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Federal Court of Australia |
COSTS - application that a non party pay costs awarded in favour of a party - respondents seeking damages against applicants pursuant to undertaking to Court given by applicants - whether respondents should be treated as applicants seeking damages against respondents - whether general principles relating to security for costs apply.
TORT - wrongful procurement of breach of contract - wrongful procurement of breach of equitable duty - conspiracy - damages and costs in other proceeding awarded in favour of applicants - whether respondent had the knowledge, intention, purpose or motive of depriving the applicants of the benefit of the judgment - use of circumstantial evidence as to state of mind of the respondent - whether principal facts (factum probandum) can be inferred from evidentiary facts (factum probans).
Air Express Limited v Ansett Transport Industries (Operations) Property Limited [1981] HCA 75; (1981) 146 CLR 249
Morey v Transurban City Link Ltd (No VG 124 of 1996) 7 February 1997, unreported.
Microcorp Pty Ltd v Terran Computers Pty Ltd (No. VG 258 of 1992, unreported)
Thomson Australian Holdings Pty Ltd v The Trade Practices Commission [1981] HCA 48; (1981) 148 CLR 150
MARY-ANNE FAHEY and MEDIA ARTS CORPORATION PTY LTD and TREVOR YOUNG v STEPHENS PUBLISHING PTY LTD and FILM AND BOOK PUBLISHING PTY LTD No VG 459 of 1988
STEPHENS PUBLISHING PTY LTD and FILM AND BOOK PUBLISHING PTY LTD v IAN HECTOR McFADYEN No VG 195 of 1993
NORTHROP J
MELBOURNE
6 MARCH 1997
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY No VG 459 of 1988
GENERAL DIVISION
B E T W E E N :
MARY-ANNE FAHEY AND MEDIA ARTS CORPORATION PTY LTD
AND TREVOR YOUNG
Applicants
A N D :
STEPHENS PUBLISHING PTY LTD AND FILM AND BOOK
PUBLISHING PTY LTD
Respondents
COURT: NORTHROP J
PLACE: MELBOURNE
DATE: 6 MARCH 1997
MINUTES OF ORDERS
The Court Orders that the respondents' motions, notices of which are dated 31 March 1994 and 11 April 1994 respectively, seeking orders that Ian Hector McFadyen pay their costs of the assessment of damages in this proceeding and their costs of the appeal brought by the applicants and discontinued on 28 July 1992 in matter No NG 374 of 1991 be refused with costs.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY No VG 195 of 1993
GENERAL DIVISION
B E T W E E N :
STEPHENS PUBLISHING PTY LTD AND FILM AND BOOK
PUBLISHING PTY LTD
Applicants
A N D :
IAN HECTOR MCFADYEN
Respondent
COURT: NORTHROP J
PLACE: MELBOURNE
DATE: 6 MARCH 1997
MINUTES OF ORDERS
The Court orders that the application be dismissed with costs.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY No VG 459 of 1988
GENERAL DIVISION
B E T W E E N :
MARY-ANNE FAHEY AND MEDIA ARTS CORPORATION PTY LTD
AND TREVOR YOUNG
Applicants
A N D :
STEPHENS PUBLISHING PTY LTD AND FILM AND BOOK
PUBLISHING PTY LTD
Respondents
No VG 195 of 1993
B E T W E E N :
STEPHENS PUBLISHING PTY LTD AND FILM AND BOOK
PUBLISHING PTY LTD
Applicants
A N D :
IAN HECTOR MCFADYEN Respondent
Index to Reasons for Judgment
Pages
A. Introduction 1 - 3
B. The motions in proceeding No VG 459 of 1988 3 - 17
1. Interlocutory orders and undertaking 3 - 5
2.
2. The orders in proceeding No VG 459 of 1988 6 - 8
3. Relevant steps taken after orders made on 27 July 1989 8 - 10
4. Steps taken in the "application" by Stephens Publishing 10 - 11
5. The Appeal 11 - 12
6. Additional relevant facts 12
7. The basis for the claims made in support of the motions 13 - 14
8. Conclusions 14 - 17
C. Proceeding VG 195 of 1993 17 - 61
1. Introduction 17
2. The pleadings 18 - 21
3. Nature of evidence 21 - 23
4. The stage setting 23 - 27
5. The credibility of Mr McFadyen 27 - 30
6. Summary of evidentiary facts subsequent to 23 December 1988 30 - 40
7. Extracts from transcript of re-examination of Mr McFadyen 40 - 52
8. The round robin of cheques 52 - 56
9. General comments 57 - 61
10. Conclusion 61
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY No VG 459 of 1988
GENERAL DIVISION
B E T W E E N :
MARY-ANNE FAHEY AND MEDIA ARTS CORPORATION PTY LTD
AND TREVOR YOUNG
Applicants
A N D :
STEPHENS PUBLISHING PTY LTD AND FILM AND BOOK
PUBLISHING PTY LTD
Respondents
No VG 195 of 1993
B E T W E E N :
STEPHENS PUBLISHING PTY LTD AND FILM AND BOOK
PUBLISHING PTY LTD
Applicants
A N D :
IAN HECTOR MCFADYEN Respondent
COURT: NORTHROP J
PLACE: MELBOURNE
DATE: 6 MARCH 1997
REASONS FOR JUDGMENT
A. Introduction
Two separate matters are before the Court. They were heard together and, with the consent of the parties, evidence given in one can be treated as evidence in the other. The first matter is in proceeding No VG 459 of 1988. Pursuant to notice dated 11 April 1994, Stephens Publishing Pty Ltd and Film and Book Publishing Pty Ltd (in these reasons jointly referred to as "Stephens Publishing") are seeking orders that Ian Hector McFadyen pay:
(i) Stephens Publishing's costs of the assessment of damages in the proceeding
(ii) Stephens Publishing's costs of an appeal brought by Mary-Anne Fahey and Media Arts Corporation Pty Ltd from the order of damages in the proceeding. The appeal was proceeding No VG 374 of 1991.
It is noted that Mr McFadyen was not a party named in proceeding No VG 459 of 1988 or in proceeding No VG 374 of 1991. The appeal was commenced on 4 December 1991 and was abandoned on 28 February 1992 by the giving of a notice of discontinuance.
The second matter is the hearing of the application No VG 195 of 1993. This proceeding was commenced by Stephens Publishing on 19 May 1993. Mr McFadyen is named as the respondent. By the application, as amended pursuant to leave granted on 12 March 1996, Stephens Publishing is seeking the following relief:
1. Damages for wrongful procurement of breach of contract;
1A. Alternatively to 1, damages for wrongful procurement of breach of an equitable duty;
2. Damages for conspiracy.
The application, as amended, is supported by a statement of claim as amended pursuant to leave granted on 12 March 1996 and 20 March 1996. For ease of reference, these two documents will be referred to as the application and the statement of claim respectively.
At the hearing of these two matters, Stephens Publishing was represented by counsel but Mr McFadyen did not have legal representation. He appeared on his own behalf. The presence of a litigant in person in lengthy and complex proceedings has made the task of the Court and of counsel for Stephens Publishing more onerous.
B. The motions in proceeding No VG 459 of 1988
B. 1. Interlocutory orders and undertaking
As is apparent from the pleadings in application No VG 195 of 1993 the facts relevant to the motions are not, really, in dispute. The statement of claim is a lengthy and detailed document. The defence, obviously drawn by Mr McFadyen, is very short. It admits certain paragraphs of the statement of claim and denies others. The admissions cover most of the facts relevant to the motions. On 23 December 1988, Mary-Anne Fahey, Trevor Young and Media Arts Corporation Pty Ltd, which company will be referred to in these reasons as "Corporation", commenced proceeding No VG 459 of 1988 against Stephens Publishing claiming that Stephens Publishing had published, sold and distributed and intended to continue to publish sell and distribute a book known as "Kylie Mole's School Survival Planner" ("the Planner"). The Planner was based upon the character of Kylie Mole appearing in a television programme and which had been created by Ms Fahey, who, at all material times, was married to Mr McFadyen. In the television programme Ms Fahey played the part of Kylie Mole.
The applicants in this proceeding alleged that Stephens Publishing had printed and published the Planner in a form which had not been consented to or approved by Ms Fahey and Mr McFadyen as required by the terms of an agreement entered into between Mr Young, Ms Fahey and Corporation of the one part and Stephens Publishing of the other part in September 1988. By way of interlocutory relief, the applicants to the proceeding sought two orders namely, 1. that until the hearing and determination of the proceeding Stephens Publishing be restrained from distributing or selling the Planner and 2. a mandatory order that Stephens Publishing take all steps to recover all Planners already distributed by them. The claims for the interlocutory relief came on for hearing before the Court constituted by Sweeney J on 23 December 1988. At that hearing the parties were represented by counsel.
Following submissions and the hearing of some evidence and following questions from the Court, counsel for Stephens Publishing said that subject to the then applicants giving the "usual undertaking as to damages" Stephens Publishing would undertake not to distribute or sell the Planner without the consent of the applicants. Thereupon counsel for the applicants gave the "usual undertaking as to damages". Thereafter, further submissions were made and further evidence was led with respect to the second interlocutory order sought by the applicants. The Court refused to make the second order. The Court then concluded the hearing by saying, in substance, that Stephens Publishing, by their counsel, having given the undertaking just referred to and that the applicants, by their counsel, having given the usual undertaking as to damages, the Court would adjourn the directions hearing in that proceeding to 14 February 1989 and reserve costs.
In its context, the phrase "usual undertaking as to damages" is an undertaking to pay to any party adversely affected by an interlocutory injunction or undertaking such compensation (if any) as the Court thinks just, in such manner as the Court directs. Normally, any order entered after this undertaking has been given, sets out the whole of the terms of the undertaking not merely the words "the usual undertaking as to damages". This was not done in this case but nothing turns upon that fact.
It is noted that the interlocutory order made on 23 December 1988 was entered on 14 February 1989. The order as entered was different in form to that announced in Court. The order was in the form of an interlocutory injunction, not an undertaking by Stephens Publishing. For the purposes of the present claims, the Court accepts the fact that Stephens Publishing gave the undertaking referred to above.
B. 2. The orders in proceeding No VG 459 of 1988
Application No VG 459 of 1988 came on for hearing on 6 March 1989 before the Court constituted by Sweeney J. The hearing extended over several days and concluded on 8 May 1989 when the Court reserved its decision. On 27 July 1989 the Court ordered that the application be dismissed with costs and released Stephens Publishing from the undertaking given on their behalf on 23 December 1988. The costs so ordered to be paid to Stephens Publishing have been paid. A reference to the reasons for judgment shows that the Court considered the issue of liability only and in particular whether permanent injunctions should be granted. The Court also made the following declaration:
"The Court declares that the applicants are liable to pay to the respondents the damages suffered by them by reason of giving that undertaking and directs that the amount which the applicants shall be ordered to pay shall be ascertained by the Registrar in accordance with Order 38."
The reasons for decision do not make any reference to why this declaration was made. Normally in cases of this kind no similar declaration is made, see Ansett Transport Industries (Operations) Pty Ltd v The Commonwealth [1977] HCA 71; (1977) 139 CLR 54 at 116. If any party adversely affected by the interlocutory injunction or undertaking seeks compensation, that party normally proceeds by way of motion in the action in which the undertaking was given; see Air Express Limited v Ansett Transport Industries (Operations) Property Limited [1981] HCA 75; (1981) 146 CLR 249. In that matter Air Express claimed against Ansett damages pursuant to an undertaking given by Ansett to the Court to "abide by any order which the Court or a Justice may make as to damage in case the Court or a Justice shall hereafter be of the opinion that the defendants shall have sustained any damage, by reason of this Order, which the plaintiff ought to pay", see per Aickin J at 251. The matter came before the High Court by notice of motion in the matter referred to in 139 CLR by which Air Express sought an order that there be an enquiry as to whether it had sustained any damage by reason of the interlocutory injunction given against it and which Ansett ought to pay in accordance with the undertaking given by Ansett, see per Aickin J at 254. Aickin J held Air Express was not entitled to any damages. Air Express appealed to the Full Court of the High Court which, by majority, dismissed the appeal. The reasons for judgment of the Full Court follow immediately the reasons of Aickin J, the trial judge, in 146 CLR at 306. The heading in 146 CLR is taken from the appeal documents which explains why the name of the matter before Aickin J differs from that appearing in 139 CLR.
The declaration made by the Federal Court on 27 July 1989 includes the words "and directs that the amount which the applicants should be ordered to pay shall be ascertained by the Registrar in accordance with Order 38". This direction was given before Stephens Publishing had made any claim against the applicants who had given the "usual undertaking as to damages". Order 38 has a limited application. Rule 1(1) provides:
"1(1) Where:
(a) a respondent admits liability on an applicant's claim, but denies liability to the extent of the damages claimed; or
(b) the Court finds that the party is liable to pay damages;
the Court, if it considers that the amount of damages to be recovered is substantially a matter of calculation, may direct that the amount which the party liable shall be ordered to pay be ascertained by the Registrar at the proper place."
The purpose of this rule is to confer a power on the Registrar to exercise a judicial power of the Court. The relevant condition precedent to the application of Rule 1 namely, where "the Court finds that the party is liable to pay damages" had been stated in the first part of the order of the Court but at a time before Stephens Publishing had made a claim for damages. Nevertheless the order was made.
B. 3. Relevant steps taken after orders made on 27 July 1989
It should be noted that delays occurred after the orders were made on 27 July 1989. The solicitors then acting for Stephens Publishing should have caused notice of a motion to be given to the applicants in matter No VG 459 of 1988 seeking an order that the Registrar inquire whether the respondents had sustained any and what damage by reason of the undertaking given by them on 23 December 1988 which the applicants ought to pay in accordance with the undertaking given by them on the same date. Order 19 rule 1 of the Federal Court Rules provides:
"1(1) Any interlocutory or other application in any proceeding which has already been commenced in accordance with these Rules shall be made by motion.
(2) The motion shall be supported by affidavit setting forth the facts relied upon.
(3) Such application may be made to the Court or a Judge."
The other rules of Order 19 would have applied with respect to any motion brought by Stephens Publishing but they would have remained respondents in the matter No VG 459 of 1988. Having regard to the direction given in the declaration made by the Court on 27 July 1989, the motion should have been made returnable before the Registrar.
The first formal document by which Stephens Publishing claimed damages pursuant to the undertaking given by the applicants in matter No VG 459 of 1988, was not filed in the Court until 23 April 1990, some nine months after the order of 27 July 1989. The nature of the document was curious. It was in a form provided for an originating document in conformity with Order 4 of the Federal Court Rules and with Form 5 of those Rules, but it was not given a separate identifying number as required by Order 1 rule 6. It was given the identifying number VG 459 of 1988 but identified the parties as follows:
"BETWEEN:
STEPHENS PUBLISHING PTY LTD AND FILM
AND BOOK PUBLISHING PTY LTD
Applicants
AND:
MARYANNE FAHEY, MEDIA ARTS CORPORATION PTY LTD
AND TREVOR YOUNG
Respondents"
The document was headed "Application" and continued:
"On the grounds appearing in the accompanying Statement of Claim for Damages the Applicants claim damages to be assessed in accordance with Order 38 pursuant to the Order of His Honour Mr Justice Sweeney made 27 July 1989."
In conformity with a normal application under Order 4, the application identified a time and place for a directions hearing in the application and directed that the "respondents" attend that directions hearing and file an appearance before that directions hearing. The normal warning was given that if the "respondents" did not attend the directions hearing the matter could be dealt with in their absence. By their application and "statement of claim for damages", the "applicants" claimed damages in the sum of $643,557.44 pursuant to the orders of 27 July 1989:
"whereby it was ordered that pursuant to Order 38 of the Federal Court Rules there be an assessment of the damages sustained by the applicants by reason of the undertaking given by them to the Court on 23rd December 1988"
This document was most confusing. One identifying number applied to two separate applications. In one the applicants were said to be Ms Fahey, Corporation and Mr Young while in the other they were said to be the respondents. In the first the respondents were said to be Stephens Publishing Pty Ltd and Film and Book Publishing Pty Ltd while in the other they were said to be the applicants.
B. 4. Steps taken in the "application" by Stephens Publishing
Further delays occurred in the prosecution of the "application" by Stephens Publishing. On 17 October 1990 the Court constituted by Sweeney J ordered that Ms Fahey, Corporation and Mr Young pay to the "applicants" the sum of $23,000 in part satisfaction of the damages arising from the undertaking. This amount was paid. On 5 August 1991, the "damages application" came on for hearing before the Court constituted by Sweeney J. On 15 November 1991 the Court made orders on the "application" and published its reasons for making those orders. The orders relevant for present purposes are set out but it should be noted that the order that was entered was in proceeding VG 459 of 1988 in which Ms Fahey, Corporation and Mr Young were named as applicants and Stephens Publishing were named as respondents:
"1. The applicants pay to the Respondents the sum of $201,637.86 plus interest in the total sum of $77,511.82.
2. The Applicants pay the Respondent's costs of the Application filed by the Respondents on 23 April, 1990, including all reserved costs.
3. The sum of $10,000.00 paid into Court by the Applicants be paid out to the Solicitors for the Respondents in part satisfaction of the amounts ordered to be paid in paragraph 1 hereof.
.....
5. There be a stay of execution of paragraphs 1, 2 and 4 of this Order for twenty-one (21) days."
It is noted that the total amount of the judgment was $279,147.68 but the amount was to be reduced to $269,147.68 after deduction of the $10,000. The earlier payment of $23,000 had been taken into account.
B. 5. The appeal
On 4 December 1991 Ms Fahey and Corporation filed a notice of appeal against the orders made on 15 November 1991. The appeal was proceeding VG 374 of 1991. By motion, notice of which was dated 28 January 1992, Stephens Publishing sought an order for security for their costs of the appeal against Ms Fahey and Corporation. By notice of discontinuance dated 28 February 1992, Ms Fahey and Corporation abandoned their appeal in proceeding VG 374 of 1991. Stephens Publishing's costs of the appeal have not been paid.
B. 6. Additional relevant facts
On 4 May 1992, Corporation was wound up on the application of Stephens Publishing. Ms Fahey and Mr Young have paid $30,000 and $10,000 respectively to Stephens Publishing in part satisfaction of the orders made by the Court on 15 November 1991. Stephens Publishing have released them from any further liability under those orders.
Neither the costs ordered to be paid to Stephens Publishing by the Order of the Court of 15 November 1991 nor the costs to which Stephens Publishing are entitled by reason of the discontinuance of the appeal have been taxed. Stephens Publishing have released Ms Fahey and Mr Young from any liability to pay these costs. The liquidator of Corporation has no assets to pay those costs. Hence the motions for orders that Mr McFadyen pay those costs.
B. 7. The basis for the claims made in support of the motions:
Mr McFadyen was not a party in proceeding No VG 459 of 1988. At all relevant times Ms Fahey and Mr McFadyen were directors of Corporation. On all the evidence, it is clear that Mr McFadyen was, in fact, the person who controlled Corporation. He made the decision to defend the "application" by Stephens Publishing for the assessment of damages. In fact, the amount claimed by way of damages was of the order of $643,000 but the amount awarded was about one third of that amount.
There is no doubt that the power conferred on the Court by section 43 of the Federal Court of Australia Act 1976 enables the Court to order that a non party to litigation pay costs to a successful party; see, for example, Caboolture Park Shopping Centre Pty Ltd (In Liquidation) v White Industries (Qld) Pty Ltd [1993] FCA 471; (1993) 45 FCR 224. This power is similar to powers conferred by other statutes and rules of court applicable to proceedings in other courts. Very helpful considerations of the history and nature of the power appear in Knight v F P Special Assets Ltd [1992] HCA 28; (1992) 174 CLR 178 in the joint judgment of Mason CJ and Deane J and in the judgment of Dawson J. Those judgments refer to the analogous power of the court to order a plaintiff to give security for costs when contrasted with the power to make an order against a non party.
In the present case, counsel for Stephens publishing contended that Corporation had no assets, that in substance it was a "man of straw", that the application was brought by Mr McFadyen who played an active role in the proceedings for the assessment of damages and had an interest in that litigation and that, in the interests of justice, he should be required to pay the costs awarded in favour of Stephens Publishing.
The Court, as presently constituted, considered the relevant principles to be applied in cases of this kind in reasons for judgment in Morey v Transurban City Link Ltd (No VG 124 of 1996) 7 February 1997, unreported.
B. 8. Conclusions
In my opinion, these principles have no application to the motions presently before the Court. In summary, Corporation sought interlocutory and permanent injunctions against Stephens Publishing. Upon undertakings as to damages being given, Stephens Publishing gave undertakings in the nature of consenting to interlocutory injunctions pending the hearing of the application. In due course, the Court dismissed the application for permanent injunctions. Stephens Publishing then moved the Court for orders that Corporation, together with Ms Fahey and Mr Young, pay damages suffered by Stephens Publishing by reason of the undertaking given by them. In reality, Stephens Publishing were plaintiffs in the claim for damages.
Counsel for Stephens Publishing could refer the Court to no authority which supported the proposition that a defendant should give security for costs to a plaintiff in a case where the plaintiff is suing the defendant for damages. This is not surprising, since in each case, the person entitled to security for costs must be in a position of a defendant opposing a claim brought by a corporation or a natural person where justice requires security for costs to be given ;see the discussion relating to the various sources of power to make orders for security for costs appearing in Microcorp Pty Ltd v Terran Computers Pty Ltd (No. VG 258 of 1992, unreported).
The true position is illustrated by Willey v Synan [1935] HCA 76; (1935) 54 CLR 175. There, the appellant was a seaman who found silver coins on a ship. The customs authorities in Australia seized the coins and gave notice to the appellant that unless he commenced action to recover the coins, they would be condemned to the Commonwealth. The appellant, as plaintiff, commenced proceedings in the High Court. Starke J ordered that security be given on the basis that the plaintiff resided outside Australia. The Full Court unanimously allowed an appeal from that order. The legal principle was stated by McTiernan J at 187:-
"I agree that this appeal should be allowed. The action in which the appellant has been ordered to give security for costs was entered by him in response to a notice served on him by the defendant pursuant to sec.207 of the Customs Act 1901 - 1930. The action was truly instituted by way of defence to a claim by the Collector of Customs for the condemnation of the appellants' goods.
Certain silver coins claimed by the appellant to be his goods, which form the subject matter of the action, had been seized by the Collector of Customs, who initiated proceedings for their condemnation by giving the notice provided for by s 207.
The rule that a plaintiff who is out of the jurisdiction should give security for costs should not be applied to the plaintiff in this action for the reasons stated by Scrutton L.J. in Maatschappij voor Fondsenbeit v Shell Transport and Trading Co. (1923) 3 K.B., 166 at 176, 1977."
Latham CJ at 170-180 quoted Scrutton LJ in that authority as saying:
""[The Court]" orders security for costs against the foreign attacker, not against the foreigner defending himself or his property from attack."
Dixon J said at 174:
"The principle is that a party to judicial proceeding, who resides beyond the jurisdiction, should not be required to give security for costs unless, however the parties are arranged upon the record, he is the person invoking or resorting to the jurisdiction for the purpose of establishing rights or obtaining relief. If he does avail himself of the remedies the jurisdiction provides in order to obtain affirmative relief or redress, he may be ordered to give security, although he becomes a defendant in the section."
His Honour then referred to a number of authorities including the following extract from the judgment of Scrutton LJ at 177:
"The position, I think, extends to every case where the person against whom security is sought is really defending himself against attack, even if he be nominally a plaintiff but really defending himself against defendant's previous action against him."
In my opinion a similar principle applies with respect to the power to order a non-party to pay the costs of a successful party. This power, for relevant purposes, is analogous to the power to order security for costs. Where a party is attacking another party to recover damages, the Court should not order that a third party, directing the attacked party, should pay the costs of the attacker on the basis that the attacked party has no assets.
Accordingly, the two motions of Stephens Publishing should be refused with costs.
C. Proceeding VG 195 of 1993
C. 1. Introduction
This proceeding was commenced on 19 May 1993. Originally Stephens Publishing sought damages for fraudulent misrepresentation, for conspiracy and under the Trade Practices Act 1974 . Following orders made by the Court on 31 March 1994 and 24 November 1994, the application for damages was limited to two causes of action, in substance those mentioned in paragraphs 1 and 2 of the application as set out in these reasons. At the hearing, leave was granted to amend the application to make the claims 1, 1A and 2 as so set out. During the course of the hearing leave was granted to amend the statement of claim. Paragraphs 42A and 42B were inserted to give rise to the claim 1A which is an alternative to claim 1. Other minor amendments were made. Mr McFadyen denied the allegations contained in paragraphs 42A and 42B of the statement of claim.
The claims as pursued give rise to matters which normally would be heard in the State Courts. It is unfortunate that they were not. Having regard to the history of the litigation there can be no doubt that this Court has jurisdiction to hear and determine the application. When the matter came on for hearing, it was too late to cross-vest it to the Supreme Court of Victoria.
C. 2. The pleadings
The statement of claim is a long and complex document containing over 43 paragraphs. The defence is simple. Mr McFadyen admits most of the allegations contained in the statement of claim but denied the allegations of an agreement arising out of the giving of the undertaking by Corporation in proceeding No VG 459 of 1988 and the other allegations directed to the intentions, purposes, motives or knowingly acting, express or implied, necessary to be established for Stephens Publishing to succeed. Thus Mr McFadyen admitted paragraphs 1 to 2, 4 to 8, 12 to 30, 32 and 33 of the statement of claim.
A reference to the allegations which were denied by Mr McFadyen illustrates the issue between the parties. Paragraph 3 of the statement of claim alleges that at all relevant times he had been and at the date of the statement of claim (in 1995) was a director and shareholder of Corporation. Having regard to the facts that Corporation was incorporated under the name Shermist Pty Ltd in the early 1980's but was wound up by order of the Court on 4 February 1992, the denial is understandable. At the same time Mr McFadyen admits the allegations in paragraph 8 of the statement of claim that at all material times Corporation was effectively controlled by him and Ms Fahey. The Court finds that at all material times to 4 February 1992 Mr McFadyen controlled the affairs of Corporation.
Paragraphs 9, 10 and 11 of the statement of claim contain allegations of facts suggesting the existence of an agreement or contract between Corporation and Stephens Publishing arising during the course of the hearing for the motion for interlocutory relief in proceeding No VG 459 of 1988 which took place on 23 December 1988. The paragraphs allege an agreement by Corporation to give "the usual undertaking as to damages" and Stephens Publishers agreed to give the undertaking not to distribute the Planner. The paragraphs allege a number of implied terms of that agreement. The existence of the agreement and the implied terms form the foundation of the claim by Stephens Publishing for damages for wrongful procurement of breach of contract, alternatively for damages for wrongful procurement of breach of an equitable duty.
Paragraph 31 alleges that Stephens Publishing gave the undertaking on 23 December pursuant to the agreement referred to in paragraphs 10 and 11. This is denied.
Paragraphs 34 to 42B of the statement of claim set out the allegations supporting the causes of action relied on by Stephens Publishing. Each of these allegations is denied. Paragraph 35 alleges that Mr McFadyen "procured and assisted" Corporation to cease trading and to cause it to transfer its assets to Media Arts Productions Pty Ltd ("Productions"), a company controlled by him thereby causing Corporation to become unable to pay the damages awarded in favour of Stephens Publishing and to breach the agreement between Corporation and Stephens Publishing. Paragraph 35 alleges that subsequently to 23 December 1988 Mr McFadyen "caused" Corporation to breach the implied terms of the agreement. A number of particular events are identified including an allegation that Corporation "disposed of its assets with the predominant purpose of depriving (Stephens Publishing), of the opportunity to obtain satisfaction of any order which the Court may have made pursuant to the damages undertaking".
Paragraph 36 is similar in form but relates to the period 27 July 1989 to 31 May 1992. It alleges Mr McFadyen conspired with Corporation and Ms Fahey "with the predominant purpose of causing injury to (Stephens Publishing) by depriving them of the capacity to obtain satisfaction of any order which the Court may have made pursuant to the damages undertaking" to cause Corporation to breach its undertaking and agreement and to render it unable to comply with the undertaking and agreement.
Paragraph 37 is in similar form but alleges that pursuant to the conspiracy, Mr McFadyen "knowingly and wrongfully induced and assisted (Corporation) and Ms Fahey to undertake, or cause to be put in place, (specified transactions) with the predominant intention that (Corporation) would be permanently unable to comply with the damages undertakings". The matter is taken further by paragraph 38 which alleges that specified transactions were predominantly intended to defeat, and did have the effect of defeating, the claim by (Stephens Publishing) to recover damages from Corporation and Ms Fahey. Paragraph 39 is supplementary to earlier allegations.
Paragraph 40 alleges that during the period of the conspiracy Mr McFadyen, as a director of Corporation, and on behalf of Ms Fahey, and as part of the conspiracy deceived and misled Stephens Publishing by not making disclosure of specified matters to them or to the Court.
Paragraph 41 alleges damages resulting from the matters referred to in paragraphs 36 to 42 (in reality this should have been paragraphs 34 to 40).
Paragraph 42 refers to paragraphs 1 to 35 and 37 to 38 and alleges that Mr McFadyen well knew of the agreement "and with intent to injury (Stephens Publishing) procured and induced Corporation to breach the agreement".
Paragraph 42A alleges that by reason of the matters alleged in paragraphs 1 to 35 and 37 to 40 an equitable right was created in favour of Stephens Publishing to the benefit of the undertaking with corresponding rights to them to enforce the undertaking. Paragraph 42B alleges that Mr McFadyen "well knowing of the said equitable and legal rights and the said equitable duty procured and induced (Corporation) to breach" those rights by placing Corporation in a position where it had no assets to pay the damages awarded against it.
Despite the wide ranging admissions, the hearing of the application and the motions in application No VG 459 of 1988 extended over 9 sitting days even though the estimate given for the hearing was 3 days only.
C. 3. Nature of evidence
In support of the claim by Stephens Publishing, their counsel relied on evidence to support the finding that the acts and events referred to in the statement of claim did happen. It was then argued that those acts and events by implication or by inference supported the allegation that Mr McFadyen had the relevant knowledge, intentions, purposes or motives alleged in the statement of claim. Unless the knowledge, intentions, purposes or motives were proved, the claims by Stephens Publishing had to fail irrespective of what were the general legal principles of law supporting the causes of action. As was said by the Court during the hearing of the application, the success of the case depended upon what could be described as circumstantial evidence.
An issue in all the claims was the state of mind of Mr McFadyen when he caused certain actions to take place. As is clear from the statement of claim, the state of mind of Mr McFadyen was a fact to be proved. Stephens Publishing has the onus of proving the state of mind alleged. Proof of that state of mind relies on the establishment of a set of circumstances which are then said inferentially to support a finding that the relevant state of mind existed. Evidence of facts which inferentially leads to such a conclusion is often described as circumstantial evidence; compare 15 Halsbury's Laws of England 3rd Ed. 263. As appears in Cross on Evidence, Fourth Australian Edition, para 1100, circumstantial evidence may ".... be defined as any fact (sometimes called an "evidentiary fact", factum probans or "fact relevant to the issue") from the existence of which the judge or jury may infer the existence of a fact in issue (sometimes called a "principal fact" or factum probandum)."
During the course of the hearing, the Court drew to the attention of counsel for Stephens Publishing the fact that a large part of the case sought to be made by Stephens Publishing depended upon circumstantial evidence. Mr McFadyen gave evidence denying the existence on his part of the knowledge, intentions, purposes or motives alleged against him. In those circumstances the Court drew to the attention of counsel for Stephens Publishing the importance of the credibility of Mr McFadyen as a witness. Mr McFadyen admitted most, if not all of the events and acts alleged by Stephens Publishing but denied he had the requisite knowledge, intentions, purposes or motives alleged by Stephens Publishing. If the Court accepts the evidence of Mr McFadyen, the application must be dismissed. In his final submissions, counsel for Stephens Publishing made a strong attack on the credibility of Mr McFadyen.
Before turning to the relevant facts, it will be helpful to make a brief reference to the stage setting in which the drama took place.
C. 4. The stage setting
At the time of the hearing, Mr McFadyen was 47 years of age. He had qualified as a psychologist, teacher and criminologist. He obtained academic qualifications at the University of Melbourne namely Bachelor of Arts, Bachelor of Education and Diploma of Criminology. The Diploma was awarded in the Faculty of Arts. He had no training in law, commerce or accounting. After graduating he worked as a psychologist and teacher for short periods. He was unable to obtain employment as a criminologist. He worked for a period as a social worker.
After working for several years as a social worker and teacher, Mr McFadyen decided to devote all his time to being a writer, a director of productions and an actor. This was about 1973 when he was in his mid-twenties. For some two years in 1977 and 1978 he was employed in a salaried position in the ABC as a television producer but apart from that period his income was received from his activities as an actor, a writer and a director and producer of television programs. On the advice of his accountant, Mr McFadyen decided to organize his business affairs through a family trust arrangement. One purpose of doing this was to distribute income derived from his activities among beneficiaries under the trust.
The family trust was created by a deed of settlement dated 16 March 1982 entered into between Eve Francis Ash as Settlor and Shermist Pty Ltd as trustee. Shermist was controlled by Mr McFadyen. On 2 September 1986 Shermist Pty Ltd changed its name to Media Arts Corporation Pty Ltd. In these reasons the name "Corporation" is used to include Shermist Pty Ltd. The deed of settlement was in a common form. The beneficiaries were members of the family of Mr McFadyen. The plan was that Mr McFadyen provided his services to the trust and Corporation, as trustee, who provided those services to other persons for a fee.
Ms Fahey is an actor and writer. She and Mr McFadyen often worked together writing television scripts and as actors. In 1985 Ms Fahey and Mr McFadyen married and thereafter Ms Fahey lent her services to the trust and all fees arising from their work, both joint and individually should have been paid to Corporation which employed them.
Between 1982 and 1987 Corporation did not act as a production company producing television programs. It acted as a provider of services, namely the services provided by Ms Fahey and Mr McFadyen, to separate production companies. It owned interests in production companies which were set up from time to time for the purposes of producing shows. Two such companies were Comedia Ltd and Eleventh Hour Productions Pty Ltd. The production companies paid Corporation fees for services provided by Ms Fahey and Mr McFadyen. Corporation was the group employer and paid a salary to each of Ms Fahey and Mr McFadyen. This was a structure not at all uncommon in business.
In 1987 Network Ten (Aust) asked Mr McFadyen to produce a series of ten one hour sketch comedy programs for presentation on Channel 10. Mr McFadyen says that at the time he did not have the money nor the time to incorporate a production company for the purpose of producing the programs. He decided to use Corporation as the production company. Corporation engaged staff and entered into contracts with other persons including actors and writers for the purpose of producing the programs. The program series was called "The Comedy Company". Mr McFadyen claimed the series became the most successful comedy program on Australian television in 1988. Its ratings were exceeded only by the televising of the VFL Grand Final game.
Ms Fahey and Mr McFadyen were two of the three main script writers for the series. Ms Fahey and Mr McFadyen appeared as actors in the series. Mr McFadyen was the script editor, executive producer and co- director. Two further series of ten episodes were commissioned by the network in 1988. Mr McFadyen was extremely busy at this time. He was writing, directing and producing a very successful television program. Corporation was riding a wave of financial prosperity. Mr McFadyen was not giving sufficient time to the financial structures of Corporation. This was a common feature in the heady days of the latter half of the 1980's. Entrepreneurs were being given star treatment. Some were being feted by high dignitaries within Australia. The looming financial collapse was not foreseen.
The Comedy Company series comprised a number of segments. One of the most popular segments involve a schoolgirl character called "Kylie Mole". This character had been created by Ms Fahey. She wrote the script of this segment and played the part of Kylie Mole. The character and name of Kylie Mole was sought by many commercial interests for use in selling their merchandise. Kylie Mole had a cult following. To assist in utilising this activity, Corporation engaged Mr Trevor Young to act on behalf of the Corporation. It was one of the commercial agreements which formed the basis of the action against Stephens Publishing in proceeding VG 459 of 1988 which was commenced in December 1988. It involved disputes relating to copyright and the licence to use the book known as "Kylie Mole's School Survival Planner". The claim for an interlocutory injunction came on for hearing on 23 December 1988. This matter is referred to earlier in these reasons. That was the day that Corporation gave the usual undertaking as to damages in return for the undertaking by Stephens Publishing not to distribute the Planner.
On all the material before it, the Court finds that at the time the undertaking was given by Corporation, it had the capacity to pay any damages which the Court may have directed it to pay. Corporation was producing a very successful series. It appeared to be in a sound financial position. Sufficient attention was not being given to the financial structures of Corporation and its activities but it had the assets and the cash flow to pay damages. Mr McFadyen was out of his depth in financial matters. He was extremely busy. He did not give the required consideration to the need to base the structures of Corporation on a solid foundation. He did not seek financial advice. He considered the good times would continue. Like many others he did not give sufficient thought to the future. It must be remembered that Corporation was providing a service. This was not a case of producing nothing of substance. A popular service was being provided to the public. Corporation was a very successful company. The Comedy Company was a very successful production. Kylie Mole was a very successful and valuable character. This can be illustrated by Stephens Publishing using the character in the Planner and its claim for damages of over $630,000.00 arising from its undertaking not to distribute or sell the Planner.
C. 5. The credibility of Mr McFadyen
Mr McFadyen gave evidence. He was cross-examined. He made submissions to the Court. He participated in the hearing before the Court over 9 days. The Court had ample opportunity to observe Mr McFadyen, to assess his honesty and to determine whether his evidence could be accepted. This last aspect is crucial. He has explanations for all of the actions relied upon by Stephens Publishing to establish their case. If the explanations given by Mr McFadyen are accepted, the Court should not make the inferences sought to be established by Stephens Publishing and as alleged in the statement of claim.
Mr McFadyen presented as a very able and articulate person. He had an exceptional memory of events, both recent and in the far distant past. It must be remembered that he is a script writer and an actor. As a script writer he could prepare a script to exculpate him from the claims made by Stephens Publishing. As an actor he would be able to remember the lines of that script as well as ad libbing where required. This could detract from the finding that he was a witness of truth. At the same time these skills should not be used as a reason for not accepting him as a witness of truth.
Mr McFadyen was subjected to a long and vigorous cross-examination. His responses were remarkably direct, open and honest. Generally speaking, he did not try to deny or hide events which had occurred and which formed the basis for the inferences sought to be relied upon by Stephens Publishing. It was the alleged motives or purposes of those actions which were denied. The evidentiary facts, (the factum probans or "facts relevant to the issue") were not disputed. Much time was wasted in cross-examination on these facts when it was apparent that those facts were not in dispute. Mr McFadyen coped with this aspect of the cross-examination with great equanimity.
Many documents were put to him relating to far distant facts. Generally, these documents supported the evidence he had given. Where they apparently did not, his explanations appeared to be genuine and reasonable. In this regard reference can be made to the cross- examination based on a journalist's article appearing in the New Idea. If anything, his answers and explanations, expanded in re-examination, confirmed that he should be accepted as a witness of truth.
His evidence must be considered in the context of the facts referred to in the paragraph of these reasons headed "The stage setting". The setting changed dramatically commencing in late 1989, in 1990 and in 1991. The financial bubble burst. The financial success of The Comedy Company and related programs disappeared. Corporation lost its cash flow following the collapse of the Channel 10 Network. The collapse of property values in 1991 had a dramatic effect on the financial position of Ms Fahey and Mr McFadyen and of Corporation. All these facts support the explanations given by Mr McFadyen. He was caught up in a web over which he had no control. He was doing his best, sometimes on dubious advice, to extricate himself, his wife and Corporation from that web.
Additional settings of the stage relate to the facts that Corporation (for itself, Mr Fahey and Mr Young) paid the costs awarded against the applicants by the Court in its Order of 27 July 1989 in proceeding No VG 459 of 1988. Corporation for itself and the other applicants paid the $23,000.00 directed to be paid to Stephens Publishing by a consent order of the Court, made on 17 October 1990, in the same proceeding. It is noted that this was a consent order. Regard is had to the fact that negotiations occurred between the then solicitors for Stephens Publishing and the solicitors for Corporation for the compromise of the damages claim by Stephens Publishing. The details of these negotiations are not before the Court. They were unsuccessful but subsequently Corporation on its behalf and on behalf of the other applicants paid $10,000 into Court in that proceeding.
The evidence of Mr McFadyen must be considered having regard to all these matters, the financial difficulties affecting Mr McFadyen, Ms Fahey and their companies during the period 1990 to 1992 and the inherent likelihood or otherwise of Mr McFadyen intentionally taking the steps and actions which are not in dispute for the purpose or with the motive or intention of preventing Stephens Publishing obtaining the benefit of the judgment obtained against Corporation. All this is in the context that Mr McFadyen gained no personal financial benefit from the actions.
In all the circumstances, the Court finds that Mr McFadyen was a witness of truth whose evidence should be accepted. In particular, the Court accepts his denial that the actions he took were intended to prevent or were done knowingly or for the purpose or with the motive of preventing Stephens Publishing being able to recover the damages from Corporation. This does not prevent the Court from not accepting parts of that evidence but the overall result is that the Court accepts the explanations given by Mr McFadyen and rejects the inferences sought to be relied upon by Stephens Publishing. This finding does not carry any implication that the actions of Mr McFadyen have the approval of the Court.
C. 6. Summary of evidentiary facts subsequent to 23 December 1988
Having formed the view that Mr McFadyen was a witness of truth, it is not necessary to refer in detail to all the evidentiary facts which are relied upon by Stephens Publishing as the basis for the drawing of the inferences on which their claim depends. A number of those facts have been set out in these reasons relating to the motions in proceeding No VG 459 of 1988. The other evidentiary facts will be given in a summary form together with some comments. In that part of these reasons under the heading "C. 7. Extracts from transcript of re- examination of Mr McFadyen" there is set out parts of the transcript of the hearing from pages 486 to 494. These are taken from the re- examination of Mr McFadyen as a witness. Some parts of the transcript appear to be in the nature of submissions but this results from the difficulties arising where a litigant appears in person. No weight is given to those matters based on the fact that they were given on oath. They are not treated as fact. At the same time a statement relating to state of mind is a statement of fact and can be a "principal fact" or "factum probandum". The purpose of setting out the extracts from the transcript is to summarize the evidence of Mr McFadyen on the issue of his knowledge, intention, purpose and motive and his state of mind, in rebuttal of the inferences sought to be relied upon by Stephens Publishing. To that extent the evidence constitutes evidence of a principal fact. The Court accepts as true the evidence of Mr McFadyen on these principal facts.
By the end of the year 1988, it was becoming obvious to Mr McFadyen that it was impractical to continue to use Corporation as a production company. Practical considerations required a change of structures by which Ms Fahey and Mr McFadyen conducted their activities as writers, actors, producer and director. Corporation was intended to be used as the trust company in connection with the McFadyen Family Trust. Mr McFadyen had used other companies for other purposes. These other companies paid Corporation for services provided by Ms Fahey and Mr McFadyen. The reason why this was not done with respect to The Comedy Company is explained earlier in these reasons. The difficulties with the existing structure were described by Mr McFadyen as severe drawbacks and were set out as follows:
"a) We could not easily take on partners, or sell the company or any part of it.
b) Profits could not be retained but had to be distributed annually.
c) There was no clear separation between operational profits and fees due to myself and Ms Fahey for our writing and performing. In 1988 and 89 Media Arts Corporation paid writing and performing fees to all the other performers in the program while fees due to Ms Fahey and myself were simply retained by the trust. Large profits made over the period were due to the fact that the accumulated revenue included fees which would normally have been paid to Ms Fahey and myself."
The extent to which other companies were created by Mr McFadyen to give effect to the structures of his activities pursuant to his policy are set out in these reasons under the heading "C. 7. Extracts from transcript of re-examination of Mr McFadyen".
Towards the end of 1988 Mr McFadyen decided that a new company should be incorporated to become the production company after the current Network Ten contracts had been completed. Corporation was to remain as the trust company. Of immediate importance was the need to distribute the profits of Corporation among the beneficiaries of the McFadyen Family Trust before the end of the financial year. Accordingly, a new company was incorporated by Mr McFadyen. The company was known as Greysville Pty Ltd. Greysville was incorporated in February 1989 and was made a beneficiary under the McFadyen Family Trust.
The profits of Corporation for the year 1988-1989 were large. Without allowing for tax, the profits appeared to exceed $600,000. Mr McFadyen planned to have Corporation distribute some of its profits to Greysville. Mr McFadyen caused Greysville to lend some of the money so received back to Corporation for specific purposes. In February 1989, from the moneys so lent to it, Corporation lent some $425,000 to Ms Fahey and Mr McFadyen to purchase a dwelling house at 47 Philipson Street, Albert Park. The purchase was by cash and the land was registered in the names of Ms Fahey and Mr McFadyen as tenants in common in equal shares. It was not mortgaged. They used it as their residence. Mr McFadyen was receiving advice from his accountant but the Court expresses no opinion on the value of that advice. The distribution of such a large sum to Greysville seems strange. It is not for the Court to decide whether, in all the circumstances, the purchase of the residence was a wise move. It must be remembered these were very heady and exciting times for Ms Fahey and Mr McFadyen. The Comedy Company was a great success. Corporation had a large cash flow and was making large profits. The future looked cosy. The future would look after itself.
In addition, Greysville lent some $100,000 to Corporation to enable Corporation to purchase office equipment including computers. As a result by March 1989 Corporation owed Greysville some $525,000 and Ms Fahey and Mr McFadyen owed Corporation some $425,000.
In May 1989 Greysville purchased a property at Bridport Street, Albert Park, as an office for Ms Fahey, Mr McFadyen and the companies controlled by Mr McFadyen. The purchase price was some $852,000. Greysville paid some $450,000 and borrowed some $450,000 from the ANZ Bank in order to complete the purchase. Greysville gave a mortgage over the Bridport Street office to the ANZ Bank by way of security for money owing to the bank.
It should be noted that all these transactions occurred before judgment was given on 27 July 1989 in proceeding No VG 459 of 1988. It should be noted further that judgment was given in the 1989-1990 tax year.
Corporation continued its activities as a producer during 1989. By the end of the year Corporation had cash reserves of about $400,000. Ms Fahey was pregnant. She could not continue to appear to act the part of Kylie Mole as well as other parts in other segments. Mr McFadyen decided he did not want to continue writing, producing and acting in The Comedy Company. Some difficulties had arisen between Corporation and persons engaged in The Comedy Company. Some were leaving or threatening to leave the program. In about October 1989 Mr McFadyen told Network Ten he would not produce The Comedy Company in 1990 but that he desired to develop and produce other programs. The Comedy Company continued to have high ratings. Network Ten desired to continue with The Comedy Company. Differences of opinion continued between Mr McFadyen and Network Ten. During 1990 Mr McFadyen was planning and developing other programs. He was attempting to sell existing copies of "The Comedy Company" programs to overseas television channels. He was unsuccessful in these attempts. In reality, Corporation had a very bad year in 1990. It received almost no income.
In January 1990 Ms Fahey and Mr McFadyen incorporated Media Arts Productions Pty Ltd ("Productions"). Productions was created to be the company used to produce all future television programs. It was to take over production activities from Corporation.
In April 1990, Stephens Publishing served on Corporation, Ms Fahey and Mr Young its claim for the $640,000 damages based on the undertaking they had given on 23 December 1988.
By the middle of 1990 Corporation had cash flow problems. It had no cash resources but assets in the form of moneys owing to it including money owing by Ms Fahey and Mr McFadyen. It had a number of debts including the moneys owing to Greysville and legal costs to its own solicitor with respect to the litigation. Greysville had been assessed for tax in the order of $390,000 for the year 1988-1989. It paid this tax by borrowing a further sum from the ANZ Bank. As security, the bank required further security. This was supplied by Ms Fahey and Mr McFadyen giving a mortgage in favour of the Bank over their residence at Philipson Street, Albert Park.
In an attempt to restore the financial position of Corporation and to resolve the existing financial problems. Mr McFadyen agreed with Network Ten to produce a new series of The Comedy Company. To give effect to this agreement, a number of separate agreements were entered into. Corporation assigned its property rights in the existing The Comedy Company programs and any copyright it had with respect to them to Publications for $100,000. Some dispute exists as to whether this was an appropriate amount but for present purposes that is of little moment. The $100,000 became a debt owed by Productions to Corporation but was off-set against moneys owing from Corporation to Productions. Corporation sold its office equipment to Productions for $60,000. Again disputes exist as to whether this was proper value but, for present purposes, nothing turns on that. Over a period of some months, most of this debt was paid by Productions to Corporation. Productions agreed with Network Ten to produce for Network Ten 18 one hour episodes of a new series of The Comedy Company. Corporation entered into an agreement with Network Ten to provide Mr McFadyen as a consultant with respect to the new series for which Corporation was to be paid $200,000 by Network Ten over an 18 month period.
As a result of these arrangements, as from the early part of the financial year 1990-1991 Productions was to produce The Comedy Company for Network Ten. Apart from the consultancy fees, Corporation was to receive fees payable to Ms Fahey and Mr McFadyen for the services they provided to Productions with respect to the programs. Productions was to pay Corporation from moneys received from Network Ten. Other activities of a lesser kind were entered into but these can be put to one side. The slump had ended. Good times lay ahead.
There followed the long delay in the hearing of the damages claim by Stephens Publishing. During this period Corporation paid the legal costs owing to its solicitors with respect to the proceeding No VG 459 of 1988. It paid to the then solicitors for Stephens Publishing the costs ordered to be paid by the orders of the Court 27 July 1989. It paid $23,000 to Stephens Publishing pursuant to the consent orders of 17 October 1990. It attempted, unsuccessfully, to negotiate a settlement of the claim for damages by Stephens Publishing. It paid the $10,000 into Court.
Meanwhile, the rosy future for Corporation was disappearing. In mid September 1990 Network Ten was placed in receivership. As a result some $120,000 owed by Network Ten to Productions for episodes of The Comedy Company already delivered was not paid. The agreement by which Network Ten was to pay Corporation $200,000 for consultancy work by Mr McFadyen was not continued and no money was paid to Corporation. Production could not pay Corporation for services provided by MsFahey and Mr McFadyen with respect to the $120,000 not paid to Productions. Productions continued to produce other episodes of The Comedy Company pursuant to an agreement with the receiver of Network Ten. But by the end of 1991 Productions was in debt owing, among other debts, some $100,000 being secured by the Mortgage over the Bridport Street office. Greysville owed about $500,000 to Productions.
The ratings for the new series of The Comedy Company were not good. Network Ten did not renew the contract with Productions to produce the series in 1991. Corporation and Productions had had a bad year in 1991.
Final judgment in proceeding No VG 459 of 1988 was given on 16 November 1991. The legal steps that followed are set out earlier in these reasons. By the end of the year 1991 and the beginning of the year 1992, "The McFadyen Empire" had crumbled.
The property market in Melbourne slumped in 1991. Values of houses and offices had dropped dramatically. Greysville owned the Bridport Street office but owed the ANZ Bank in excess of $400,000. The bank held a mortgage over the Bridport Street office and the Philipson Street residence. Productions owed about $100,000 to the bank and this amount was secured by the mortgage over the Philipson Street residence. It owed moneys to Corporation. To make matters worse, in January 1992 Productions was assessed as owing some $240,000 in company tax to the Commissioner of Taxation. Productions had made no provision to pay that tax.
On 5 December 1991 the Bridport Street office was offered for sale at auction. No offer was made. The possibility of a sale in the future was uncertain. In late January 1992 Mr McFadyen executed what was described as a round robin of cheques. The round robin will be discussed later in these reasons but it produced no cash for the benefit of anybody. The plan sought to be executed by Mr McFadyen was to release the debt owed by Ms Fahey and Mr McFadyen to Corporation. Neither was in fact able to pay that debt. To release the debt owed by Corporation to Greysville and to release the debt owed by Greysville to Publications. It was then proposed to sell the Philipson Street residence, to satisfy part of the debt owing to the ANZ Bank, to sell the Bridport Street office, pay off the balance of the moneys owing to the bank and to use the balance of the purchase moneys to satisfy, as much as possible, the judgment debt owing to Stephens Publishing. For practical purposes, these two properties were the only assets of any value controlled by Mr McFadyen.
This plan seems to have ignored the liability of Productions to the Commissioner of Taxation as well as other debts owed by Productions. It seems to have been assumed that the tax could have been paid by instalments from future programs produced by Productions. It is sufficient to say, none of this happened. Eventually Productions was wound up at the instigation of the Commissioner of Taxation.
The Philipson Street residence was sold on 13 March 1992 for $375,000. This was not sufficient to pay out the debts owed to the ANZ Bank and secured by the mortgage it held over the residence. There is no suggestion that this was not a proper price for the residence.
To complete this part of the drama, Greysville finally sold the Bridport Street office in June 1992 for about $400,000. This was after Corporation went into liquidation on 4 May 1992.
In the meantime many other events were happening, most of which is not relevant for present purposes. Most, if not all, of the cross- examination of Mr McFadyen on these issues was directed to his credibility as a witness. Stephens Publishing had instigated proceedings for the winding up of Corporation. They had served bankruptcy notices on Ms Fahey and Mr Young claiming payment of the sum of the judgment given on 15 November 1991. Negotiations took place between Mr McFadyen and Stephens Publishing to settle the amount of the judgment debt. Nothing came of this but it is noted that Mr McFadyen, as part of the negotiations, offered to pay personally substantial amounts to Stephens Publishing from his future earnings as a writer, producer and actor over a period of some two years.
Corporation was placed in liquidation on 4 May 1992. Thereafter, Mr McFadyen did not control Corporation. The liquidator has not been able to get in any assets in the course of his liquidation of Corporation. It appears that Stephens Publishing is the only creditor of Corporation.
Reference will be made later in these reasons to the round robin of cheques and some other aspects of the case relied on by counsel on behalf of Stephens Publishing.
C. 7. Extracts from transcript of re-examination of Mr McFadyen
What year was this, 1990?---Yes, 1 July 1990. When I caused intellectual property to be transferred to the new company, Media Arts Productions, for a sum of $100,000 I still left in place an asset of $416,000 owed to the company - to Corporations by myself and Maryanne Fahey, plus there was a contract with Channel 10 which would pay to Corporation $200,000 over the next 18 months, which means that the company had assets and a contracted cash flow of $616,000. One year later on 30 June 1991 when the office equipment was transferred for a price of $60,000 I still believed that there was sufficient equity in the properties which we owned for myself and Maryanne Fahey to make good our loan, to pay back our loan to Media Arts Corporation and to offer any other money that was required, bearing in mind that Maryanne Fahey was also an applicant and was also liable the full amount which was claimed, if it were so claimed. The mathematics of that, your Honour, were that in 1989 we had bought property, Maryanne Fahey and myself had bought property both ourselves personally and through the company Greysville to the value of approximately 1.4 million dollars.
That is the house in Philipson Street?---That was the house for $520,000 in Philipson Street and the office in Bridport for $850,000. Now, we were aware, your Honour, that in the second half of 1991 that there had been a fall of property values, but even if I discounted the house from $520,000 to $450 and discounted the office from $850,000 to $650,000 it still gave a total property value of 1.1 million dollars. There was a mortgage in place at that time of approximately $500,000 owed on the house or partially on the house and partially on the office, but even after - if both of those properties were sold, your Honour, after deducting the $500,000 mortgage from 1.1 million it still left, your Honour, $600,000 which was the sum which had been claimed by the respondents. So up until the time of the hearing of the assessment of damages, not only was I confident that we could pay what I and my solicitors and my accountants had - had conjectured maybe the worst case of damages, which we though was around $50,000, even if Sweeney J had awarded the full $600,000, it was my belief at that time that we had the money. Now, we put the office on the market to be sold in December 1991. It was obviously - we knew from the time of the assessment of the giving of judgment on the assessment of damages that we were going to have to sell both properties. It was a - it was too late to put the house on the market in 1991 because it was already 15 November and of course no one buys a house over Christmas. We did put the office on the market immediately, and in fact, for reasons that I have previously testified it was important, in fact, that the office be sold first. The office was put up for auction on 5 December, but attracted no bids at all. I was also - - -
This is already in evidence, is it not?---It's already in evidence, your Honour. But, if I can - - -
So, really, you are really making submissions now, are you not, not evidence?---Well, I'm - I'll - I'll - - -
Anything new at all?---Well, let me just - let me just try and shed some light on the state of affairs when the round robin occurred which was in January. In January, because of the failure of the office to sell and advice I had been given by the estate agents, by the descent - the descent which had occurred in property values, I further revised my expectations of the office price down to $550,000 and I still hoped that we might get $450,000 for the house. What this meant, your Honour, was that if we could free up the debt which was owed from Greysville to - or reduce the debt owed from Greysville to Media Arts Productions that if the office - if the house was sold for $450,000 that would take care of most of the mortgage, which I think was now about $550,000. There would still be $100,000 to pay off the mortgage, we would then sell the office, if we could sell the office for 550, a hundred of that would go to the mortgage, leaving 450 free, of that some $260,000 had to be paid to Productions to pay its tax bill, and it would be $200,000 which could be probably legitimately paid to me as a dividend as a shareholder of Greysville. We never got as far as working out how that might flow to me, but that would allow me to make some kind of settlement with Stephens Publishing. And as I have testified, the round robin of cheques was simply to remove some company inter company loans, but particularly to reduce the very large of 5 - I think it was $550,000 loan from Greysville owed to Productions, so that we could access some of that money. Greysville certainly could not make a distribution or a dividend to its shareholders if it was still in debt. Following that round robin, your Honour, in February that year, there were further developments. Firstly, we were made an offer for the office by the Department of Community Services, the State Government of Victoria. They expressed interest in buying the office and they wished to have a State Government Valuer value the property. Now, they sent in two valuers, your Honour, who both valued the office at Bridport Street in the order of $400,000 - - -
MR KENDALL: Well, your Honour, I do not wish to be unfair to Mr McFadyen, but much of this material has been deposed to in his affidavits. It is not - - -
HIS HONOUR: I think it is, I have got very good recollections of it. Is there anything new here at all ?--- Well, I think what I, yes, well, - - -
Is there anything new here at all. Is this not covered by your evidence already - - -?---Well - - -
- - - in Court?---Well, what I have just said, your Honour, that - that there was a government valuation, but what I am about to say - - -
Then you sold as - - -?---Well, what I'm about to say helps clarify certain questions which were raised about Media Arts Productions potential earnings, and that - and I can say it very swiftly, your Honour, which was that at the same time as we received a government valuation that the office was only worth $400,000, we did receive notification that Channel 10 was prepared to commission another series of the situation comedy we had been doing the previous year. We received an agreement from our overseas distributor that they were prepared to put up some money for another series and I received notice through my partners at Crawfords - Crawfords Australia Proprietary Limited that Channel 7 was interested in pursuing another situation comedy called, Newly Weds. So, up until that time, your Honour, we had no prospect of any future earnings, so the way in which matters changed in February was - I essentially, to not bore you with all the details - was that we had discovered that there was in fact very little equity in the property, but however there were some projects coming up which would offer us the cash flow in 1992, in Productions. Now, in March '92, your Honour, we sold the house for $375,000, which again, was much less.
This again is in evidence before me, is it not?---Yes, that's all before you, and that was the point, your Honour, in March '92 that was the point where I finally, having sold the house, having got a price on the office, and having had some indication of projects for 1992, I was finally in the position to see where we stood financially, and that was the point at which I contacted Mr Philips and said, now I would like to meet with Mr Stephens and discuss a settlement. It took us that long before we really knew what we had to offer.
Really, what you are saying now, made your submissions, rather than evidence?---Yes, your Honour, I'm sorry if I have strayed, I - I'm will try to keep to very hard facts, your Honour. I think you have ruled this matter out, your Honour, but let me say that I did enter into negotiations with Mr Stephens and that I think we have accepted that those negotiations failed. Now I am not sure, your Honour, as to how much I should say about the matter of the bankruptcy of Maryanne Fahey. It was - certain matters have been raised by Mr Kendall as to my role in that bankruptcy and I would like to - - -
You had given your answers in relation to those matter?---Well, there were certain matters which Mr Kendall did not ask which I would like to offer by way of clarification because I think they are - - -
If they are factual matters relating to that issue, yes?---Well, they are. They are material to, I think, the matter of the conspiracy allegation, your Honour. My wife, Maryanne Fahey, was very distressed that an application had been made to bankrupt her in January. We entered into, as soon as I could possibly do so, as soon as I had a fair idea of what our financial position was, I entered into negotiations with Mr Stephens. There was a series of meetings. There was a sum which I offered to pay of $150,000 and Mr Stephens drew up that - - -
Which series are you talking now? These are the March, April discussions or February, earlier?---This is in - the first meeting was on 29 March. There was a further meeting on - - -
Yes, we have been through all this before?---Yes, we have been through all this, and there was a meeting on 5 April. On 5 April and on the following day, 6 April, and I questioned Mr Stephens about this when he was in the stand and it is in Mr Stephens' affidavit, Mr Stephens imposed a series of conditions. My wife's, Ms Fahey's reaction was that we could not meet those conditions and that was my belief too. There were - we had no problem with the financial disclosures but the disclosure of intellectual property was physically impossible. My wife at that point said that she would rather declare bankruptcy herself rather than suffer the indignity of being forced into bankruptcy by a creditor's petition and she went to Mr B.K. Taylor who we had been referred to by, I believe by Mr Roseby - it might have been Mr Wyatt but I think it was Mr Roseby - and as I understand it she did the paperwork to declare her bankruptcy. I entreated her to wait until we could negotiate a bit further. I said I was - - -
I do not want the details?---Yes
I do not want details?---All right. Well, I tried to persuade her not to do it so she delayed. She filled out those forms on 8 April but she did not lodge them immediately. I said, look, give me two or three weeks. In those two or three weeks, your Honour, there was - as is in the court book - a number of letters went to and fro between Mr Phillips and Mr Stephens seeking a way around the impasse of these conditions.
- - - - - - - -
... Your Honour, Mr Kendall, in his cross-examination, put the question to me as to whether the events which happened to these companies, the creation of new companies and the transfer of assets and the round robin would have occurred had the Stephens Publishing case never come up, and I said, yes, they would have with the exception of the round robin. I would like to amend my testimony now, your Honour. On reflection overnight I must say that all of the events, even the round robin, would have occurred even if there had been no Stephens Publishing case. The round robin would have occurred but for a totally different reason. It would have occurred to get rid of the large beneficiary's loan from Corporation to Greysville. Mr Kendall asked could not Media Arts Productions have lent money to Media Arts Corporation to pay the judgment debt to which - and I never quite got to answer that question, your Honour. The answer is, your Honour, that Media Arts Productions could not lend any money because itself was in over $100,000 in debt throughout the first part.
You mean its credit - its bank account shows it in debit?---It's bank account showed it in debit up until May 1992. However what I wish to say, your Honour, was that if Media Arts Productions could have lent the money it certainly would have because it was my most avowed purpose at that time, your Honour, not to let my wife be publicly bankrupted. Mr Kendall also asked could Media Arts Corporation have paid the judgment debt if it had not transferred its intellectual properties to Productions in 1990, to which the answer is, no. If we play this game, your Honour, of if not and imagine that Media Arts Corporation had simply continued to be the Production company we must assume that the same problems which befell Media Arts Productions in 1991 would have befallen Media Arts Corporation. In other words, if Media Arts Productions was $100,000 in debit at the end of 1991, if Media Arts Corporation had conducted the same business, it must have been, it would have been in debit $100,000 at the end of 1991.
This is argument, is it not?---Yes, well, it is a response to a question which Mr Kendall put to me which I was not able to answer fully. I doubt - I question myself, your Honour, the virtue of such hypothetical conjectures. The thing I think that it turns on, your Honour, is that in 1991 neither Media Arts Corporation nor Media Arts Productions had any capacity of themselves to pay the debt. The Assets which, as a group, myself, Maryanne Fahey and the three companies had, were vested in the property. $1.4 million was vested in property and we relied on that, your Honour, even allowing what we thought was a reasonable downturn in values we still believed it was in the property.
Again, it is all argument this?---I am sorry, your Honour. Sometimes it seems to go into the realm of argument, your Honour, because I am testifying to what was in my mind at the time because much of Mr Kendall's allegations are to do with my intentions and Mr Kendall has made many allegations in relation to me being concerned and apprehensive and making certain plans arising out of that and I am at pains to testify that I was not concerned.
You have said on several occasions that you considered this judgment debt or the contingent liability of a judgment debt as not of major importance?---It was, it was - - -
Your concern was with the companies and keeping them going?---Yes, your Honour. We had other problems - - -
And changing over the possibilities from the Production separately from the trust company?---Yes.
You have said it time and time again and implicit in that questions of intention to arise?---Yes your Honour.
But you have denied any intention - - -?---I've denied any intention to deprive - - -
- - - to deprive Stephens Publishing of payment?---To contrive to deprive.
Yes?---Your Honour, when I was asked yesterday as to what other companies I had been involved with and I forgot one and the one which I forgot was a company called Media Arts Video which I set up in 1992 which was a video editing facility and that I owned in partnership with someone else for about a year and then I allowed them to buy me out. So the total picture, your Honour, of the companies which over time were operated there was, of course, Media Arts Corporation as the trustee of the family trust. There was Media Arts Productions which was a television production company. Business Arts which was a company set up to produce training films. There was Media Arts Video which was a tape, video tape editing facility. There was Diamond Mist, later called Media Arts International, which was a distribution company. There was a company called Pastel Wave Pty Limited which was to be called - Pastel Wave - these are these shelf company names, your Honour - which was to be later called Media Arts Developments and that company was set up to create new projects and it owned units or shares in two other companies, Cooper's Inn Pty Limited, which was a hotel, and Crawford Media International, which was a joint venture with Crawfords Australia. Your Honour, the point of all that is that - - -
You have left out some other companies I think too ...(indistinct)...?---Look, there were others - well, there others which were set up after the liquidation of productions and corporation.
I am thinking more of Greysville?---Well, I am sorry, Greysville was set up as an investment company and a beneficiary of the Family Trust. So that was the real estate arm.
And also the one that bought the house in Murray Street?---And while - well, yes, subsequently, your Honour, a new family trust was set up in 1992 with the trustee of Whiteclassic and subsequently after they were all - several of these - after the production company was extinguished and Media Arts Corporation was extinguished, a company of Media Arts Television, which was set up - which is the current operating company run by my family, your Honour. The - - -
When you say, "family", I am not too sure what you mean by that?--- Well, I mean by my wife and my daughter and my mother who are the shareholders and directors.
Your daughter by another marriage is it?---Sorry.
Your daughter. How old is your daughter?---She is 23, your Honour.
You have been married three times I take it have you?---I have been married, yes, three times, your Honour.
And the daughter, the 23 year old, is from the first marriage?--- She's from a first marriage. I have two sons from the second marriage and I have two daughters, young daughters, from my current marriage, your Honour. Your Honour, the point of all that was that all of these companies had specific purposes within the group of companies. They all were set up for - - -
How old are you?---I am 47, your Honour.
47, yes?---In general, your Honour, the way in which these companies worked was that Media Arts Corporation, which was the original company that I set up, created works, your Honour. It created programs. It created business ideas and so on. And when any of those ideas seemed that they were promising enough to sustain their own enterprise, a new company was created to handle that enterprise so that a company was created to handle business films. We had - had we pursued publishing we would have set up a publishing company. They were set up because there were often different partners involved, as in Business Arts and Crawford Media and Media Arts Video were all companies set up with other people who wished to form partnerships with us. So it was just a situation that there was a production company and then another production company was set up and everything was transferred to that. In fact, Media Arts was growing more enterprising - Media Arts Corporation was in fact presiding, like a governing body, your Honour, over a number of enterprises which it was spawning off around it. Now, under my present circumstances, your Honour, this may seem far fetched. But in the heady days of 1988 and 1989 and even 1990 this was not far fetched. We had had a very successful program. We were being sought after by many people for future projects and I was what would be called a bankable producer. And we did in fact, in a flurry of activity over those years, spawn many new businesses. And that is what we were in the business of doing. 1991 obviously was a very bad year for us. Our empire started to crumble in that year. Mainly due to the receivership of Channel Ten, but also due to the fact that the third series of Comedy Company, which I had not wanted to produce but I had done for purely financial reasons, had not rated. It had been a failure and my stocks as a bankable producer had sunk rapidly. However, we made a recovery in 1992 where a lot more projects came on the horizon. So we briefly made a recovery. However, towards the end of 1992 another wave of problems - which we haven't even addressed in this hearing, your Honour, which I don't wish to go into - eventually put an end to Media Arts Productions. So it kind of went steeply, stumbled, made a brief recovery and then petered out altogether. But despite these unfortunate outcomes, your Honour, at the time it would have been most remarkable if we were not creating new companies to deal with all the various works that were coming in. And I reiterate, your Honour, that it was absolutely unthinkable that we should continue to run a three - company with a turnover of over $3 million a year through what was our Family Trust. I imagined, though he had not - - -
We are now getting very much on to argument again?---I had in my mind at the time, your Honour, I think that - not knowing that he was yet to be discredited, a structure very much like Bond Corporation where you had Bond Corporation and then there was the private company of Dalhold which was the Bond family instrument. That was the sort of separation which I felt should be between corporation and all these other entities.
C. 8. The round robin of cheques
On 31 January 1992, Mr McFadyen organized a round robin of cheques. The round robin did not result in the creation of cash, except possibly to the banks. No cash was generated which could have been paid to Stephens Publishing in settlement of its judgment debt. The round robin was designed to re-allocate debits and credits between the parties to the round robin. In fact no cash was transferred between the parties. The clearance of each cheque depended upon the receipt and clearance of the equivalent cheque until the circle was done. Hence the round robin in the form of a complete circle.
One of the steps in the round robin was a cheque for $425,000 from Corporation to Greysville. Stephens Publishing claimed this constituted a preference and that it rendered Corporation presently unable to pay the judgment owed to Stephens Publishing in the sum of $269,149. This was relied upon by Stephens Publishing as the basis for the causes of action relied on against Mr McFadyen.
There is a flaw in this line of reasoning. On the material before it, the Court is not satisfied that at any relevant time Corporation had the capacity to pay the judgment debt. To some extent, this is supported by the fact that the liquidator of Corporation took no action to have the transaction set aside or declared void as against him. If Corporation had the assets, there is no apparent reason why proceedings of that kind could not have been taken by the liquidator, supported, if necessary, by Stephens Publishing. The same comment can be made with respect to Ms Fahey. Before the date of the round robin, Stephens Publishing had served on Ms Fahey a bankruptcy notice based on the judgment debt. If Ms Fahey had the assets to satisfy that debt, it would have been expected that the trustee in bankruptcy would have pursued his or her rights under the Bankruptcy Act 1966 .
The round robin must be considered in the context of the relevant facts. These have been set out. In mid November 1991 the judgment debt came into existence. The debt was imposed on Corporation and Ms Fahey, as well as Mr Young. Almost immediately (17 November) Stephens Publishing caused a demand under section 460 of the Corporations Act based on the judgment debt to be given to Corporation. This was a formal step designed to establish that Corporation was insolvent. It appears it was insolvent. On 22 January 1992, Stephens Publishing served a bankruptcy notice on Ms Fahey requiring her to pay the judgment debt of $269,149.
At that time, Corporation was the trustee of the McFadyen Family Trust. It did not have any substantial assets. Ms Fahey and Mr McFadyen owed it the amount lent to them to purchase the Philipson Street residence. They had no assets to pay that debt. On one view, the beneficiaries of the family trust may have been liable to pay; see the discussions of the relevant principles in Dimos v Dikeakos Nominees Pty Ltd (No VG 3394 of 1995, unreported). But it appears the beneficiaries had no assets to pay the debt.
From all of the material before it, the Court finds that Ms Fahey had no capacity to pay the judgment debt. She had a half interest as tenant in common of the Philipson Street residence. She and Mr McFadyen had borrowed the full amount of the purchase price for this residence. They owed that amount to Corporation which in turn owed a greater amount to Greysville. In any event, the ANZ Bank held security over the residence for moneys owed by Greysville and Productions. Productions was in financial difficulties, including the debt to the Commissioner of Taxation, but was continuing its production activities and receiving income. In all probability Productions was insolvent but hoped to trade its way out of its financial difficulties.
The Court accepts the evidence of Mr McFadyen that the round robin was designed in an attempt to find some "cash" which could be used to pay, at least in part, the judgment debt of $269,149.00. The Court accepts his evidence that without the round robin, no part of the judgment debt could be paid. Mr McFadyen wanted to continue his business activities and to that end used moneys received by Productions to help pay out the judgment debt, the tax liability of Productions and the other debts of Productions. He acted on the advice of his accountant. The round robin was designed to rearrange the rights and liabilities of the persons controlled by Mr McFadyen.
Greysville was a beneficiary of the family trust but was being used as an investment company. It does not appear to have received the tax benefits it had sought by becoming a beneficiary under the family trust. It had purchased the Bridport Street office, but owed large sums to the ANZ Bank and to Productions.
The round robin was arranged by Mr McFadyen. One of its primary purposes was to release Greysville from its debt owing to Productions. At the same time, the debts owed by Ms Fahey and Mr McFadyen to Corporation were released. These arrangements were considered by Mr McFadyen as the only way by which moneys could be obtained to pay in part the judgment debt owed to Stephens Publishing.
The steps taken in the round robin can be set out. This is best done by reference to a diagram. The transactions all took place on the one day, 31 January 1992, with the consent of the banks. The banks appear to have received their commission for so acting by the discrepancies between the amounts received and expended. For ease of understanding, the diagram commences with the cheques drawn by Productions in favour of Ms Fahey and Mr Mc Fadyen. The circle is completed by reference to the same transaction after Productions' account is put in funds. The diagram is:-
Productions -> Fahey - $200,000
_ $420,000
Productions -> Mc Fadyen - $220,000
Fahey -> Corporations - $199,000
_ $416,982
McFadyen -> Corporations - $217,982
Corporations -> Greysville - $425,000
Greysville -> Productions - $425,000
The Court does not draw the inferences sought to be relied upon by Stephens Publishing by reference to the round robin. In coming to this conclusion the Court acknowledges that on 1 February 1992, Greysville replaced Corporation as the trustee of the McFadyen Family Trust and that at the end of the 1991-1992 financial year Productions released Ms Fahey from her debt of $200,000. The Court accepts the explanations given by Mr McFadyen and as summarized in these reasons under the heading "Extracts from transcript of re-examination of Mr McFadyen".
C. 9. General comments
By now, it is apparent that the Court will dismiss the application because Stephens Publishing has failed to prove essential elements of the causes of action relied upon. During the hearing, extensive submissions were made on a large number of legal principles, but the Court does not need to express any opinion on those submissions. The Court did not have the assistance of legal submissions contrary to those put on behalf of Stephens Publishing. Nevertheless some comments of a general nature are made.
Counsel for Stephens Publishing sought to establish the existence of a contract, or an equitable duty, arising out of the "usual undertaking as to damages" given to the Court by Corporation on 23 December 1988. Counsel asserted there were a number of implied terms of the agreement namely:
"(a) Media Arts would not without the prior leave of the Court or the Applicants take any action, other than in the ordinary course of its business, which would have the effect of rendering it permanently unable to comply with the damages undertaking;
(b) Media Arts would do all things necessary to give efficacy to the agreement;
(c) Media Arts would not take any action intended to have the effect or which would have the effect, of rendering it permanently unable to comply with the damages undertaking;
(d) Media Arts would not dispose of its assets or increase its liabilities other than in the ordinary course of its business.
(e) Media Arts would not make any disposition of any of its assets other than in the ordinary course of its business the predominant purpose of which would be to deprive the Applicant of the opportunity of satisfying any order that may be made by the Court pursuant to the undertaking."
On the material before it, the Court is not satisfied there was an agreement with the implied terms alleged by Stephens Publishing. The undertaking was given to the Court. It is a discretionary matter for the Court to determine whether the undertaking is to be given or not. Where an interlocutory injunction is granted, the Court normally requires the plaintiff to give the usual undertaking as to damages. This does not depend upon any agreement between the parties. An undertaking given by a defendant is in the nature of an injunction. The Federal Court should not accept an undertaking in a form in which it has no power to grant an injunction. Generally see Thomson Australian Holdings Pty Ltd v The Trade Practices Commission [1981] HCA 48; (1981) 148 CLR 150 especially per Gibbs CJ, Stephen, Mason and Wilson JJ at 164:
"This brings us to a consideration of the appellant's challenge to the acceptance by the Court of the undertakings proffered by the defendants. The power to accept and to enforce an undertaking is, as Deane and Fisher JJ. observed, "an invariable attribute of a superior court whose proceedings are protected by rules relating to contempt of court and is inherent in the grant of jurisdiction to grant injunctive relief". An undertaking to the court is given in lieu of an injunction and, if broken, is treated as the equivalent of an order for the purpose of enforcement; it may therefore be enforced in the same manner as an injunction - Milburn v. Newton Colliery Ltd ((1908) 52 Sol. Jo. 317); London and Birmingham Railway Co. v. Grant Junction Canal Co. ((1835) 1 Ry. & Can. Cas. 224, at p.241); In re National Federated Electrical Association's Agreement ((1961) L.R. 2 R.P. 447, at p.452); Biba Ltd. v. Stratford Investments Ltd. ([1973] Ch. 281, at pp. 285-287).
As an undertaking is given in lieu of an injunction and is enforceable in like manner, the principles which govern the grant of an injunction by a court must guide it in deciding whether it should accept an undertaking. Limitations which affect the court's jurisdiction or power to grant a final injunction must be observed in the acceptance of an undertaking when it is offered as a substitute for a final injunction. The court cannot escape such limitations by the expedient of accepting an undertaking in lieu of an injunction. The court cannot put itself in the position of enforcing conduct which it has no capacity to command or compel. No doubt the Federal Court has power to accept an undertaking at an interlocutory stage when the undertaking is reasonably related to the orderly procedure of the Court or to the subject matter of the litigation, as Deane and Fisher JJ. observed, even though it is not in a form which falls within s. 80. But, with great respect to their Honours, this does not justify the conclusion that the Court has power to accept an undertaking by way of final disposition of the case when the Court lacks power to make a final order in that form and the effect of the undertaking is to restrain conduct which the Court has no power to restrain.
In general the court must, in deciding whether it will accept from a defendant an undertaking to which the plaintiff takes no exception, be guided by the principles which apply to the making of a consent injunction, principles which we have already discussed. As in the case of a consent order, there is no reason for thinking that the court should as a matter of discretion refuse to accept an undertaking merely because it will cause damage to a third party who is a defendant, if it involves no infringement of that party's rights, and it is within power, capable of enforcement and in conformity with legal principle."
The undertaking given by the applicants in proceeding No VG 459 of 1988 was given to the Court to pay Stephens Publishing such "compensation (if any) as the Court thinks just, in such manner as the Court directs". The undertaking operates as an admission of liability by an applicant if the respondent makes a claim for damages. There was nothing unusual in the manner in which the usual undertaking as to damages was given by the applicants. There was no suggestion that any of them could not pay damages, in fact it was known that Corporation was engaged in the production of The Comedy Company, was receiving substantial revenue from that activity and had substantial assets. For present purposes, the fact that it was the trustee of the McFadyen family trust was of no relevance. The evidence does not establish that agreement as alleged. In any event, any breach of the implied terms is not established. Further, no consideration is given to the question of any rights in any agreement becoming merged in the judgment for damages.
At one stage, counsel for Stephens Publishing went as far as contending that the undertaking to pay was in the nature of an injunction to actually pay the amount of damages determined with the result that the failure to pay constituted a contempt of court with all the consequences flowing therefrom. No authority was referred to in support of this contention and it is rejected. Counsel suggested also that having regard to the nature of the undertaking, non-payment of the damages could be enforced by imprisonment but again no modern authority was relied upon to support this contention. Relics of imprisonment of debtors should not be re-introduced under guise of contempt of court.
Similar considerations apply with respect to the actions taken by Mr McFadyen. The evidence does not support the claims against him of intentionally, knowingly, with the purpose of or with the motive of inducing Corporation to breach the contract or the equitable duty, if the latter existed. The same applies with respect to the claim for conspiracy.
In many respects, the hearing took on the appearance of a royal commission into the activities and state of mind of Mr McFadyen. This arose because of the fact that Mr Mc Fadyen was not represented, the difficulties of proving the mental state of Mr Mc Fadyen and the degree of ill will that had been engendered, rightly or wrongly, on the part of Stephens Publishing. In many respects it appeared that the legal advisers of Stephens Publishing, at the time of the hearing, had become too closely connected with Stephens Publishing and, in the absence of legal representation of the opposing party, the attack on Mr McFadyen went much further than would be expected under normal circumstances.
This latter aspect can be illustrated by reference to the time spent on investigating actions by Mr McFadyen after the end of January with respect to other transactions including the acquisition of other residences first with Ms Fahey and later with other persons. This was said to go to credit. The amounts provided by Mr McFadyen were small. None of this investigation assisted the case for Stephens Publications. If anything the evidence supported the view of the Court that Mr McFadyen was a witness of truth who had been caught up in events beyond his capacities to cope with and in circumstances where the advice he was receiving may have been flawed.
C. 9. Conclusion
In the result, the application No VG 195 of 1993 must be dismissed with costs.
I certify that this and the previous
sixty (60) pages are a true copy of the
Reasons for Judgment of the Honourable
Justice R.M. Northrop.
Associate:
Date: 6 March 1997
ATTACHMENT
Counsel for the applicant Mr R Kendall
Solicitors for the applicant Stephens Solicitors
Counsel for the respondent Respondent appeared in person
Solicitors for the respondent Respondent appeared in person
Dates of hearing: 12-14, 18-20 March 1996, 15, 17, 23 April 1996
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