FEDERAL COURT OF AUSTRALIA

Reches Pty Limited v Tadiran Limited [2001] FCA 415

CONTEMPT OF COURT – breach of undertaking – security for costs – where directors of the applicant undertook not to remove from their residence or disperse certain items of personal property – where the directors may have believed the respondent had no intention of enforcing its legal rights with respect to that property.

Australian Competition and Consumer Commission v Hughes [2001] FCA 38 followed

Australasian Meat Industry Employees’ Union v Mudginberri Station Proprietary Limited (1986) 161 CLR 98 followed

LED Builders Pty Ltd the Eagle Homes Pty Ltd [1999] FCA 1213 cited

Mc Nair Anderson Associates Pty Ltd v Hinch [1985] VR 309 followed

Whitlam v Holloway (1995) 183 CLR 525 followed

RECHES PTY LIMITED V TADIRAN LIMITED

NG 606 OF 1996

MOORE J

11 APRIL 2001

SYDNEY

THE COURT DECLARES AND ORDERS THAT:

1.      Isaac and Yael Reches committed a contempt by breaching an undertaking to the Court given on 16 July 1998 and accepted by the Court on 20 July 1998, by removing from unit 12/442 Edgecliff Road, Edgecliff, New South Wales the property listed in the schedule to the bill of sale attached to the undertaking.

2.      The notice of motion is stood over until 9.00am on 27 April 2001 for submissions on penalty, or such other time as the Court may order.

3.      Costs reserved.

4.      Liberty to apply on 2 days notice.

Note:   Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

REASONS FOR JUDGMENT

Introduction

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

Background

2                     The following is an account of the background leading to the contempt proceedings based on matters of public record or evidence led in those proceedings.  The background was, in any event, uncontentious.  On 25 July 1995, Reches Pty Limited (“the applicant”) instituted proceedings in this Court against Tadiran Limited (“Tadiran”) seeking, among other things, orders pursuant to s 87 of the Trade Practices Act 1974 (Cth) (“the TP Act”) varying an agency agreement between the applicant and Tadiran, damages pursuant to s 82 of the TP Act and damages for Tadiran’s repudiation of the agency agreement.  The applicant sought, and was granted on 15 August 1996, leave of the Court to serve the application and statement of claim on Tadiran in the State of Israel pursuant to O 8 r 2 of the Federal Court Rules.

3                     On 7 April 1997, the Court ordered by consent that the applicant provide security for Tadiran’s costs of the action in the sum of $50,000 and stayed the applicant’s claim until the security was provided. Pursuant to that order the applicant paid the sum of $50,000 to the Registrar of the Court on 8 October 1997.

4                     On 8 May 1998 Tadiran applied for additional security in the sum of $70,000 or such other sum as the Court considered fit. On the same day the applicant filed a notice of motion seeking to vacate the earlier order as to security for costs and seeking the return of the $50,000 security. Prior to the hearing of those motions, the applicant filed an affidavit of Isaac Reches dated 11 May 1998. In that affidavit, Isaac Reches explained that the financial position of the applicant was such that a large pre-tax loss was anticipated in the financial year ending 30 June 1998.  Isaac Reches then indicated his willingness to offer a personal guarantee for costs. He stated:

“10.     Both myself and my wife (as the directors of the Applicant) are prepared to offer the Respondent our personal guarantees as security for costs awarded against the Applicant. These guarantees could be supported with our personal assets, being:

10.1          jewellery to the insured value $83,958. Valuations were provided to the insurer prior to obtaining this insurance; and

10.2          paintings and sculptures to the insured value of $90,250. Valuations were provided to the insurer prior to obtaining this insurance.

10.3          Jewish religious artefact to the insured value of $50,000.”

5                     The trial judge, Lehane J, gave reasons for judgment in respect of both motions on 11 June 1998 ((1998) 155 ALR 478) and orders were subsequently made on 25 June 1998. The first two orders dealt with a motion of the applicant for a Mareva injunction which was dismissed by his Honour. The remaining orders were:

“3.       Subject to order 4, the applicant provide further security for the respondent’s costs of this proceeding in the sum of $70,000.

4.         The obligation of the applicant to provide further security as provided by order 3 may be satisfied by:

                        (a)        the directors of the applicant, Isaac Reches and Yael Reches, entering into personal guarantees in favour of the respondent for the payment by the applicant of any costs which the applicant is ordered to pay to the respondents in this proceeding; and

                        (b)        the directors of the applicant, Isaac and Yael Reches, entering into a security over the items of personal property referred to in the schedule hereto, securing in favour of the respondent the obligations under the guarantees provided by sub paragraph (a) of this order.

Such guarantees and security to be in a form agreed by the respondent, or approved by the court.

            5.         Upon the applicant providing security comprising either:

                        (a)        $120,000 in cash; or

(b)                $25,000 in cash, and the directors of the applicant entering into the guarantees and the security referred to in order 4 hereof, the order for security for costs made on 7 April 1997 be vacated.

            6.         Until the said further security is given, the proceedings on the applicant’s claim be stayed.

            7.         The provision by the applicant of cash security in the amount of $25,000 pursuant to order 5(b) may be satisfied by the applicant providing to the Registrar a direction in writing that $25,000 from the cash security paid into Court pursuant to the orders made on 7 April 1997 be applied in satisfaction of order 5(b) hereof.

            8.         Upon the requirement of order 5(b) being complied with by the applicant, the Registrar to pay the applicant the sum of $25,000 out of the moneys paid into Court pursuant to the orders made on 7 April 1997.

            9.         ....

The Schedule

The property referred to in paragraph 10 of the affidavit of Isaac Reches affirmed on 11 May 1998 is the following:

(a)   jewellery to the insured value of $83,958

(b)   paintings and sculptures to the insured value of $90,250

(c)    Jewish religious artefact to the insured value of $50,000.”

6                     However after these orders were made, there were further developments concerning security and costs. On 16 July 1998, Isaac and Yael Reches signed an undertaking to the Federal Court, after proceedings before Lehane J that day, that provided as follows:

“We, the directors of the Applicant in these proceedings, hereby undertake to the Federal Court of Australia:

1.      That we shall comply with all covenants, obligations and provisions of the Bill of Sale dated 16 July 1998 granted by us to the Respondents in these proceedings, a copy of which is annexed hereto and marked “A”.

2.      That we shall keep the property referred to in the Schedule to the Bill of Sale in the premises occupied by us, namely Unit 12/442 Edgecliff Road, Edgecliff, New South Wales, but subject to those items listed as ‘jewellery’ being able to be removed from those premises from time to time in the course of their ordinary and reasonable day to day use.”

Attached to the undertaking was a deed of guarantee and bill of sale both signed by Isaac and Yael Reches and dated 16 July 1998. Listed in the schedule to the bill of sale were all the items of property and effects to which the bill related. Twenty two items were detailed under the heading “jewellery”, sixteen items under the heading “sculptures”, thirty one items under the heading “paintings” and one item under the heading “religious artefacts”.

7                     The undertaking assumed greater significance when, on 20 July 1998, Lehane J made the following consent orders reflecting acceptance of the undertaking:

“1.       the provision of the following documents, by the Applicant and its directors, constitutes adequate security, as ordered to be provided to this Court by the Applicant on 25 July 1998

(a)   Bill of Sale from the directors of the Applicant to the Respondent dated 16 July 1998;

(b)   Personal Guarantee of the directors of the Applicant to the Respondent dated 16 July 1998;

(c)    Written undertakings from the directors of the Applicant to the Respondent dated 16 July 1998.”

The date of 25 July 1998 in the order appears to be an error and should have been 25 June 1998.  In addition, his Honour ordered that the Registry of the Court was authorised to pay to the applicant the sum of $25,000, being part of the sum of $50,000 paid by the applicant to the Registry pursuant to the orders made on 7 April 1997. This was done.  It can be seen that the undertaking given by Isaac and Yael Reches was accepted by the Court as part of an agreed arrangement to provide security for Tadiran’s costs.  Properly construed it was an undertaking to the Court and not simply an inter partes undertaking to Tadiran.

8                     Lehane J delivered judgement in the matter on 14 July 1999 ([1999] FCA 952).  His Honour made orders on 12 August 1999 dismissing the application and ordering the applicant to pay Tadiran’s costs of the application including reserved costs. It was ordered that such costs be on a party to party basis until 8.30am on 18 December 1998 and thereafter on an indemnity basis.  Those orders were entered on 13 August 1999.

9                     Attempts were subsequently made by Tadiran’s solicitors to recover its costs.  On 2 September 1999 a without prejudice letter was sent to the solicitors who had acted for the applicant during the hearing, Packer &Austin, advising that an amount of $100,000 would be accepted as full satisfaction of Tadiran’s entitlement under the costs order. No reply was received and further letters were sent on 24 September, 13 October and 10 December 1999.  On 8 November 1999, Isaac Reches, in response to the 13 October letter, which had been forwarded to him, wrote personally to Tadiran’s solicitors. He advised that following the judgement he had been in touch with the legal department of Tadiran and had been advised by them that their instructions to their Australian solicitors were to collect the $25,000 and not to take the matter further.  Isaac Reches also stated that following the receipt of the 2 September letter, he had again contacted the legal department of Tadiran and confirmed that their position on costs remained as he earlier understood it.  Tadiran’s solicitors replied to Isaac Reches on 16 November 1999 advising that their instructions, as reflected in the correspondence sent to Packer & Austin, had not changed and attached a letter from Tadiran’s general counsel, Layla Chertow, denying any contact with Isaac Reches and confirming her instructions had not altered.

10                  On 10 December 1999 Tadiran’s solicitors wrote directly to Isaac and Yael Reches requesting, in accordance with their obligations under the bill of sale, that they indicate the present location of each of the items of property in the schedule to that bill and that they provide them with details of insurances effected by the them against loss or damage to the charged property, including providing a copy of the most recent renewal receipt.  No response was received to that letter and on 27 January 2000 further letters were sent to Isaac and Yael Reches repeating the request and warning that in the absence of a reply, Tadiran would seek to enforce the orders and undertakings in the proceedings.  A meeting then took place, on 28 January 2000, between Isaac Reches and Tadiran’s solicitor, Mr Phillip Brand.  The costs issue was not resolved.

11                  Tadiran’s solicitors were informed on 1 May 2000 that Isaac Reches had become bankrupt on 26 April 2000 as a result of his filing a debtor’s petition.

12                  Having failed to recover any costs from the applicant, Tadiran filed a notice of motion on 13 June 2000, seeking payment of the $25,000 held by the Registry of the Court, being the balance of the moneys paid by the applicant pursuant to the orders made on 7 April 1997.  To facilitate this payment, Tadiran also sought orders that part of its costs payable by the applicant be assessed as a gross sum, pursuant to O 62 r 4(2) of the Federal Court Rules, in the amount of $25,000. This amount was said to cover disbursements incurred by Tadiran subsequent to 8.30am on 18 December 1998, including senior counsel’s fees, counsel’s fees and transcript fees.

13                  In his judgment on the respondent’s motion given on 4 July 2000, ([2000] FCA 925) Lehane J was satisfied that the orders sought by Tadiran were reasonable in the circumstances and granted the respondent the relief sought. It was his Honour’s view that the disbursements sought to be assessed at $25,000, but which actually totalled somewhat more than $30,000, “would be recoverable virtually in full upon taxation on the indemnity basis.”  After noting the dire financial circumstances of the applicant and its directors, his Honour went on to say (at par 4):

“Those circumstances have, of course, the consequence that, if the respondent were compelled to tax its costs, it would simply be required to spend a substantial further amount of money which it would have no serious prospect of recovering.  That is, of course, an additional circumstance favouring the making of the order which I have already indicated I shall make.  It also makes it clear, in my view, that it is appropriate for me to order that the sum of $25,000 held by way of security for costs be paid out by the Registrar to the respondent as requested in paragraph 3 of the motion.”

14                  At the hearing of Tadiran’s motion, there was no appearance by the applicant or the Reches.  Having considered the evidence before him, his Honour said (at pars 9 and 10):

“The respondent, in the circumstances and quite understandably, does not, I have been informed, propose itself to move in the proceeding for the punishment of Mr and Mrs Reches for the contempt which, on Mr Brand’s evidence, appears to have been committed by way of breach of the undertaking.  The question necessarily arises, however, whether the Court ought to take action of its own motion.  The only action which it is open to the Court to take under the Federal Court Rules is, I think, that contemplated by O 40 r 10.  That rule provides:

‘1.        Where it is alleged, or appears to the Court on its own view, that a person is guilty of contempt of the Court, the Court may, by order, direct the Registrar to apply by motion for, or to commence a proceeding for, punishment of the contempt.

2.         Sub‑rule (1) does not affect such right as any person other than the Registrar may have to apply by motion for, or to commence a proceeding for, punishment of contempt.’

I have no wish unnecessarily to add to the misfortunes which plainly have befallen Mr and Mrs Reches since the conclusion of these proceedings.  Inescapably, however, it seems to me that the Court ought not simply overlook what appears, on the basis of evidence given by a solicitor, to be a clear and apparently deliberate breach of undertakings given to the Court by two persons who, at the time they gave the undertakings, must have had available to them advice not only of solicitors but also senior counsel then appearing for the applicant.  In other words, there is no reason why I should think it likely that Mr or Mrs Reches had any doubt as to the effect of the undertaking which they gave or as to the possible consequences of breach of it.  Again, the evidence is that Mr Brand informed Mr Reches of the possible consequences of what he claimed to have done, and warned Mr Reches that he would bring the matter to the attention of the Court.”

Lehane J then ordered that The Registrar commence contempt proceeding against each of Isaac Reches and Yael Reches. It is those proceedings with which the Court is presently concerned.

The particular evidence concerning the contempt

15                  The conduct said to constitute the alleged breach of the undertaking given to the Court  by Isaac and Yael Reches on 16 July 1998 is set out in pars 5 and 6 of the statement of charge as follows:

“5.       At some date prior to 27 January 2000, Isaac and Yael Reches ceased to reside at unit 12/442 Edgecliff Road, Edgecliff.

6.         At some time prior to 28 January 2000, the property referred to in the Schedule to the said Bill of Sale was given by Isaac Reches and Yael Reches to persons other than the Respondent.”

During the hearing, leave was granted to amend par 6 of the statement of charge to add the words “removed from the premises and” after the word “was.”

16                  The primary evidence led by the Registrar in support of the allegations was a series of affidavits of Mr Brand.  The most significant of those affidavits for present purposes is the affidavit dated 17 November 2000 in which is set out a conversation between Mr Brand and Isaac Reches that occurred on 28 January 2000. The relevant part of that affidavit is as follows:

“I met with Mr Reches on 28 January 2000 for about 55 minutes. During the course of my conversation, Mr Reches said:

‘I spoke to Shulman last night, he was in Munich. He said that Chertow had told him again that they only want the $25,000.00 paid into court. He assumes it is part of the procedure to recover the $25,000.00.’

I said:

‘That is certainly not my instructions. Tadiran has incurred a lot of fees in resisting your claim. They are keen to talk to you to sort out the issue of costs, but I am not aware of any agreement that they only want $25,000.00. It is my understanding that Tadiran relies on the security given by you and Mrs Reches.’

Mr Reches said:

‘They can’t get anything there. The jewellery had an insured amount that was incorrect. This was to show that we had some property, it was worth less than $10,000.00. After Shulman said Tadiran only wanted the $25,000.00 paid into court, we gave the jewellery to my son and he sent it to my daughter in Israel. Avner Clyne collected everything else, we owe him $28,000.00. We have nothing, all the items have been disposed of.’

Mr Reches then told me of his living arrangements and ill health.

.....

Towards the end of our meeting, I said to Mr Reches:

‘I am surprised by a lot of what you have told me, what can you propose to satisfy Tadiran’s entitlement to recover costs from you?’

Mr Reches said:

‘Tadiran won, they should be satisfied with that and the $25,000.00 in court. Then they should forget about it.’

I said:

‘But you gave an undertaking and a personal guarantee which continues, I don’t think Tadiran would be satisfied with your proposal.’

Mr Reches said:

‘We gave the guarantee because we were 100% sure that we were going to win. The barrister confirmed that. The best solution is for Tadiran to get $25,000.00 and keep the orders pending until better times come. The jewellery was only worth $8,000.00 and the paintings and sculptures $8,000.00. The maximum amount all up was $25,000,00.’”

17                  In an affidavit of his of 23 November 2000, Isaac Reches said:

“...we tried to sell the jewellery to enable us to survive and to pay some of our debts. I went with my accountant to a jewellery dealer, the dealer said he would not except the valuation we had, and he would have to conduct his own evaluation, and then he would pay 10% of the value. Then I went with my ex-banker to another dealer, known to him. This dealer offered $8,000 for the whole lot of the jewellery.

At this point in time, we decided to send the jewellery to my daughter who lent us approximately $250,000 for her to decide whether she would sell them or keep them. Furthermore we gave the paintings and sculptures to Mr Avner Klein who lent us more than $22,000.”

18                  It appears clear from the evidence, and indeed it was not put in issue by Isaac and Yael Reches, that they did in fact dispose of the property as alleged.  The only evidence that was led by the Reches apparently in defence of the charges was that, at the time they disposed of the property, they believed that Tadiran had released them from their obligations.  Evidence to this effect was given by Isaac Reches in his affidavit of 23 November 2000 and in oral evidence. It was about a series of telephone conversations between both Isaac and Yael Reches and a Mr Shulman.  At the time of these conversations Mr Shulman was overseas.

19                  Isaac and Yael Reches gave evidence that immediately following judgement against the applicant in this Court, they contacted Mr Shulman, who had earlier been a marketing manager of Tadiran and the Reches direct contact point with the company.  Shulman was said to have assured the Reches that he would contact the head of the Tadiran legal department, Layla Chertow, to find out what its intentions were about pursuing costs. It was also said that Mr Shulman had contacted the Reches and indicated that Layla Chertow had said that Tadiran’s intention was to collect the $25,000 but that Tadiran was not interested in the jewellery and personal belongings.  Shulman is said to have repeated this assurance over the telephone on several occasions. Neither Isaac nor Yael Reches deny that they received correspondence from Tadiran’s solicitors indicating that Tadiran sought to recover costs well in excess of $25,000, in fact the evidence is that they had forwarded some of this correspondence to Shulman for explanation. It was their evidence, however, that they understood such correspondence to be part of the procedure for claiming the $25,000 held in court.

20                  Other evidence relied on by the Registrar includes annexure “L” to the affidavit of Mr Brand dated 9 June 2000. Annexure L consists of a letter sent by Tadiran’s solicitors on 16 November to the managing director of the applicant and marked ‘attention Mr Isaac Reches’. That letter, sent in response to a letter earlier received from Isaac Reches claiming that Tadiran was not interested in pursuing costs beyond the moneys held in court, had attached to it a letter to Tadiran’s solicitors from Layla Chertow denying that either she or anyone in her department had had any contact with Mr Reches or anyone acting on his behalf. The letter confirmed that Tadiran’s instructions had not been changed or revoked.

21                  Counsel for the Registrar also relied on evidence of another letter sent from Layla Chertow to Mr Brand on 7 December 2000 which appears at annexure Z to Mr Brand’s affidavit of 19 January 2000.  In respect of that letter and the representations it contains, the Registrar filed, on 19 January 2001, a notice of intention to adduce evidence of a previous representation. As neither Isaac nor Yael Reches objected to the evidence being adduced for the purpose proposed, the letter was admitted as evidence of the truth of the representations contained therein.  In that letter Chertow acknowledged that she was contacted by Shulman about the Reches’ situation on two occasions.  She wrote that in informal discussions about the costs issue she admitted Tadiran’s reluctance to undergo costly attempts at recovery such as getting Tadiran’s costs taxed or conducting a public sale of pledged assets, especially without first ensuring that the assets were really valuable. However, in the letter she repeatedly denied ever making any promises or waiving Tadiran’s right to collect the costs in any way available by law.

Conclusion

22                  The onus of proving the alleged contempt by Isaac and Yael Reches rests with the Registrar. Although this case is concerned with civil rather than criminal contempt, the punitive nature of any sanction sought is such that the standard of proof is the criminal standard, beyond reasonable doubt. This point was clearly established by the High Court in Whitlam v Holloway (1995) 183 CLR 525 at 534 (see also Australian Competition and Consumer Commission v Hughes [2001] FCA 38).

23                  Breach of an order or undertaking will expose a person to sanctions for contempt where that breach can be said to represent wilful disobedience.  In Australasian Meat Industry Employees’ Union v Mudginberri Station Proprietary Limited (1986) 161 CLR 98 at 113 the High Court explained that “a deliberate commission or omission which is in breach of an injunctive order or undertaking will constitute such wilful disobedience unless it be casual, accidental or unintentional”.

24                  Tamberlin J in Australian Competition and Consumer Commission v Hughes added further that:

“It is not necessary to prove any subjective intent to deliberately disobey the order: see Stancomb v Trowbridge Urban District Council [1910] 2 Ch 190 at 194.  However, such intent will be important in determining what is an appropriate penalty: see Attorney-General v Times Newspapers Ltd [1992] 1 AC 191 at 217-218.  An honest belief that a failure to act does not constitute a breach of an injunction is not a defence: see McNair Anderson Associates Pty Ltd v Hinch [1985] VR 309 at 313-314.”

25                  The evidence clearly establishes, beyond reasonable doubt, and I find, that certain property has been dispersed by Isaac and Yael Reches in breach of their undertaking to this Court.  I find that at a point in time before 28 January 2000 Isaac and Yael Reches removed from the premises referred to in the undertaking, namely Unit 12/442 Edgecliff Road, Edgecliff, New South Wales the property the subject of the undertaking.  It was removed to give to others and, as to the jewellery, was not removed for the limited purpose specified in the undertaking. It is unnecessary, at this stage, to address the question of whether the evidence also demonstrates that Tadiran released the Reches from their obligations under the deed of guarantee and bill of sale or at least that the Reches believed they had been released from those obligations.  It is presently irrrelevant whether the Reches believed they had been released from their obligations to Tadiran.  That is because such a belief does not provide a defence to the charge.

26                  The position is clear, “an honest belief, whether formed reasonably or carelessly, that the contemplated act was not unlawful in the sense of constituting a contempt of court, is not a defence to proceedings for contempt”; see Mc Nair Anderson Associates Pty Ltd v Hinch [1985] VR 309 and see also LED Builders Pty Ltd the Eagle Homes Pty Ltd [1999] FCA 1213.  It is not an element of the charge and neither is it necessary for the Registrar to prove that the Reches intended, in disposing of the property, to deliberately breach their undertaking to the Court.  It is sufficient that it is demonstrated that the Reches intentionally dealt with property contrary to the undertaking.  Moreover, even taking the evidence of the Reches at its highest, it does not establish that they believed the undertaking to the Court had been discharged when they dealt with the property contrary to it, whatever belief they may have had concerning their arrangements with Tadiran.  For these reasons I find Isaac and Yael Reches guilty of contempt.  I propose to make a declaration to that effect and give the parties an opportunity to further address the question of penalty.

Associate:

Dated:  11 April 2001

The Reches appeared in person