FEDERAL COURT OF AUSTRALIA

Sharman License Holdings Ltd v Universal Music Pty Ltd [2005] FCA 505

PRACTICE AND PROCEDURE – stay – order of primary judge to file affidavit disclosing assets in aid of Mareva injunction – primary judge dismissed application for a stay – present application for stay in the Court's appellate jurisdiction – whether to stay the order requiring affidavit disclosing assets pending the hearing and determination of an application for extension of time and leave to appeal against the decision of primary judge to grant a Mareva injunction – no application to stay Mareva injunction – application for stay dismissed.

PRACTICE AND PROCEDURE – application for an extension of time and leave to appeal – whether application to be determined by a single judge or a Full Court – application to be heard by a single judge exercising the Court's appellate jurisdiction. 

Federal Court Rules O 52 r 17(3)

Macquarie Bank v O'Reilly Street Nominees [2005] NSWSC 162 cited

Netttlefold Advertising Pty Ltd v Nettlefold Signs Pty Ltd [1998] FCA 1209 cited

Renaud Cointreau & Cie v Cordon Blue International Ltee (2001) 193 ALR 657 cited

Stirling Harbour Services Pty Ltd v Bunbury Port Authority [2000] FCA 87 referred to

SHARMAN LICENSE HOLDINGS LTD AND SHARMAN NETWORKS LTD v UNIVERSAL MUSIC AUSTRALIA PTY LTD (ACN 000 158 592)

NSD 563 OF 2005

MOORE J

SYDNEY

28 APRIL 2005

THE COURT ORDERS THAT:

1.      Order 1 made on 20 April 2005 be varied so as to operate until 9.00 am on 28 April 2005.

2.      The application for a stay of order 6 of the orders made by Wilcox J on 22 March 2005 be dismissed.

3.      The first and second applicants pay the respondent's costs of and incidental to the hearings of 20, 26 and 27 April 2005.

THE COURT DIRECTS THAT:

4.      The application filed 12 April 2005 by the first and second applicants, in so far as it seeks an extension of time and leave to appeal, be heard by a single judge exercising the Court's appellate jurisdiction.

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

REASONS FOR JUDGMENT

1                     This is an application in the Court's appellate jurisdiction and raises two issues.  The first issue is whether an application for an extension of time (under O 52 r 10(1)(b) of the Federal Court Rules) and leave to appeal and, if time is extended and leave granted, any appeal should be heard at the same time before a Full Court or whether the application for extension of time and leave to appeal should be heard separately by a single judge.  The second issue is whether an order made by Wilcox J on 22 March 2005 requiring Sharman License Holdings Ltd ("the License Company") and Sharman Networks Ltd ("the Network Company") (collectively "the Sharman Companies") to file an affidavit or affidavits disclosing assets in aid of a Mareva injunction should be stayed at least pending the hearing and determination of the application for an extension of time and leave to appeal, if not the appeal itself.  The Sharman Companies seek the stay order and also contend that the application for an extension of time and leave to appeal should be heard at the same time as any appeal, if leave is granted, and by a Full Court.  Universal Music Australia Pty Ltd ("Universal Music") opposes the stay order and contends that the question of an extension of time and leave to appeal should be heard separately and before any appeal, if leave is granted.

2                     These issues arise out of proceedings being heard by Wilcox J and brought by Universal Music against, amongst others, the Sharman Companies and Ms Nicola Hemming ("the principal proceedings").  The principal proceedings involve allegations of a breach of copyright by various respondents arising from, as I understand it, the facilitation of the reproduction of works the subject of copyright through the use of file sharing on the Internet.  Wilcox J made the Mareva injunction on 22 March 2005 after he had concluded the hearing of the question of liability in the principal proceedings.  Judgment is presently reserved on that issue.  The application for the Mareva injunction was made on 4 March 2005 by Universal Music.  The order made on 22 March 2005 restrained certain respondents, including Ms Hemming and the Sharman Companies, from dealing with their assets and required the filing of an affidavit or affidavits disclosing information concerning those assets by 1 April 2005.  The time for filing the affidavit or affidavits was extended by Wilcox J on 23 March 2005 to 8 April 2005.  On 8 April 2005, the Sharman Companies applied to the duty judge, Hely J, for an order staying the disclosure order until 14 days after the Supreme Court of Vanuatu had dealt with an application seeking a declaration that compliance with the disclosure order by the Sharman Companies would involve a contravention of the laws of Vanuatu.  Hely J refused to make the stay order.  On 12 April 2005 the Sharman Companies filed an application seeking an extension of time in which to seek leave to appeal and leave to appeal from the order of Wilcox J granting the Mareva injunction.  On 15 April 2005 the Sharman Companies applied to Wilcox J for an order staying the disclosure order.  His Honour dismissed that application.  On 18 April 2005 the proceedings in the Supreme Court of Vanuatu were discontinued.  On 20 April 2005 I commenced to hear the applications to which this judgment relates and made an order staying, temporarily, the disclosure order in relation to the Sharman Companies but on the condition that the affidavit or affidavits to which the order related would be filed by noon on 22 April 2005, copies of the affidaviit or affidavits would be served on the solicitors acting for Universal Music and could be read by the lawyers acting for Universal Music (counsel and named solicitors) but would otherwise be confidential.

3                     The relevance of the laws of Vanuatu should be briefly explained.  Vanuatu appears to be the centre of much of the financial and administrative (but not operational) activities of the Sharman Companies.  A company established under Vanuatu law, now called Trustees International Ltd, holds, as beneficial owner, all the shares in the Network Company which, in turn, holds all the shares in the License Company.  This trust arrangement is called the Sharman Trust.  The Sharman Companies were incorporated in Vanuatu and have their registered office in Port Vila.  These arrangements are administered by a firm of accountants and business advisers operating in Vanuatu, BDO Barrett & Partners.  The foundation of the Sharman Companies administration is a client services agreement of 8 April 2002 between Ms Hemming and Trustees International Ltd which is described (by its former name of Vanuatu International Trust Company Ltd) as a "wholly owned Trust Company" of BDO Barrett & Partners in promotional material of that firm.

4                     I now turn to consider the issues raised in the application and first consider the question of whether the disclosure order, as it operates against the Sharman Companies, should be stayed pending at least the hearing and determination of the application for an extension of time and leave to appeal.  The Sharman Companies led no evidence in support of the of the stay order (in effect, the Sharman Companies seek the continuation of the regime established by the interim orders made on 20 April 2005 restricting disclosure of the affidavits to specified legal representatives of Universal Music).  Counsel for the Sharman Companies submitted that unless such an order is made, it will render nugatory the appeal, at least insofar as it relates to the disclosure order.  That is, the assets of the Sharman Companies will be disclosed unconditionally (but subject to a less prescriptive order made by Wilcox J concerning the use that can be made of the affidavits), notwithstanding that there is, at least potentially (if time is extended and leave is given), an appeal on foot against that order.  Universal Music advanced a number of reasons why no stay order should be made.  Counsel for Universal Music raised, as a threshold question, whether a judge exercising the appellate jurisdiction of the Court, could make such an order in circumstances where the primary judge had refused to do so (which is the case) and there had been no change in circumstances (which is also the case).  Whether this is correct turns on the construction of O 52 r 17(3) of the Federal Court Rules.  This is an issue I need not determine, though I am inclined to think that the submission of counsel for Universal Music, that the expression "court below" is not a reference to the Federal Court exercising original jurisdiction, involves a too narrow reading of the rule.  Counsel for Universal Music also raised a number of discretionary considerations in support of why no stay order should be made.

5                     It is for the Sharman Companies to establish a basis for staying the disclosure order.  However, before expressing a view about whether they have, I should emphasise that implicit in much of the argument advanced on behalf of the Sharman Companies, was the notion that my consideration of this issue is at large.  That is, I could balance considerations favouring a confidentiality regime of the type presently in place on an interim basis (as a result of the orders I made on 20 April 2005) with considerations which might not favour such a regime.  Indeed a submission was made by the Sharman Companies that the order sought (a perpetuation of the existing confidentiality regime) was not, in truth, a stay order in any event.  Further, reliance was placed on the judgment of Campbell J in Macquarie Bank v O'Reilly Street Nominees [2005] NSWSC 162 in which his Honour, as the trial judge, discussed one rationale for a confidentiality order operating on a disclosure affidavit.  Counsel for the Sharman Companies relied on that judgment.  However, unlike Campbell J, I am exercising appellate jurisdiction and do so in circumstances where the primary judge, Wilcox J, heard submissions about whether the disclosure affidavits should be placed in a sealed envelope and his Honour did not accept such a protocol was appropriate.  Nonetheless his Honour did make an order limiting the use that could be made of the disclosure affidavits and that order remains operative and will continue to operate pending the hearing and determination of the application to extend time and for leave to appeal.  The issue to be determined is whether the order his Honour made should be stayed for the time being, in the way proposed, while the matter is in the Court's appellate jurisdiction.  I note that the notion of "stay" can comprehend a multiplicity of orders designed to preserve the status quo pending the hearing of an appeal: see the discussion of French J in Stirling Harbour Services Pty Ltd v Bunbury Port Authority [2000] FCA 87 at [6] and following.

6                     In my opinion, the question of whether a stay order should be made can be resolved on a narrow but simple basis.  The Sharman Companies do not seek an order staying the operation of the Mareva injunction, which prevents them dealing with their assets pending the hearing of at least the application for an extension of time and leave to appeal.  Thus, they accept, for the time being, that the Mareva injunction restraining the Sharman Companies from dealing with their assets, should continue to operate.  The disclosure order was made in aid of the effective operation of the Mareva injunction.  In my opinion, it would be inappropriate to deprive that injunction of full and efficacious operation, by staying an element of it, (namely the disclosure order) unless and until the Sharman Companies were able to establish that the entire regime established by the orders of 22 March 2005, as it applied to them, should be stayed or established there was a compelling reason why the disclosure order only should be stayed.  That it would be inappropriate is reinforced by evidence that the firm of solicitors, in which the sole director of the Sharman Companies is a principal, has expressed the view in writing that the Mareva orders "are not applicable" in Vanuatu.  Different considerations would plainly arise if the Sharman Companies sought to demonstrate that the entire order should be stayed pending the hearing of any application for an extension of time and the grant of leave.  It is true that the proposed appeal, as it relates to the disclosure order, will, in a sense, be rendered nugatory if its operation is not stayed.  However is not proposed, in the draft notice of appeal, to separately challenge the disclosure order.  The challenge is to the Mareva injunction in its entirety and on the basis that there was no or insufficient evidence to establish that there was a risk that the assets of at least the Sharman Companies, would be dealt with in such a way as to frustrate the satisfaction of any judgment against them.

7                     Specific matters raised by the Sharman Companies do not suggest to me a different conclusion.  It is said by the Sharman Companies that unless a confidentiality regime of the type proposed is put in place, third parties may be prejudiced.  There is no evidence of substance to support this contention.  It is also said that any application for leave to appeal (and any appeal) is likely to be heard in the near future and the confidentiality regime they propose would operate for a limited period.  However that is an endpoint and not the starting point.  The starting point is whether the Sharman Companies have demonstrated a case for a stay. 

8                     For these reasons I do not propose to continue the stay created by the interim regime established by the order I made on 20 April 2005.

9                     On the question of how the application for an extension of time and leave to appeal should be determined, I am satisfied that application should be heard prior to any appeal if leave is granted and heard by a single judge.  There are a range of considerations, some concerning the proper administration of the business of the Court, that can arise in a case such as the present.  They include the possible inconvenience in having a judge or Full Court consider the application for an extension of time and leave and then, at a later time, having a Full Court considered the appeal because time had been extended and leave had been given.  On the other hand there is the possible inconvenience of a Full Court being convened, the parties having to martial arguments and material on the basis that the Full Court will hear argument in the appeal on the assumption that leave might be granted, but leave is refused:  see generally Renaud Cointreau & Cie v Cordon Blue International Ltee (2001) 193 ALR 657 and Netttlefold Advertising Pty Ltd v Nettlefold Signs Pty Ltd [1998] FCA 1209.

10                  I am satisfied that there is a real issue about whether time would be extended and if it was, leave would be granted.  There is a real and not remote prospect, in my opinion, that either time will not be extended or leave will not be granted, though plainly it is undesirable that I express anything other than a tentative view on the question.  At present, there is arguably no satisfactory explanation for the delay in making the application for leave to appeal.  It is said that the delay was occasioned by the need for the Sharman Companies to instruct new solicitors.  There is some evidence (an affidavit of Mr Morris of 11 April 2005) but it is, in my view, not compelling.  In addition, the Sharman Companies failed to comply with the orders (at least as to disclosure) when lawfully obliged to do so.  Those factors may militate against the extension of time.

11                  The grant of leave may depend on establishing, arguably, error the part of Wilcox J.  Evidence was led before me (which was evidence before Wilcox J) which would support a conclusion that Ms Hemming has recently acted so as to divest herself of property which would otherwise be available to Universal Music to satisfy any judgment against her.  Evidence has also been led which would suggest that she has a measure of control over how the assets of the Sharman Companies are dealt with by those directly in control of those assets.  An inference might be drawn that, on this evidence, there was a risk that the assets of the Sharman Companies might also be dealt with in a similar way.  Accordingly, it may well be difficult for the Sharman Companies to establish that the decision of Wilcox J was attended with sufficient doubt to warrant the grant of leave.  It seems to me desirable, on balance, that these issues be ventilated prior to a Full Court being convened to embark on an investigation of whether Wilcox J erred in granting the Mareva injunction, if leave was granted.  I propose to direct that the application for an extension of time and leave to appeal the heard separately and by a single judge.

Associate:

Dated:              28 April 2005