hat I’ve done there, your Honour, is I’ve explained that the carve outs for legal costs so far for Mr and Mrs Senese have been a total of $53,000. See that at the bottom of page 1 of the letter.

…

And I then say that I’ve now done an analysis where the bills rendered for Mr and Mrs Senese so far total about $76,000.

…

About $7000 of that is GST. So if one then turns over the page, your Honour, what I’ve explained is the shortfall of the carve outs as compared to the bills rendered is $23,000, but there’s currently $18,000 owing to my firm, which means my firm has received $5000 more than the carve outs. What I’ve explained is that I did not appreciate that until I had undertaken the analysis the day before I wrote this letter and that I would bring that to the court’s attention, which I’m now doing, your Honour. Interestingly, though, the $5000 extra, your Honour, is actually also the amount of the GST we’ve paid so far.

So if you like when your Honour has made orders allowing certain amounts for legal fees, we’ve actually received pretty much a couple hundred dollars less than the orders – the carve outs [that] have been allowed. The $5000 extra that we’ve received actually would have been for GST, not for legal fees. In any event, your Honour, I then explain that based on the trust account statement, which is the next document, we’ve got $8500 left in trust at the moment. That’s not from the frozen accounts, your Honour. That was from – if you will – that was from $15,000 that was received from Mr Senese in late January and that was the subject of an affidavit on the last occasion.

81    Her Honour ruled that there should be a further carve out with respect to legal costs. Her Honour said:

On the question of the carve out, I have before me the affidavit of Michael [Jonathan] Kenny setting out, in some detail, the basis upon which a further carve out in the amount of $40,000 is sought and as to why it is that the amount sought by way of carve out has effectively doubled since earlier this week when Mr Kenny put to ASIC that a carve out of $20,000 was required.

I am satisfied on the basis of the material furnished to me by Mr Kenny that … there is justification for a carve out up to amount of $40,000 and, so finding, I note that $15,400 relates to anticipated work to prepare for and appear at the next hearing which is scheduled for 5 May 2017. One of the aspects of this case which seems to impede the progress of this case on a timely basis … has been the need for carve outs to be determined for the purposes of [preparing] for the next directions hearing and the further steps that are being undertaken in this matter. I consider it reasonable to allow a buffer so that work can continue to be undertaken pending the next directions hearing and not held up because of the need to come to court to obtain further order in relation to carve outs.

The period after 3 March 2017

82    On 10 March 2017, an affidavit of Mr Kenny was filed and served. This related to an order that had been made on 21 February 2017 requiring Eustace and Sandra to file and serve affidavits setting out their financial position. The affidavit of 10 March 2017 set out a number of practical difficulties relating to the swearing of affidavits by Eustace and Sandra, who were living in Italy (apparently to support an application that they be excused from the requirement to provide affidavits). The letter annexed an unsworn affidavit that Mr Kenny had prepared for Eustace on his instructions. Mr Kenny deposed that Eustace had informed him that the contents were true and correct. In the unsworn affidavit, Eustace referred to a loan agreement between a lender and him dated 1 August 2016 (the Edge Premium Funding Loan Agreement). Eustace stated that he made arrangements for the loan about two months prior to 1 August 2016 for the purpose of funding a new venture that was discussed in the unsworn affidavit. Eustace stated that the lender had paid certain amounts to Cameron and other recipients (as set out in the unsworn affidavit). These amounts included two payments for legal fees: $8,000 on 24 January 2017; and $7,000 on 31 January 2017. Eustace stated that Mr Kenny had explained to him that the above spending had exceeded the carve outs ordered by this Court. He stated: “That was inadvertent on my part. I did not appreciate that payments by the lender to Cameron Senese, was spending by me. If I had appreciated that I would have informed Mr Kenny and instructed him to seek that carve out.”

83    A copy of the Edge Premium Funding Loan Agreement was annexed to Mr Kenny’s affidavit of 10 March 2017. Mr Kenny deposed in paragraph 8 of his affidavit:

I became aware of the matters contained in Mr Senese’s unsworn affidavit relating [to] the loan funds and how those funds have been applied earlier this week. I first sighted the loan agreement on 21 February 2017.

84    The Judge was not prepared to dispense with compliance by Eustace and Sandra with the requirement that they swear affidavits setting out their financial position. An affidavit was sworn by Eustace on 27 April 2017 and an affidavit was sworn by Sandra on the same date.

Kalus Kenny’s practices and state of mind

85    I now discuss the evidence in relation to, and make findings about, Kalus Kenny’s practices and its state of mind in relation to the payments that are the subject of the contempt charges against the firm. Both parties proceeded on the basis that, insofar as ASIC alleges in its alternative charges that the firm had a particular knowledge or intent, this was to be determined by reference to Mr Kenny. It was not suggested by ASIC that anyone else at the firm had the knowledge or intent alleged in the alternative charges.

86    In his affidavit dated 4 May 2017, Mr Kenny gave the following evidence. There were some corrections made in his later affidavit of 2 March 2018, which have been incorporated in the following summary.

(a)    Mr Kenny stated that all of the charges against his firm were denied and that, save for “an error on my part” in relation to the sum of $2,761.02, the matters alleged by ASIC as constituting the alleged contempts by the firm were incorrect.

(b)    Mr Kenny expressed the view that “legal costs” (referred to in the 22 August 2016 orders) meant fees payable to his firm, and “disbursements” (referred to in the same orders) meant amounts payable by the firm for counsel’s fees, search fees, courier fees, travel costs, and the like. He said that disbursements did not include GST, which was a separate charge that was required to be imposed by the firm each time it rendered a bill of costs.

(c)    Mr Kenny said that, when the orders were made, he did not turn his mind to the effect of GST.

(d)    He said that when Kalus Kenny renders a bill for legal costs and disbursements, it adds to the amount of legal costs and disbursements 10 per cent GST, which Kalus Kenny remits to the Australian Taxation Office on a quarterly basis.

(e)    Mr Kenny stated that he had examined his firm’s trust account ledger for Eustace and Sandra. He set out amounts received by Kalus Kenny up to 1 March 2017 for legal costs and disbursements and GST. The total was $61,378.57 (as corrected in the 2 March 2018 affidavit).

(f)    In relation to the payment of $757.02 on 20 December 2016, Mr Kenny said that this was a payment for an unrelated matter, not for the present proceeding, and “so it should not have been included in that statement”. Annexed to the affidavit was an email exchange between Eustace and Mr Kenny in relation to the payment of $757.02.

(g)    Mr Kenny accepted that, in relation to the payments of $1,750 and $2,420 on 6 February 2017, there was a payment in excess of the amount allowed for legal costs and disbursements. Mr Kenny stated that this “was an unintentional error on my part”.

87    Mr Kenny also stated in his 4 May 2017 affidavit:

17.    I did not realise that the amount transferred on 6.2.17 was in excess of the amounts allowed until about 1 March, 2017. I immediately informed ASIC by letter dated 1 March, 2017, which is exhibit “MJK-4” to my affidavit sworn on 2 March 2017. I also informed the Court about this at the hearing at the hearing on 3 March, 2017. I refer to the transcript of that day, … and in particular to the matters commencing at line 35 on page 3 through to line 30 in page 4 of the transcript. I now appreciate that my calculation was incorrect at that time as I had incorrectly assessed the effect of GST and the amounts received.

18.    I did not appreciate that the receipt by my firm of the amounts on 6.2.17 would exceed the amounts allowed for legal expenses. I mistakenly believed that the amounts being paid to my firm were within the amounts allowed.

88    Mr Kenny gave the following evidence during cross-examination:

(a)    The firm’s invoices for the present proceeding were prepared by a secretary. The invoices were then settled by Mr Kenny. Under the retainer arrangement with the defendants to the proceeding, the firm had permission at the outset to transfer funds from the firm’s trust account to pay the invoices.

(b)    The general practice of the firm (for other files) is that, once an invoice has been rendered and processed through the firm’s accounts department, if there are funds in trust, funds are transferred from the trust account to the office account to pay the invoice.

(c)    The Eustace and Cameron files were “the only ones where there were orders in place of this kind”. Mr Kenny said that “ordinarily, the process should have been that no funds should be transferred without my authority”.

89    Mr Kenny was asked during cross-examination whether he formally approved the four transfers on 25 January and 6 February 2017. He said: “I don’t recall … I don’t have a record of approving them.” He said that “I’ve gone back to look at my records and I can’t find any record of what happened”.

90    Later during the cross-examination, Mr Kenny was asked further questions relating to approval of transactions shown in the Statement of Account. This evidence makes reference to two debit entries that appear in the Statement of Account before the four payments set out in [76] above. The two debit entries were $4,391.69 (on 17 January 2017) and $4,500 (on the same date). The following exchange took place.

[T]he total carve outs that had been allowed were $53,037.69. Now, on the – so if we go over to 17 January 2017, when that amount of $4391.69 was transferred out of the office account, did you verify that that – that the transfer of that amount did not result in any excess of the carve outs?---I don’t believe so.

No. Do you know to your knowledge whether anyone in your firm did that?---I don’t believe anyone else did that.

Right. And the same about the next item – $4500 – is it the same answer?---Is that on 17 of – of January?

It’s on 17 January?---Yes.

And does that apply to the following four payments on – there are two payments on 25 January 2017: one of $4158 and another of $2266. You didn’t turn your mind to whether the making of those payments exceeded the carve out limits?---No.

To your knowledge, you don’t know that anyone else in your firm did that?---No.

And the same goes for the two payments on 6 February: 1750 and 2420?---That’s correct, and, Mr Pearce, if I would have known that any – any of those payments put us over the carve out, there’s – there’s no way I would have allowed these payments or – to occur, because there’s no way that I would deliberately breach an order of the court.

(Emphasis added.)

In the above passage, Mr Kenny accepted that neither he nor anyone else at Kalus Kenny checked whether the relevant payments out of the trust account would exceed the carve outs and thus breach the court orders. I note that Mr Kenny answered “No” to the fifth and sixth questions set out above. It is clear from the context that he was accepting the proposition that was being put to him, namely that he did not turn his mind to whether the making of the payments exceeded the carve outs, and he did not know whether anyone else at the firm turned their mind to this question.

91    Mr Kenny was then asked questions regarding whether Kalus Kenny had procedures in place to ensure that the court orders were not breached. The following exchange took place:

Your firm had no procedures in place to ensure that the order was not breached, did it?---No, that’s not correct.

What were the procedures that you put in place to ensure that the orders were complied with?---I had told the – the accounts department staff in August that they were not to transfer any monies in the Tony Senese file or the Cameron Senese file without checking with me.

So it’s their fault, is it? They made these transfers without checking with you?---I – I’m not saying it’s their fault. I’m – you asked me what the process was, and I – I told – instructed them not to make any payments without checking with me.

Well, this was back in August, you told them that?---Yes.

And numerous payments were made from August through to January. You must have been aware that those payments were being made, weren’t you?---Most of the time I was aware, yes.

Yes. And they were being made without checking with you?---No.

Which payments in this statement of account document were made after checking with you?---I can’t say, really, but – I can’t say, but I – I do recall – from time to time the accounts staff asking me for authority to pay accounts.

…

But in respect of these payments, the two payments on 25 January and the two payments on 6 February, you’re confident that your authorisation or approval was not sought in respect of those payments?---Mr Pearce, I can’t recall. I can explain this. I – I’ve had a look at what I was doing on those days. On 24 January, I wasn’t in the office. I was – I had a matter commencing at 9.30 in this court before Registrar Allaway, and I was appearing as counsel, and I spent most of the day doing that. … I then had a conference with a barrister, where I went immediately after court. And I believe I then went home. On 25 January, I was at a wedding … and I didn’t come to the office that day, either. So I don’t recall – I don’t have any recollection of my authority being sought for these transfers, and I don’t recall – well, I certainly know that – I certainly know that I made no check of the account at the time.

…

So the state of evidence before his Honour as to how these moneys came to be paid on that day was that you, sitting there in the witness box, can’t give an explanation for why those payments were made without your authorisation?---No.

And the same goes for the two payments on 6 February; no explanation?--- That’s correct.

I note that Mr Kenny answered “No” to the second last question in the above passage. Read in context, Mr Kenny was accepting the proposition that he could not provide an explanation for why the two payments on 25 January 2017 were made without his authorisation. The same answer applied for the two payments on 6 February 2017.

92    Mr Kenny made clear in his evidence during cross-examination that it was only after he realised that the payments may have exceeded the carve outs that he considered the question whether GST was to be taken into account in calculating the total amount permitted by the carve outs. This was not an issue he had considered earlier, for example, at the time the payments were made.

93    On the basis of the evidence set out above, I make the following findings:

(a)    Mr Kenny’s own evidence establishes that neither he nor anyone else at Kalus Kenny turned their mind to whether the four payments that were made on 25 January 2017 and 6 February 2017 exceeded the carve outs.

(b)    Mr Kenny was unable to provide an explanation for how the payments came to be made in breach of the court orders. (Even if the cumulative total of the carve outs was a GST-exclusive figure, two of the four payments made on 25 January 2017 and 6 February 2017 were in breach of the court orders.)

(c)    In response to the proposition that the firm had no procedures to ensure the orders were not breached, the only procedure Mr Kenny identified was that he had instructed the accounts department not to transfer moneys in the Tony Senese file or the Cameron Senese file “without checking with me”. Mr Kenny did not provide any documentation in relation to this instruction and I infer that it was oral. The procedure he referred to (if it can be called that) did not require his authorisation to be obtained in writing. Nor did the procedure incorporate a process for calculating, before a payment for legal expenses was made, the total amount that had already been paid towards legal expenses and a comparison against the cumulative total permitted by the carve outs. In light of these matters, Mr Kenny’s own evidence establishes serious deficiencies in the processes adopted by Kalus Kenny to ensure that payments out of its trust account were permitted by the court orders.

(d)    Mr Kenny made clear in his evidence that it was only after he realised that payments may have exceeded the carve outs that he considered the question whether GST was to be taken into account in calculating the total amount permitted by the carve outs. He made clear that he had not considered this position earlier. He did not suggest, for example, that he had authorised the payments to be made on the basis of this interpretation of the orders. To the contrary, Mr Kenny did not turn his mind to whether the payments exceeded the carve outs.

(e)    In relation to the payment of $757.02 on 20 December 2016, I infer that the position as regards this payment was substantially the same as with the four payments made on 25 January 2017 and 6 February 2017.

(f)    I accept Mr Kenny’s evidence that, if he had known that any of the four payments exceeded the carve outs, he would not have allowed the payments to occur. Mr Kenny was not directly challenged on this evidence. If and to the extent that he was indirectly challenged, he did not waver from this position. I consider it most unlikely that Mr Kenny, as an experienced legal practitioner, would have permitted the payments to be made if he had realised or considered there was a possibility that they exceeded the carve outs.

Consideration

94    It is convenient to start the consideration of whether Kalus Kenny is liable for contempt of court by addressing a threshold issue, namely whether the making of the five payments involved a breach (by Transcomm) of the court orders.

95    In relation to the payment of $757.02 on 20 December 2016, for the reasons given in [62] above, this involved a breach by Transcomm of the general freezing order.

96    In relation to the four payments made on 25 January 2017 and 6 February 2017, there is a question whether all four or only two of the payments exceeded the carve outs. This turns on whether the carve out amounts were GST-inclusive or GST-exclusive figures. In my view, the carve outs were GST-inclusive amounts. The carve outs were exceptions to the general freezing orders. Unless permitted by the carve outs, or another exception, Transcomm was not permitted to make the payment. Viewed in this light, I consider it clear that the carve out amounts were GST-inclusive figures. Otherwise, there was no permission to pay the GST component. It follows that all four of the payments made on 25 January 2017 and 6 February 2017 exceeded the cumulative total of the carve outs (by the amounts calculated by ASIC and set out at [43] above) and involved breaches (by Transcomm) of the court orders.

97    The question then is whether Kalus Kenny is liable for contempt of court in relation to the five payments in circumstances where: Kalus Kenny was the solicitor acting for Transcomm, but was not itself bound by the orders; Kalus Kenny effected the payments; and the payments caused Transcomm to breach the court orders.

98    The primary charges against the firm assume that Kalus Kenny’s liability is essentially strict, in the same way that the liability of a party who is bound by a court order is essentially strict (as discussed at [17]-[20] above). ASIC relies heavily on the following passage from the speech of Lord Hope of Craighead in Attorney General v Punch Ltd [2003] 1 AC 1046 at [87]:

The essential distinction between the liability of a party to the litigation for contempt of court and that of a third party was explained by Lord Oliver of Aylmerton in Attorney General v Times Newspapers Ltd [1992] 1 AC 191, 217F-218B. Where the alleged contemnor is a party to the litigation and bound by the order or is someone acting for him or at his direction, all that has to be proved is that the order was served on that person and that he has done that which the order has prohibited. But where it is alleged that a stranger to the litigation is in contempt the position is different. As Salmon LJ said in Jennison v Baker [1972] 2 QB 52, 61, the public at large no less than the individual litigant have a very real interest in justice being effectively administered. The power to commit for contempt ensures that acts and words tending to obstruct the administration of justice are prohibited. So a stranger is liable for contempt if his act constitutes a wilful interference with the administration of justice by the court in the proceedings in which the order was made. It has also to be shown there was an intention on his part to interfere with or impede the administration of justice. This is an essential ingredient, and it has to be established to the criminal standard of proof. But the intent need not be stated expressly or admitted by the defendant. As is the case where the question of intention, or mens rea, arises in criminal cases, it can be inferred from all the circumstances including the [foreseeability] of the consequences of the defendant’s conduct: Attorney General v Newspaper Publishing plc [1988] Ch 333, 374-375, per Sir John Donaldson MR.

(Emphasis added.)

ASIC relies on this passage (in particular, the reference to “someone acting for” a party) for the proposition that, where the alleged contemnor is a person acting for a party (such as a solicitor), liability for contempt is essentially strict. ASIC submits that a solicitor acting for a party is not, and should not be treated as, a “stranger to the litigation”, in respect of whom an additional element of intention must be established.

99    However, for the following reasons, the passage provides only limited support for ASIC’s submissions. First, the facts of Attorney General v Punch Ltd did not involve a person acting for a party, but rather a non-party (or stranger to the litigation). In that case, interlocutory injunctions had been obtained by the Attorney General against a former MI5 officer and a newspaper publisher restraining the publication of certain information relating to the security service pending the trial of an action for alleged breach of confidence. The editor and publisher of “Punch” magazine, knowing the terms of the injunctions, published an article by the former MI5 officer that included information restrained by the injunction. Neither the editor nor the publisher was a party to the proceeding in which the injunction had been made. The Attorney General commenced a proceeding for contempt against the editor and the publisher. The appeal to the House of Lords was concerned with the liability of a non-party for contempt of court. It was not concerned with the liability of a person acting for a party.

100    Secondly, the passage from the speech of Lord Oliver of Aylmerton in Attorney General v Times Newspapers Ltd [1992] 1 AC 191 cited by Lord Hope of Craighead does not support the proposition that, where the alleged contemnor is someone acting for a party, liability is essentially strict. In Attorney General v Times Newspapers Ltd, Lord Oliver said at 217F-218B:

This submission involves some analysis of the particular type of contempt with which the appeal is concerned. A distinction (which has been variously described as “unhelpful” or “largely meaningless”) is sometimes drawn between what is described as “civil contempt,” that is to say, contempt by a party to proceedings in a matter of procedure, and “criminal contempt.” One particular form of contempt by a party to proceedings is that constituted by an intentional act which is in breach of the order of a competent court. Where this occurs as a result of the act of a party who is bound by the order or of others acting at his direction or on his instigation, it constitutes a civil contempt by him which is punishable by the court at the instance of the party for whose benefit the order was made and which can be waived by him. The intention with which the act was done will, of course, be of the highest relevance in the determination of the penalty (if any) to be imposed by the court, but the liability here is a strict one in the sense that all that requires to be proved is service of the order and the subsequent doing by the party bound of that which is prohibited. When, however, the prohibited act is done not by the party bound himself but by a third party, a stranger to the litigation, that person may also be liable for contempt. There is, however, this essential distinction that his liability is for criminal contempt and arises not because the contemnor is himself affected by the prohibition contained in the order but because his act constitutes a wilful interference with the administration of justice by the court in the proceedings in which the order was made. Here the liability is not strict in the sense referred to, for there has to be shown not only knowledge of the order but an intention to interfere with or impede the administration of justice — an intention which can of course be inferred from the circumstances.

(Emphasis added.)

While Lord Oliver of Aylmerton did refer to “others acting at his [the party’s] direction or on his instigation”, his Lordship then referred to a civil contempt “by him”, that is, the party. His Lordship did not address the liability for contempt of persons acting at the direction or on the instigation of a party. This is reinforced by the words “by the party bound” later in the passage.

101    Thirdly, the other speeches in Attorney General v Punch Ltd did not state the relevant principles in the same terms as Lord Hope of Craighead. In particular, it was not suggested that where the alleged contemnor is a person acting for a party, liability is essentially strict.

102    ASIC did not cite any Australian authority that had followed, or was to the same effect, as the passage upon which it relies from Lord Hope’s speech in Attorney General v Punch Ltd, in relation to the liability of a person acting for a party.

103    On the other hand, Kalus Kenny relies heavily on CCOM. Before setting out the relevant passages, it is useful to describe the facts in a little detail. The case concerned allegations of contempt of court brought by four of the respondents to the proceeding (referred to in the judgment as “Jiejing”) against CCOM Pty Ltd and certain other parties (referred to together as “CCOM”) for failing to comply with an undertaking given by counsel on their behalf. In addition, Jiejing sought a determination that two solicitors, Mr McCullagh and Mr Hackett, members of Stokes and Panettiere, the then solicitors for CCOM, were guilty of contempt by assisting their clients to breach the undertaking. The contempt application against Mr Hackett was dismissed during the course of the hearing (see at 525) and can be put to one side. The undertaking, in broad terms, related to the deletion of copies of certain disks from a hard disk on a computer situated at the offices of Stokes and Panettiere. It was alleged that, in breach of the undertaking, the copies had not been deleted. The statement of charge against Mr McCullagh alleged, in summary, that he aided and abetted CCOM in committing contempt of court, in that, with knowledge of the undertaking, and as agent of CCOM for the purpose of carrying out the undertaking, he failed to delete the copies (see at 525). A “no case” submission was made by CCOM and Mr McCullagh at the end of Jiejing’s case. Drummond J rejected the no case submission on behalf of CCOM (at 530) but upheld the submission on behalf of Mr McCullagh (at 533). In the course of considering whether Mr McCullagh had a case to answer, Drummond J said (at 530-531):

[Mr McCullagh’s] position is different from that of CCOM and Messrs Thomas and Garnham. Unlike Mr McCullagh, the latter are all parties to the action and are in terms bound by the undertaking. They having given the undertaking to the court, all that has to be proved to show that they are guilty of contempt is that there was a failure – and the reasons why are immaterial – of that undertaking to be carried into effect. Their liability for contempt is strict, although the intention with which the omission was made will be very relevant to the question of penalty if any: see Attorney-General v Times Newspapers Ltd [1991] 2 WLR 994 at 1013-1014; [1991] 2 All ER 398 at 414-415.

Mr McCullagh however is not a party to the action and is not bound by the undertaking. Such a person is not subject to the strict liability in contempt which rests upon a person bound by an undertaking that is breached. However a person who is not in terms bound by an undertaking but who knows of it and who then does something which disrupts the situation created by the undertaking may, but not necessarily must, be guilty of contempt of court.

Such a person will be guilty of contempt where his conduct, coupled with his knowledge of the undertaking, shows that he is flouting the authority of the court by doing something which he knows will prevent the undertaking given to the court achieving its intended object. Such a person will be in contempt, because he has “knowingly impeded or interfered with the administration of justice by the court in the action between A and B”: see Attorney-General v Times Newspapers Ltd (supra) (at 1003; 405), per Lord Brandon. See also Seaward v Paterson [1897] 1 Ch 545 at 555 and Z Ltd v A-Z and AA-LL [1982] QB 558 at 578.

In Attorney-General v Times Newspapers Ltd, Lord Oliver (at 1018-1019; 419), speaking of the circumstances in which a determination could be made that a stranger to a court order which had been breached was guilty of contempt, said:

“ ... a more dependable guide is to be found in the way in which the gravamen of the offence is expressed in the respondent’s case and which, I think, must be based upon the speeches in this House in Attorney-General v Leveller Magazine Ltd [1979] AC 440: ‘The publication ... frustrates, thwarts, or subverts the purpose [and I interpolate that Lord Oliver emphasised that phrase] of the court’s order and thereby interferes with the due administration of justice in the particular action.’ ‘Purpose’, in this context, refers, of course, not to the litigant’s purpose in obtaining the order or in fighting the action but to the purpose which, in seeking to administer justice between the parties in the particular litigation of which it had become seized, the court was intending to fulfil.”

I think the statement by Lord Oliver most clearly identifies the features that must be present in the conduct of a stranger to an order of the court or an undertaking given to the court before he can be found guilty of contempt where the order or undertaking is breached.

(Bold emphasis added.)

104    Justice Drummond then said that it would usually be clear from the wording of the order or undertaking what purpose the court was intending to fulfil in the course of administering justice between the parties in the particular litigation, but the case before him was more complex. The issue that arose was (at 531):

What must be proved to make out a contempt where, as here, a stranger to the undertaking knows that it has been given in the action and does acts which on the true construction of the undertaking prevent it achieving its object, but which that stranger honestly believes on his own understanding of the meaning of the undertaking did not interfere with its object or purpose?

(Emphasis added.)

105    His Honour addressed that issue at 531-532, again following the approach taken by Lord Oliver in Attorney General v Times Newspapers Ltd.

106    After expressing the view (at 532) that the standard of proof was proof beyond reasonable doubt, Drummond J formulated the question for decision as follows (at 532-533):

Since there is evidence to support a finding that Mr McCullagh’s actions were sufficient to amount to a contempt by him provided there is sufficient proof that he had the requisite intent, the question now for decision comes down to this: is there sufficient evidence to entitle the court to find beyond reasonable doubt that Mr McCullagh intended to prevent or impede the purpose of the undertaking, as I have identified it in what I have already said, from being achieved?

107    This passage reinforces the proposition that Drummond J considered it necessary to establish the requisite intention before Mr McCullagh could be found guilty of contempt of court. On the facts, Drummond J held that Mr McCullagh had no case to answer because, in summary: such evidence as there was on the subject of Mr McCullagh’s intention was all one way in pointing to him believing that, by carrying out the deletions as described in the affidavit material, he had done all that was required on the part of CCOM to comply with the undertaking; and although Mr McCullagh was aware that deletion exercise he had carried out did not completely remove the contentious information from the firm’s computer hard disk, Mr McCullagh honestly believed that he had done all that was required by the undertaking.

108    It is clear from the judgment generally that Drummond J was treating Mr McCullagh as a “stranger” to the undertaking, even though he was a solicitor acting for the parties that had given the undertaking (see, eg, the words “as here” at 531, quoted above). Further, although the case was concerned with breach of an undertaking to the court, as distinct from a court order, this is not a relevant difference for present purposes. Drummond J applied cases concerning the breach of court orders, indicating that he was not drawing a distinction.

109    The judgment of Drummond J in CCOM, and in particular the passage from 530-531 that has been extracted at [103] above, has been approved by the Court of Appeal of the Supreme Court of New South Wales on three occasions: see Reid v Howard (1993) 31 NSWLR 298 at 308-309 per Handley JA (Meagher JA relevantly agreeing and Sheller JA agreeing) (rev’d on appeal (1995) 184 CLR 1, but not on this point); Sigalla v TZ Limited [2011] NSWCA 334 at [16] per Young JA (Macfarlan JA and Handley AJA agreeing); and Baker v Paul [2013] NSWCA 426 at [19] per Meagher JA (Barrett JA and Gleeson JA agreeing). The passage from CCOM at 530-531 was also cited by Keane, Nettle and Gordon JJ in Australian Building and Construction Commissioner v Construction, Forestry, Mining and Energy Union (2018) 351 ALR 190 at [131].

110    It is convenient at this point to refer to two of the cases cited by Drummond J in CCOM, namely Seaward v Paterson [1897] 1 Ch 545 and Z Ltd v A-Z and AA-LL [1982] QB 558. In Seaward v Paterson, Lindley LJ said (at 555-556):

A motion to commit a man for breach of an injunction, which is technically wrong unless he is bound by the injunction, is one thing; and a motion to commit a man for contempt of Court, not because he is bound by the injunction by being a party to the cause, but because he is conducting himself so as to obstruct the course of justice, is another and a totally different thing. The difference is very marked. In the one case the party who is bound by the injunction is proceeded against for the purpose of enforcing the order of the Court for the benefit of the person who got it. In the other case the Court will not allow its process to be set at naught and treated with contempt. In the one case the person who is interested in enforcing the order enforces it for his own benefit, in the other case, if the order of the Court has been contumaciously set at naught the offender cannot square it with the person who has obtained the order and save himself from the consequences of his act.

111    In Z Ltd v A-Z and AA-LL, Eveleigh LJ said (at 578):

I think that the following propositions may be stated as to the consequences which ensue when there are acts or omissions which are contrary to the terms of an injunction. (1) The person against whom the order is made will be liable for contempt of court if he acts in breach of the order after having notice of it. (2) A third party will also be liable if he knowingly assists in the breach, that is to say if knowing the terms of the injunction he wilfully assists the person to whom it was directed to disobey it. This will be so whether or not the person enjoined has had notice of the injunction.

The first proposition is clear enough. As to the second, however, it was submitted that until the defendant had notice of the injunction nothing done by the bank could amount to contempt of court. Also two opposing views were canvassed (I use this expression as the arguments were not strictly contentious) as to the extent to which mens rea was a necessary ingredient in determining the bank’s responsibility to the court.

I will give my reasons for the second proposition and take first the question of prior notice to the defendant. It was argued that the liability of a third party arose because he was treated as aiding and abetting the defendant (i.e. he was an accessory) and as the defendant could himself not be in breach unless he had notice it followed that there was no offence to which the third party could be an accessory. In my opinion this argument misunderstands the true nature of the liability of the third party. He is liable for contempt of court committed by himself. It is true that his conduct may very often be seen as possessing a dual character of contempt of court by himself and aiding and abetting the contempt by another, but the conduct will always amount to contempt of court by himself. It will be conduct which knowingly interferes with the administration of justice by causing the order of the court to be thwarted.

112    I note that Seaward v Paterson at 555 and Z Ltd v A-Z and AA-LL at 578-579 were cited by Gaudron, McHugh, Gummow and Callinan JJ in Cardile v LED Builders Pty Ltd (1999) 198 CLR 380 at 395 and by Gleeson CJ, Gummow, Kirby, Callinan and Heydon JJ in Zhu v Treasurer (NSW) (2004) 218 CLR 530 at [121].

113    ASIC relies on R v Witt (No 2) [2016] VSC 142, which concerned the penalty that should be imposed on a solicitor who had admitted liability for contempt. While there are passages (eg at [112]) that emphasise the responsibilities of a solicitor as an officer of the court, I do not regard the case as being on point. ASIC relies on Legal Services Board v Forster (No 3) [2012] VSC 640 at [15]. This judgment was concerned with the penalty to be imposed on a solicitor who had been found guilty of contempt. Justice Emerton took into consideration that legal practitioners “should be held to a higher standard when it comes to compliance with Court orders and the preservation of the due administration of justice than ordinary members of the public”. These statements were made in the context of a penalty issue and were not directed to the issue presently being considered.

114    Both ASIC and Kalus Kenny referred in oral submissions to Lane v Registrar of the Supreme Court (NSW) (Equity Division) (1981) 148 CLR 245 at 258, but the discussion in that passage is expressed in very general terms, and I do not consider that much can be drawn from it, one way or the other, for present purposes.

115    In oral submissions, ASIC submitted that CCOM was plainly wrong. However, I do not consider it to be plainly wrong. The judgment of Drummond J is supported by the authorities his Honour cited in the judgment. Further, as noted above, CCOM has been approved by the New South Wales Court of Appeal on three occasions and cited by the High Court.

116    In my view, CCOM and the authorities to which it refers establish the following propositions: a person who is not a party to the proceeding and not bound by a court order is not subject to the strict liability for contempt that applies to a person bound by a court order that is breached; a person who is not in terms bound by a court order but who knows of it and who then does something that disrupts the situation created by it may, but not necessarily must, be guilty of contempt of court; and such a person will be guilty of contempt where his or her conduct, coupled with knowledge of the court order, shows that he is flouting the authority of the court by doing something that he or she knows will prevent the court order achieving its intended object. The effect of these propositions is that an additional element of intention needs to be established.

117    Further, I consider CCOM to be authority for the proposition that these principles apply to a solicitor in circumstances where the solicitor is acting for a party to a proceeding who is bound by a court order, but the solicitor is not himself or herself bound by the court order. The case before Drummond J involved a solicitor acting for parties who had given undertakings to the court; Drummond J proceeded on the basis that the solicitor was a “stranger” to the undertaking. As indicated above, I do not consider there to be any relevant distinction for present purposes between breach of an undertaking to the court and breach of a court order. It is true that, in the present case, Kalus Kenny was referred to in some of the court orders (eg, the orders made on 14 December 2016, described in [29] above). But the orders did not bind Kalus Kenny. Further, the fact that Kalus Kenny had a particular role in relation to the orders does not seem to me to be a basis for distinguishing CCOM. In that case, the firm of solicitors had responsibility for carrying out deletions on a computer situated at their offices as agent for CCOM for the purpose of carrying out the undertaking (see at 525).

118    It follows from the above, that I reject the primary charges brought by ASIC against Kalus Kenny, which assume that Kalus Kenny’s liability for contempt for contravention of the court orders is strict. For the reasons given above, Kalus Kenny’s liability is not strict.

119    In light of this conclusion in relation to the primary charges, it is unnecessary to consider an alternative submission made on behalf of Kalus Kenny to the effect that, even if the primary charges were established, as a matter of discretion I should not find the firm guilty of contempt of court.

120    It remains to consider the alternative charges against the firm. Each of these charges includes the following words at the end of the charge: “knowing that to be in contravention of the Court Order”. In light of the factual findings that I have made at [85]-[93] above, this knowledge is not established. It is not established that Mr Kenny (or anyone else at the firm) effected the relevant payments knowing this to be in contravention of the court orders. Accordingly, the alternative charges are not established.

121    Given the conclusions I have reached, it is unnecessary to address the potential complications that arise from the fact that ASIC’s charges are brought against a partnership.

Conclusion

122    For the reasons set out above, I will make declarations and orders substantially in the terms proposed by ASIC and the five relevant defendants. As proposed by the parties, I will list the matter for further hearing on penalties and costs.

123    In relation to the contempt of court charges against Kalus Kenny, for the reasons set out above, these charges are to be dismissed. I will give the parties the opportunity to make submissions on costs.

Associate:

Dated:    19 July 2018

ANNEXURE A

FIRST STATEMENT OF AGREED FACTS, ADMISSIONS AND PROPOSED PENALTIES

INTRODUCTION

1.    The Plaintiff, the Australian Securities and Investments Commission (ASIC), is the body corporate established by section 7 of the Australian Securities Commission Act 1989 (Cth) and continued in existence by section 261 of the Australian Securities and Investments Commission Act 2001 (Cth).

2.    The Fourth Defendant, Eustace Senese (Eustace), is the husband of Sandra Senese (Sandra) and the father of the Ninth Defendant, Cameron David Senese (Cameron).

3.    The Sixth Defendant, Transcomm Global Pty Ltd (Transcomm) is incorporated pursuant to the Corporations Act. Sandra is its director and its sole shareholder is the Fifth Defendant (Sansen). Sandra is sole director of, and shareholder in, Sansen.

4.    In its Amended Interlocutory Application dated 18 December 2017 (Contempt Application), ASIC seeks orders that Eustace and Transcomm be punished for contempt of this Court in respect of charges made against them in the Amended Statement of Charges dated 18 December 2017 (Amended Charges).

5.    This Statement of Agreed Facts, Admissions and Proposed Penalties (Statement) is made jointly by ASIC, Eustace and Transcomm in support of proposed orders in relation to admitted contempts of Court by Eustace and Transcomm. The proposed orders are Annexure A to this Statement (Proposed Orders) [not reproduced]. The admitted contempts are alleged in the Amended Charges.

RELEVANT COURT ORDERS

3 August 2016 Order

6.    Paragraph 1(e) of the Order of the Court made on 3 August 2016 made in this Proceeding (3 August 2016 Order) provided that until 4:00pm on 16 November 2016:

(e)    pursuant to section 1324(4) of the [Corporations] Act, [Eustace and Transcomm] be prohibited from selling, transferring, encumbering, disposing of or otherwise dealing with any of their assets or property.

7.    The 3 August 2016 Order (and the subsequent orders to the same effect) was made under section 1324 of the Corporations Act 2001 to preserve funds paid by persons who had invested in binary options on a website which ASIC alleges was operated by the First and Second Defendants. In its Concise Statement in this Proceeding, ASIC alleges that the offering of these investments involved various contraventions of the Corporations Act 2001 which might entitle the investors to recover the moneys they had invested.

22 August 2016 Order

8.    Paragraph 1 of the Order of the Court made on 22 August 2016 made in this Proceeding (22 August 2016 Order) provided as follows:

Order 3(e) of the Orders of the Honourable Justice Davies made 26 July 2016 be varied by inserting the following subparagraphs:

(a)    [Transcomm] be permitted to pay $19,000.00 out of account BSB: [details omitted] held by [Transcomm] with Westpac Banking Corporation (“the account”) to Messrs Kalus Kenny Intelex (“the firm”) on account of legal costs and disbursements that have been incurred to date;

(b)    [Transcomm] be permitted to pay the sum of $25,000.00 out of the account to the firm which sum is to be held in the trust account of the firm for the sole purpose of the sum being applied on account of legal costs and disbursements to hereafter be incurred until 16 November 2016 or further order;

(c)    [Transcomm] be permitted to pay the sum of $15,000.00 per month out of the account to be applied to the ordinary living expenses of [Eustace] and [Sandra] until 16 November 2016 or further order.

9.    The reference in the 22 August 2016 Order to an Order made on 26 July 2016 should have been a reference to the 3 August 2016 Order.

15 November 2016 Order

10.    Paragraph 1(e) of the Order of the Court made on 15 November 2016 in the Proceeding (15 November 2016 Order) provided that until 4:00pm on 2 February 2017:

(e)    Pursuant to section 1324(4) of the [Corporations] Act, [Eustace and Transcomm] be prohibited from selling, transferring, encumbering, disposing of or otherwise dealing with any of their assets or property.

11.    Paragraph 2(b) of the 15 November 2016 Order provided as follows:

Paragraph 1 of this Order does not prohibit:

(b)    [Transcomm] from paying the sum of $15,000 per month out of the account [details omitted] held by [Transcomm] with Westpac Banking Corporation to be applied to the ordinary living expenses of [Eustace] and [Sandra] until the earlier of 2 February 2017 or further order.

14 December 2016 Order

12.    Paragraph 2 of the 15 November 2016 Order did not deal with legal costs of Eustace.

13.    Paragraph 2 of the Order of the Court made on 14 December 2016 in the Proceeding provided as followings:

Paragraph 1 of the Order made on 15 November 2016 does not prohibit [Transcomm] from withdrawing from the account [details omitted] held by [Transcomm] with Westpac Banking Corporation a total amount of $9,037.69, to be deposited into the trust of Kalus Kenny Intelex on account of, and to be applied to pay for, future legal expenses incurred and to be incurred by [Eustace] and [Sandra].

2 February 2017 Order

14.    Paragraph 1(e) of the Order of the Court made on 2 February 2017 in the Proceeding (2 February 2017 Order) provided that until 4.00pm on 5 May 2017:

(e)    Pursuant to section 1324(4) of the [Corporations] Act, [Eustace and Transcomm] be prohibited from selling, transferring, encumbering, disposing of or otherwise dealing with any of their assets or property.

3 March 2017 Order

15.    Paragraph 2 of the 2 February 2017 Order did not deal with legal costs of Eustace.

16.    Paragraph 3 of the Order made by the Court on 3 March 2017 provided as follows:

3.    Paragraph 1 of the Orders made on 2 February 2017 does not prohibit [Eustace and Sandra] from depositing the sum of $40,000 into the trust account of Kalus Kenny Intelex on account of, and to be applied to pay for, legal expenses incurred and unpaid, to be incurred by [them], noting that an amount of $15,400 relates to anticipated work to prepare for, and appear at, the next hearing in this matter which is listed for Friday 5 May 2017 at 9.30am.

Subsequent Orders

17.    On 5 May 2017 Orders were made by the Court in substantially the same form as the 2 February 2017 Order. The 5 May 2017 Order is not the subject of the Amended Charges. The freezing orders lapsed on 31 August 2017 and was not repeated in any subsequent Order of the Court.

FACTUAL BACKGROUND TO THE CONTEMPTS

18.    From about 1 August 2016 until 30 April 2017, Kalus Kenny Intelex (KKI) were the solicitors acting in this Proceeding on behalf of Eustace and Transcomm.

19.    Prior to 3 August 2016, Cameron’s information technology services were provided by the Eighth Defendant (Bianco) to the Third Defendant (Allianz) and Transcomm, for which Allianz and Transcomm paid Bianco $20,000 inclusive of GST each month.

20.    Exhibit “MJK 2” to the affidavit of Michael Johnathon Kenny sworn 10 March 2017 is a copy of the loan agreement between Eustace and Edge Premium Funding Pty Ltd (Edge Loan). The Edge Loan is for a maximum of $250,000, is unsecured and is repayable in August 2019.

21.    Negotiations for the Edge Loan commenced several months before the commencement of this Proceeding. Eustace had in train a new venture which he described in paragraphs 7 and 8 of his affidavit sworn on 27 April 2017 as follows:

7.    The Comersa Group is not the name of an entity. It is a name I have used for a proposed new venture, which, if commenced, will be in the business of providing a payments gateway service that has a range of unique cyber security elements, e-wallet unique features and significant operating efficiencies across various payment channels and with transactional cost savings for cross-border online sales. The Comersa Group venture has not traded and has not earned any income.

8.    Cameron Senese has been developing the software needed to conduct that business.

22.    Paragraph 1(e) of the 3 August 2016 Order enjoined Allianz and Transcomm from paying Bianco any money.

23.    When the 3 August 2016 Order was made, the balance of Transcomm’s bank account [details omitted] Westpac Banking Corporation (Transcomm Account) was $128,211.69.

24.    On about 26 August 2016 $44,000 was paid from the Transcomm Account to Kalus Kenny Intelex (KKI) for legal costs and $15,000 was paid for living expenses of Eustace, leaving a balance in the Transcomm Account, after other withdrawals for living expenses, of $69,211.69.

25.    In late August 2016, Eustace asked Cameron to continue developing an e-commerce payment gateway service. In or about late August 2016 Cameron commenced providing information technology services at an agreed fee of $15,000 a month.

26.    On 30 August 2016, Eustace drew down $15,000 from the Edge Loan and directed it to be deposited into Cameron’s bank account [details omitted] with Ubank (a division of the National Australia Bank Limited) (Ubank Savings Account).

27.    On 2 September 2016, Eustace drew down $7,253.18 from the Edge Loan and directed it to be deposited into the home loan account numbered [details omitted] held by Pepper Group Limited (ABN 55 094 317 665) in the name of Eustace and Sandra (Pepper Home Loan Account).

28.    On 19 September 2016 Eustace drew down $15,000 from the Edge Loan and directed it to be deposited into the Ubank Savings Account.

29.    On 28 September 2016, Eustace drew down $7,253.18 from the Edge Loan and directed it to be deposited into Pepper Home Loan Account.

30.    On about 28 September 2016 $15,000 was paid from the Transcomm Account for his and Sandra’s living expenses, leaving a balance in the Transcomm Account of $54,160.69.

31.    On 5 October 2016, Eustace drew down $15,000 from the Edge Loan and directed it to be deposited into the Ubank Savings Account.

32.    On 28 October 2016, Eustace drew down $15,000 from the Edge Loan and directed it to be deposited into the Ubank Savings Account.

33.    On 2 November 2016 $15,000 was paid from the Transcomm Account for the living expenses of Eustace and Sandra, leaving a balance in the Transcomm Account of $39,088.69.

34.    On 3 November 2016, Eustace drew down $7,253.18 from the Edge Loan and directed it to be deposited into Pepper Home Loan Account.

35.    On 24 November 2016, Eustace drew down $5,000 from the Edge Loan and directed it to be deposited into a Visa Credit Card account numbered [details omitted] held by the National Australia Bank Limited in the name of Eustace (NAB Credit Card Account).

36.    On 29 November 2016, Eustace drew down $7,188.18 from the Edge Loan and directed it to be deposited into Pepper Home Loan Account.

37.    On 29 November 2016, Eustace drew down $5,000 from the Edge Loan and directed it to be deposited into the NAB Credit Card Account.

38.    On 2 December 2016, Eustace drew down $15,000 from the Edge Loan and directed it to be deposited into the Ubank Savings Account.

39.    On 13 December 2016 $15,000 was paid from the Transcomm Account for the living expenses of Eustace and Sandra, leaving a balance in the Transcomm Account of $24,037.69.

40.    On 20 December 2016, Transcomm paid $757.02 in final payment of KKI invoice numbered 45408 which was an invoice for legal costs not incurred in relation to this Proceeding or for living expenses.

41.    On 21 December 2016, Eustace drew down $15,000 from the Edge Loan and directed it to be deposited into the Ubank Savings Account.

42.    On 9 January 2017, $15,000 was paid from the Transcomm Account for the living expenses of Eustace and Sandra, leaving a balance in the Transcomm Account of $8,986.69.

43.    On 13 January 2017 $8,926.69 was paid from the Transcomm Account to KKI for legal costs, leaving a balance in the Transcomm Account, after other withdrawals for living expenses, of $30.00 (which was exhausted by a bank fee paid on that day).

44.    On 23 January 2017, Eustace drew down $7,188.18 from the Edge Loan and directed it to be deposited into Pepper Home Loan Account.

45.    On 24 January 2017, Eustace drew down $8,000 from the Edge Loan and directed it to be deposited into the trust account of KKI.

46.    On 25 January 2017, Transcomm paid $4,158.06 in final payment of KKI invoice numbered 48183 and thereby paid $1,904.88 in excess of the total amount of legal costs which it was permitted to pay by the 14 December 2016 Order as at that date.

47.    On 25 January 2017, Transcomm paid $2,266 in final payment of KKI invoice numbered 48531 and thereby brought to $4,170.88 the total of payments in excess of the total amount of legal costs which it was permitted to pay by the 14 December 2016 Order as at that date.

48.    On 31 January 2017, Eustace drew down $7,000 from Edge Loan and directed it to be deposited into the trust account of KKI.

49.    On 6 February 2017, Transcomm paid $1,750 in part payment of KKI invoice numbered 48711 and thereby brought to $5,920.88 the total of payments in excess of the total amount of legal costs which it was permitted to pay by the 14 December 2016 Order as at that date.

50.    On 6 February 2017, Transcomm paid $2,420 in final payment of KKI invoice numbered 48711 and thereby brought to $8,340.88 the total of payments of legal costs in excess of the total amount which it was permitted to pay by the Orders as at that date.

51.    On 10 February 2017, Eustace drew down $6,000 from the Edge Loan and directed it to be deposited into an Italian bank account with Banca Monte Dei Paschi Di Siena number [details omitted] (Italian Bank Account) for living expenses of Eustace and Sandra.

52.    On 20 February 2017, Eustace drew down $6,000 from the Edge Loan and directed it to be deposited into the NAB Credit Card Account.

53.    On 27 February 2017, Eustace drew down $250 from the Edge Loan and directed it to be deposited into Pepper Home Loan Account.

54.    On 27 February 2017, Eustace drew down $5,300 from the Edge Loan and directed it to be deposited into Pepper Home Loan Account.

55.    On 27 February 2017, Eustace drew down $9,250 from the Edge Loan and directed it to be deposited into Pepper Home Loan Account.

56.    On 2 March 2017, Eustace drew down $30,000 from the Edge Loan and directed it to be paid to Cameron.

57.    On 30 March 2017, Eustace drew down $8,358 from the Edge Loan and directed it to be deposited into the Italian Bank Account for living expenses of Eustace and Sandra.

58.    In about April 2017, Eustace drew down $15,000 from the Edge Loan and directed it to be paid to Cameron.

59.    In response to orders made by the Court on 21 February 2017 requiring him to swear an affidavit in relation to his financial position, Eustace swore an Affidavit on 27 April 2017 in which he disclosed to the Court all of the deposits which he directed be made and which are set out above. In paragraph 5 of that Affidavit, Eustace swore that:

5.    Mr. Kenny has explained to me that the above spending exceeds the carve-outs ordered thus far by the Court. This was inadvertent on my part. I did not appreciate that payments by the Lender to [Cameron] was spending by me. If I had appreciated that, I would have informed Mr. Kenny and instructed him to seek that carve-out. The same applies to living expenses paid directly by the Lender.

60.    On 1 May 2017 ASIC served its Interlocutory Application and Statement of Charges bearing that date.

ADMISSION OF GUILT AND APOLOGY TO THE COURT

61.    Eustace admits that he intended to make the draw downs and give the directions referred to above and that therefore he is guilty of each of the contempts referred to in Charges A6, 15, 24, 33, 42, 51, 72, 78, 80, 82, 84, 86, 88, 90, 92, 94, 96, 98, 100, 102, 104, 106, and 108.

62.    In respect of each contempt of which he is guilty, Eustace did not intend to breach the relevant Order made by the Court.

63.    Eustace apologises to the Court for each breach of the Orders referred to in the two preceding paragraphs.

64.    Transcomm admits that it intended to make the payments of KKI invoices referred to above and that therefore it is guilty of each of the contempts referred to in Charges F2, 5, 8, 11, and 14.

65.    In respect of each contempt of which it is guilty, Transcomm did not intend to breach the relevant Order made by the Court.

66.    Transcomm apologises to the Court for each breach of the Orders referred to in the two preceding paragraphs.

MATTERS GOING TO MITIGATION AND EUSTACE’S AND TRANSCOMM’S CIRCUMSTANCES

No Prior Contempts

67.    Neither of Eustace or Transcomm has been charged with contempt of court before and hence has not been found guilty of contempt before.

Co-operation with ASIC

68.    In February 2018, Eustace and Transcomm initiated the discussions which have led to this Statement.

Eustace Admits his Guilt, and Transcomm admits its Guilt and each Consents to the proposed Penalty and Costs Order

69.    Eustace has admitted his guilt above.

70.    Transcomm has admitted its guilt above.

71.    Eustace and Transcomm agree to make submissions to the Court about the appropriate penalty and ASIC’s costs in accordance with paragraphs 86 to 91 below.

Eustace’s Personal Circumstances

72.    Eustace is 71 years old.

73.    Eustace and Sandra were married in 1989. They reside at, and are the joint registered proprietors of, [details omitted] Rose Street Sandringham (Rose Street).

Eustace’s Employment

74.    Eustace is not employed and currently has no income.

Sandra’s Employment

75.    Sandra is 73 years old and is retired. She has no income, including no pension and no superannuation.

Eustace’s Assets and Liabilities

76.    Eustace set out his financial position in his affidavit sworn 27 April 2017. His financial position remains similar, the differences being set out in the following paragraphs.

77.    Eustace still estimates that the value of Rose Street is about $1,900,000. The balance of the mortgage secured against Rose Street is approximately $1,150,000.

78.    Eustace jointly owns with Sandra furniture and household effects which he estimates to have a value of approximately $100,000.

79.    Eustace has cash in the bank of $4,749.

80.    Eustace has credit card liabilities of approximately $15,000.

81.    The Edge Loan is now fully drawn, and Eustace consequently owes the lender $250,000.

82.    In July 2017, Eustace obtained a further unsecured loan of $177,900 (Further Loan). This loan was expressly permitted by an order dated 6 July 2017. The Further Loan is now fully drawn.

83.    Eustace believes that he will be able to obtain loans from family and friends to pay any penalty and costs which the Court orders him to pay.

84.    At present, Eustace is paying Cameron's legal costs of the proceeding.

Transcomm’s Assets and Liabilities

85.    Transcomm has no assets and is not trading. Eustace intends to pay any penalty and costs which the Court may order Transcomm to pay.

AGREED PENALTY AND COSTS

86.    ASIC, Eustace and Transcomm accept that it is ultimately for the Court to determine whether a penalty is to be imposed on Eustace or Transcomm, and if so its quantum, and what orders as to the costs of the Contempt Application should be made.

87.    Subject to the preceding paragraph, ASIC, Eustace and Transcomm have agreed to the terms of the disposition of the Contempt Application.

88.    They agree that the contempts by Eustace constitute one course of conduct and that an appropriate penalty is a fine of $40,000 and that Eustace should have 90 days after it is imposed or until 30 June 2018, whichever is the earlier, within which to pay it.

89.    They agree that Eustace should pay ASIC’s costs fixed at $17,500 and have 90 days after it is imposed or until 30 June 2018, whichever is the earlier, within which to pay it.

90.    They agree that the contempts by Transcomm constitute one course of conduct and that an appropriate penalty is a fine of $10,000 and that Transcomm should have 90 days after it is imposed or until 30 June 2018, whichever is the earlier, within which to pay it.

91.    They agree that as against Transcomm, there should be no order as to costs of the Contempt Application.

92.    They agree that as against Allianz, the Contempt Application should be dismissed with no order as to costs.

PROPOSED ORDERS

93.    By the Order of the Court made on 16 March 2018 the hearing of the Contempt Application was divided into the “Liability Question” and the “Penalty Question”.

94.    The Proposed Orders in Annexure A [not reproduced] are intended only to deal with the Liability Question.

95.    As envisaged by paragraph 6 of the Order of the Court made on 16 March 2018, joint submissions will be filed concerning matters relevant to penalty and costs which will focus upon the appropriateness of the proposed penalty and costs referred to above.

Date: 23 March 2018

ANNEXURE B

SECOND STATEMENT OF AGREED FACTS, ADMISSIONS AND PROPOSED PENALTIES

INTRODUCTION

1.    The Plaintiff, the Australian Securities and Investments Commission (ASIC), is the body corporate established by section 7 of the Australian Securities Commission Act 1989 (Cth) and continued in existence by section 261 of the Australian Securities and Investments Commission Act 2001 (Cth).

2.    The Ninth Defendant, Cameron David Senese, (Cameron) is the sole director of, and shareholder in, the Eighth Defendant, Bianco Pty Ltd (Bianco).

3.    In its Amended Interlocutory Application dated 18 December 2017 (Contempt Application), ASIC seeks orders that Bianco and Cameron be punished for contempt of this Court in respect of charges made against them in the Amended Statement of Charges dated 18 December 2017 (Amended Charges).

4.    This Statement of Agreed Facts, Admissions and Proposed Penalties (Statement) is made jointly by ASIC, Bianco and Cameron in support of proposed orders in relation to admitted contempts of Court by Cameron. The proposed orders are Annexure A to this Statement (Proposed Orders) [not reproduced]. The admitted contempts are alleged in the Amended Charges.

RELEVANT COURT ORDERS

3 August 2016 Order

5.    Paragraph 1(e) of the Order of the Court made on 3 August 2016 in this proceeding (3 August 2016 Order) provided that until 4:00pm on 16 November 2016:

(e)    pursuant to section 1324(4) of the [Corporations] Act, [Bianco and Cameron] be prohibited from selling, transferring, encumbering, disposing of or otherwise dealing with any of their assets or property.

6.    Paragraph 2 of the 3 August 2016 Order provided as follows:

Paragraph 1 of this Order does not prohibit [Cameron] from withdrawing from the Bianco Account or the CS Account:

(a)    each calendar month commencing in August 2016, funds for living expenses not exceeding a total of $12,000 per calendar month; and

(b)    a total amount of $20,000, to be deposited into the trust of Kalus Kenny Intelex on account of, and to be applied to pay for, future legal expenses of [Bianco] and [Cameron].

7.    In the 3 August 2016 Order, the “Bianco Account” was Bianco’s Commonwealth Bank of Australia bank account number [details omitted] (Bianco Account) and the “CS Account” was Cameron’s Commonwealth Bank of Australia account number [details omitted] (CS Account).

8.    The 3 August 2016 Order (and the subsequent orders to the same effect) was made under section 1324 of the Corporations Act 2001 to preserve funds paid by persons who had invested in binary options on a website which ASIC alleges was operated by the First and Second Defendants. In its Concise Statement in this Proceeding, ASIC alleges that the offering of these investments involved various contraventions of the Corporations Act 2001 which might entitle the investors to recover the moneys they had invested.

15 November 2016 Order

9.    Paragraph 1(e) of the Order of the Court made on 15 November 2016 in the Proceeding (15 November 2016 Order) provided that until 4:00pm on 2 February 2017:

(e)    Pursuant to section 1324(4) of the [Corporations] Act, [Bianco and Cameron] be prohibited from selling, transferring, encumbering, disposing of or otherwise dealing with any of their assets or property.

10.    Paragraph 2(a) of the 15 November 2016 Order provided as follows:

Paragraph 1 of this Order does not prohibit:

(a)    [Cameron] from withdrawing from the [Bianco Account] or the [CS Account] funds for living expenses not exceeding a total of $12,000 per calendar month until the earlier of 2 February 2017 or further order.

11.    Paragraph 2 of the 15 November 2016 Order did not deal with legal costs.

14 December 2016 Order

12.    Paragraph 1 of the Order of the Court made on 14 December 2016 in the Proceeding provided as followings:

Paragraph 1 of the Order made on 15 November 2016 does not prohibit [Cameron] from withdrawing from the [Bianco Account] or the [CS Account] a total amount of $8,900, to be deposited into the trust of Kalus Kenny Intelex on account of, and to be applied to pay for, future legal expenses incurred and to be incurred by [Cameron].

2 February 2017 Order

13.    Paragraph 1(e) of the Order of the Court made on 2 February 2017 in the Proceeding (2 February 2017 Order) provided that until 4.00pm on 5 May 2017:

(e)    Pursuant to section 1324(4) of the [Corporations] Act, [Bianco and Cameron] be prohibited from selling, transferring, encumbering, disposing of or otherwise dealing with any of their assets or property.

14.    Paragraph 2 of the 2 February 2017 Order provided as follows:

2.    Paragraph 1 of this Order does not prohibit [Cameron] from withdrawing from the account [details omitted] held by [Cameron] with Ubank (being a division of the National Australia Bank Limited, ABN 12 004 044 937) or the account [details omitted] held by [Cameron] with Ubank (being a division of the National Australia Bank Limited, ABN 12 004 044 937):

(a)    funds for living expenses not exceeding a total of $12,000 per calendar month until the earlier of 5 May 2017 or further order;

(b)    a total amount of $6,600 to be deposited into the trust of Kalus Kenny Intelex on account of, and to be applied to pay for, legal expenses incurred and to be incurred by [Cameron].

Subsequent Orders

15.    On 5 May 2017, Orders were made by the Court in substantially the same form as the 2 February 2017 Order. The 5 May 2017 Order is not the subject of the Amended Charges. The freezing orders lapsed on 31 August 2017 and were not repeated in any subsequent Order of the Court.

FACTUAL BACKGROUND TO THE CONTEMPTS

16.    From about 1 August 2016 until 30 April 2017, Kalus Kenny Intelex (KKI) were the solicitors acting in this Proceeding on behalf of Cameron and Bianco.

17.    Cameron is qualified in Computer Networking and Systems Administration and provides information technology services. Prior to 3 August 2016, Cameron’s information technology services were provided by Bianco to the Third Defendant (Allianz) and the Fourth Defendant (Transcomm), for which Allianz and Transcomm paid Bianco $20,000 inclusive of GST each month.

18.    Paragraph 1(e) of the 3 August 2016 Order enjoined Allianz and Transcomm from paying Bianco any money. As a consequence, at or about 3 August 2016, Cameron thought that his only source of income would cease.

19.    When the 3 August 2016 Order was made, the balance of the Bianco Account was $38,499.12.

20.    When the 3 August 2016 Order was made, the balance of the CS Account was $939.45. Apart from the automatic withdrawals (which were reversed by the bank), the balance of the CS Account remained at about that level until 31 August 2017 when ASIC no longer sought an injunction prohibiting Bianco or Cameron from dealing with their assets.

21.    On 8 August and 9 August 2016, Cameron caused Bianco to withdraw $20,563.28 and $962.84 from the Bianco Account, respectively. On the same day, Cameron caused Bianco to [pay] $18,310.99 of the $20,563.28 to KKI for legal costs leaving a balance in the Bianco Account, after the other withdrawals for living expenses, of $16,973.00.

22.    In late August 2016, the Fourth Defendant Eustace Senese (Eustace), Cameron’s father, asked Cameron to continue developing an e-commerce payment gateway service for the “Comersa Group”. The Comersa Group was a name given by Eustace to a new venture of providing a payment gateway service. In or about late August 2016 Cameron commenced providing information technology services at an agreed fee of $15,000 a month. Bianco was not involved.

23.    On 26 August 2016, despite the existence of the freezing order (i.e. paragraph 1(e) of the 3 August Order) preventing him from dealing with his assets or property, Cameron opened the UBank savings account [details omitted] with Ubank (a division of the National Australia Bank Limited) (Ubank Savings Account) and the UBank account [details omitted] (Ubank Transaction Account).

24.    Cameron also arranged for the monthly remuneration he was receiving from Eustace to be paid into the Ubank Savings Account.

25.    Cameron opened the Ubank Savings Account and the Ubank Transaction Account for the reasons he gave in his Affidavit sworn 1 February 2017:

5.    The only reason I did so was to overcome difficulties and significant delays in withdrawing funds from the Commonwealth Bank accounts referred to in paragraph 2 of the Orders made on 3 August 2016, which difficulties and delays were directly attributable to the orders affecting that account.

6.    I opened two UBank accounts to avoid those delays and so that I could regularly withdraw funds for living expenses.

7.    At the time I opened the accounts I did not appreciate that I was required to inform my solicitor or ASIC about the existence of these accounts.

26.    Cameron had his remuneration paid into the Ubank Savings Account for another reason. Despite being legally represented, Cameron did not ask for, or receive, legal advice about the 3 August 2016 Order, the 15 November 2016 Order, 14 December 2016 or the 2 February 2017 Order (Orders). When Cameron read the Orders, he believed that ASIC wanted to preserve the money in the Bianco Account and the CS Account because ASIC thought that that money was the product of contraventions of the Corporations Act. Cameron mistakenly believed that if he directed his new remuneration to be paid into a new account and he used that money for living expenses, he was doing what ASIC wanted.

27.    On 30 August 2016, Cameron received $15,000 paid into the Ubank Savings Account.

28.    On 19 September 2016, Cameron received $15,000 paid into the Ubank Savings Account.

29.    On 5 October 2016, Cameron received $15,000 paid into the Ubank Savings Account.

30.    On 28 October 2016, Cameron received $15,000 paid into the Ubank Savings Account.

31.    It was possible for Cameron to make payments from the Ubank Savings Account directly to third parties, but the benefits attached to the Ubank accounts were maximised if money was transferred from the Ubank Savings Account to the Ubank Transaction Account and the latter was used to pay for goods and services.

32.    After 30 August 2016 and before 15 November 2016, Cameron:

32.1.    paid five creditors directly from the Ubank Savings Account or indirectly via his partner, Jacqueline Marum (Jacqueline). These payments totalled $7,920.00 and are the payments referred to in Charges C11 to C15; and

32.2.    transferred money from the Ubank Savings Account to the Ubank Transaction Account and from the latter account Cameron made numerous payments for living expenses. The transfers are the subject of Charges B109 to B162 (transfers totalling $19,645.18) and the payments are the subject of Charges D251 to D375 (payments totalling $19,125.25).

33.    On 2 December 2016, Cameron received $15,000 paid into the Ubank Savings Account.

34.    Cameron had been asked to provide an updated financial position by letters from ASIC dated 10 November 2016 and 13 December 2016.

35.    On 15 November 2016 and 14 December 2016, the 15 November 2016 Order and the 14 December 2016 Order were respectively made. The carve-out orders were made on 14 December 2016 in circumstances where Cameron had not disclosed to ASIC or the Court of his monthly $15,000 remuneration, nor the existence of his Ubank accounts, since he did not realise that he should do so.

36.    Cameron held this mistaken belief (and failed to inform ASIC or the Court of his continued remuneration and the Ubank accounts) despite being present in Court on 14 December 2016 when junior counsel for ASIC reiterated ASIC’s request that Cameron provide an updated financial position. Junior counsel for ASIC said:

“… we would like to see evidence about an updated financial position or access to funds. ... ASIC would like to see some evidence of changed financial circumstances. The reason we say that is because at the last time that legal expense carve outs were ordered in August, Mr Senese, on affidavit evidence, said that he no longer had a source of income. He was, effectively, unemployed as at that date. Now, that’s four months ago. ASIC would like to know what steps have been taken. Has Mr Senese obtained employment? What access to funds does he have now?”

37.    Cameron disclosed his $15,000 per month remuneration to ASIC during a compulsory examination conducted under section 19 of the ASIC Act on 21 December 2016.

38.    On 21 December 2016, Cameron received $15,000 into the Ubank Savings Account.

39.    On 12 January 2016, Cameron caused Bianco to withdraw $9,915 from the Bianco Account. On 17 January 2017, Cameron caused Bianco to pay $8,900 to KKI. Cameron spent the $1,015 difference on living expenses leaving the balance of the Bianco account of $7,008. Apart from monthly account fees of $10, the balance of the Bianco Account did not further diminish before the Order of the Court made on 31 August 2017 (which contained no injunction restraining any defendant from dealing with its or his assets).

40.    After the 15 November 2016 Order was made and before 2 February 2017, Cameron transferred money from the Ubank Savings Account to the Ubank Transaction Account and from the latter account Cameron made numerous payments for living expenses. The transfers are the subject of Charges B509 to B600 (transfers totalling $55,745.54) and the payments are the subject of Charges D720 to D891 (transfers totalling $55,887.82).

41.    Cameron first disclosed to the Court his $15,000 per month remuneration in his Affidavit sworn 1 February 2017. At that time, Cameron thought he had breached the Orders made by the Court by spending on living expenses more than the $12,000 per month permitted by the 15 November Orders. Cameron deposed that:

10.    Since then [opening the UBank Accounts] my spending from the account has been about as follows:

Jan 2017:    $20,000

Dec 2016:    $8,000

Nov 2016:    $25,000

Oct 2016:    $14,000

Sep 2016:    $9,000

14.    I acknowledge that I have drawn from the UBank transaction account amounts that exceed $12,000 per month. I did so foolishly and without properly appreciating the effect of the order of the Court limiting my spending. I now realise that I should have informed Mr Kenny immediately after I opened the UBank Accounts and that I was also foolish and naïve in not doing so.

42.    On 2 March 2017, Eustace paid $30,000, being two payments of his $15,000 per month remuneration, into KKI’s trust account for Cameron.

43.    On 2 March 2017, KKI paid $12,000 from the KKI trust account to the Ubank Savings Account (the deposit was received on 9 March 2017 with the notation “Transfer Living Expenses Kalus Kenny”. On 10 March 2017 Cameron transferred $10,662.92 to Jacqueline. Cameron adopted this process to ensure that he did not breach the $12,000 limit for living expenses.

44.    On 1 May 2017 ASIC served its Interlocutory Application and Statement of Charges bearing that date.

ADMISSION OF GUILT AND APOLOGY TO THE COURT

45.    Cameron admits that he intended to receive the payments of remuneration referred to in paragraphs 27, 28, 29, 30, 33, 38 and 42 above and that therefore he is guilty of each of the contempts referred to in Charges A9, 18, 27, 36, 45 and 54 and Charge F1.

46.    Cameron admits that he intended to make the payments of living expenses referred to in paragraphs 32, 39 and 40 above and that therefore he is guilty of each of the contempts referred to in Charges B109 to 162, B509 to 600, C11 to 115, D251 to 375 and Charges D720 to 891.

47.    In respect of each charge of contempt of which he is guilty, Cameron did not intend to breach the relevant Order made by the Court.

48.    Cameron apologises to the Court for each breach of the Orders referred to in the three preceding paragraphs.

MATTERS GOING TO MITIGATION AND CAMERON’S PERSONAL

CIRCUMSTANCES

No Prior Contempts

49.    Cameron has not been charged with contempt of court before and hence has not been found guilty of contempt before.

Co-operation with ASIC

50.    In December 2017, Cameron initiated the discussions which have led to this Statement.

Cameron Admits his Guilt and Consents to the proposed Penalty and Costs Order

51.    Cameron has admitted his guilt above.

52.    Cameron agrees to make submissions to the Court about the appropriate penalty and ASIC’s costs in accordance with paragraphs 65 to 70 below. Cameron will pay any fine the Court determines, and any legal costs, from his own resources.

Cameron’s Personal Circumstances

53.    Cameron was born in 1974.

54.    Cameron graduated from Charles Sturt University with a Master’s Degree in Networking and Systems Administration in 2013.

55.    Cameron has lived with Jacqueline since 2000. They have one son who is 16 years old. They reside at, and are the joint registered proprietors of, [details omitted] Massey Street, Box Hill (Massey Street).

Cameron’s Employment

56.    Since June 2017, Cameron has worked for Oracle Corporation Australia Pty Ltd. His remuneration is salary and commission based. He receives a salary of $15,000 per month (gross) and is entitled to a variable commission based on the performance of up to $77,143.00 per annum (gross) payable quarterly. To date, Cameron has been paid commissions of $9,677.00 (net).

Jacqueline’s Employment

57.    Jacqueline is a qualified nurse. Jacqueline is casually employed by Royal Freemasons Aged Care and given her casual employment does not have set hours of work. She earns approximately $2,400.00 a month (gross).

Cameron’s Assets and Liabilities

58.    Cameron set out his financial position in his affidavit sworn 17 February 2017. His financial position remains similar, the differences being set out in the following paragraphs.

59.    The change in Cameron’s employment since his 17 February 2017 affidavit is set out in paragraph 56 above.

60.    As Cameron disclosed in his 17 February 2017 affidavit, he has a large tax debt. The debt was agreed with the Australian Taxation Office (ATO) at $194,000.

61.    As Cameron disclosed in his 17 February 2017 affidavit, he and Jacqueline had two home loans which then totalled approximately $612,000. Those loans were recently refinanced. Massey Street was valued at $1.3 million. The new loan was for $800,000. The balance was paid by the financier directly to the ATO.

62.    Cameron does not know whether he can borrow further from the financier to pay any fine or costs which the Court may order him to pay. If he cannot, he intends to obtain the money from family and friends.

63.    At present, Eustace is paying Cameron’s legal costs of the proceeding.

Bianco’s Assets and Liabilities

64.    Bianco has no assets and is not trading.

AGREED PENALTY AND COSTS

65.    ASIC, Bianco and Cameron accept that it is ultimately for the Court to determine whether a penalty is to be imposed on Cameron, and if so its quantum, and what orders as to the costs of the Contempt Application should be made.

66.    Subject to the preceding paragraph, ASIC, Bianco and Cameron have agreed to the terms of the disposition of the Contempt Application.

67.    They agree that the following charges cover single courses of conduct for which the following penalties are appropriate, and should be imposed:

67.1.    Charges A9, 18, 27, 36, 45 and 54 and Charge F1 (being receipts of remuneration into the Ubank account) - $5,000

67.2.    Charges B109 to 162, B509 to 600, C11 to 115, D251 to 375 and D720 to 891 (being payments made by Cameron) - $5,000,

68.    They agree that Cameron should have 90 days after they are imposed or until 30 June 2018, whichever is the earlier, within which to pay them.

69.    They agree that Cameron should pay ASIC’s costs fixed at $10,000 and that Cameron should have 90 days after the costs are imposed or until 30 June 2018, whichever is the earlier, within which to pay it.

70.    They agree that as against Bianco, the Contempt Application should be dismissed with no order as to costs.

PROPOSED ORDERS

71.    By the Order of the Court made on 16 March 2018 the hearing of the Contempt Application was divided into the “Liability Question” and the “Penalty Question”.

72.    The Proposed Orders in Annexure A [not reproduced] are intended only to deal with the Liability Question.

73.    As anticipated by paragraph 6 of the Order of the Court made on 16 March 2018, joint submissions will be filed concerning matters relevant to penalty and costs which will focus upon the appropriateness of the proposed penalty and costs referred to above.

Date:    23 March 2018

ANNEXURE C

THE CHARGES AGAINST KKI IN THE AMENDED STATEMENT OF CHARGE

F.    KALUS KENNY TRUST ACCOUNT TRANSACTIONS

…

Charge F3

On 25 January 2017, Kalus Kenny breached paragraph 1(e) of the Court Orders made on 15 November 2016 (as varied by the Orders made on 14 December 2016), by causing or procuring [Transcomm] to deal with its assets or property in contravention of the Court Orders made on 15 November 2016.

Particulars:

Payment of Invoice for Legal Expenses in Excess of Carve-outs

(i)    Since 1 August 2016, Kalus Kenny have acted for the Third to Eleventh Defendants in this proceeding.

(ii)    By paragraph 1(e) of the Court Orders made on 3 August 2016, the Court prohibited [Transcomm] from dealing with its assets or property. That order was continued by paragraph 1(e) of the Court Orders made on 15 November 2016.