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Federal Court of Australia |
Last Updated: 10 March 2003
Australian Competition & Consumer Commission v World Netsafe Pty Ltd [2003] FCA 159
HIGH COURT AND FEDERAL COURT - whether O 37 r 2 of the Federal Court Rules is invalid - whether contempt proceedings in the Federal Court are bound by O 41 r 5 and O 42 r 31(1) of the Rules of the Supreme Court Judicature as those rules stood in England in 1903 - whether it is necessary to prove beyond reasonable doubt that a debtor is capable of satisfying a refund order before they can be held in contempt of that order - whether the Debtors Act 1869 (England) has application to contempt proceedings in the Federal Court - whether a director is exposed to assessorial liability for contempt by a company merely by failure to take reasonable steps to prevent a breach by that company
Trade Practices Act 1974 (Cth) ss 52, 53, 57, 58, 59, 61, 163A
Evidence Act 1995 (Cth) s 128
Federal Court of Australia Act 1976 (Cth) ss 31, 47
Judiciary Act 1903 (Cth) s 24
Debtors Act 1869 (England)
Federal Court Rules O 24 r 1A, O 35 r 7, O 37 r 2, O 40 r 6
Supreme Court of Judicature Rules O 41 r 5, O 42 r 31
AMIEU v Mudginberri Station Pty Ltd [1986] HCA 46; (1986) 161 CLR 98 followed
Witham v Holloway [1995] HCA 3; (1995) 183 CLR 525 followed
Consolidated Press Limited v McRae [1955] HCA 11; (1955) 93 CLR 325 followed
Australian Consolidated Press v Morgan [1965] HCA 21; (1965) 112 CLR 483 cited
Re Plumbers and Gasfitters Employees' Union of Australia (1987) 72 ALR 415 followed
Re Agreement of The Mileage Conference Group of the Tyre Manufacturers' Conference Ltd [1986] 1 WLR 1137 referred to
Re Kolina ex parte Torney (1999) 200 CLR 385 cited
Heatons Transport v T.G.W.U. [1973] AC 15 referred to
Attorney-General v Edmunds (1870) 22 LT 667 referred to
Attorney-General v Randall [1944] 1 KB 709 referred to
Buckley v Crawford (1893) 1 QB 105 referred to
Nesom v Metcalfe [1921] 1 KB 400 approved
AUSTRALIAN COMPETITION AND CONSUMER COMMISSION v WORLD NETSAFE PTY LTD (ACN 087 515 848) and TERENCE BUTLER
No Q 297 of 1999
SPENDER J
BRISBANE
6 MARCH 2003
IN THE FEDERAL COURT OF AUSTRALIA |
|
QUEENSLAND DISTRICT REGISTRY |
|
1. The matter be listed for orders and further directions at 10.15 am on Friday 14 March 2002.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA |
|
QUEENSLAND DISTRICT REGISTRY |
|
BETWEEN: |
AUSTRALIAN COMPETITION AND CONSUMER COMMISSION APPLICANT |
AND: |
WORLD NETSAFE PTY LTD (ACN 087 515 848) TERENCE BUTLER SECOND RESPONDENT |
JUDGE: |
SPENDER J |
DATE: |
6 MARCH 2003 |
PLACE: |
BRISBANE |
1 The Australian Competition and Consumer Commission ("the ACCC") seeks orders committing Mr Terence Butler to prison for his alleged contempt of interlocutory orders made by Cooper J on 27 January 2000 and final orders which I made on 8 December 2000 against Mr Butler for contraventions of the Trade Practices Act 1974 (Cth) ("the Act"). The ACCC also seeks that Mr Butler pay the costs of this motion to commit, on an indemnity basis.
Scheme
2 Both the interlocutory and final orders were in relation to conduct involving the marketing of an electronic card, the WorldNetsafe ATTM card ("the card").
3 Mr Butler was the sole shareholder and director of World Netsafe Pty Ltd ("World Netsafe").
4 There were two central aspects of the scheme which World Netsafe marketed, and in which Terence Butler was intimately concerned. Both involved contraventions of the Act.
5 First, the scheme was a clear referral or pyramid selling scheme. The promotional material used to market the scheme made it plain that a particular member could generate income by introducing others. A brochure to promote the card said:
"What sets the World Netsafe ATTM card apart from any other system in the world is the ability to generate income for the cardholder. When a member introduced by you, purchases teleminutes on the card and redeems them for goods and services worldwide, the member will receive at the time of the transaction a percentage (paid in teleminutes) paid directly into their account."
The evidence before the Court indicated that more than $4,178,000 was paid to World Netsafe in respect of the sales of "platinum cards".
6 The second central feature of the scheme was the misrepresentations about what the card could do. It was said that the card could be used at ATMs and POS terminals worldwide; was associated with an account managed by Chase Bank and Australian banks through which money could be deposited onto it; operated on software soon to be certified by Price Waterhouse; had been cleared or approved by Australian regulatory authorities; that arrangements had been made for members of the World Netsafe scheme to earn income from transactions made by other cardholders who they had introduced to the scheme; that arrangements had been made so that the card could be used to make cheap telephone calls anywhere in the world; and finally, that arrangements had been made so that the card would record "teleminutes", a universal currency which was convertible to any currency.
7 While the respondents may have hoped all of these features would come about, in fact the card did not possess any of these features at the time of its marketing. A large number of people were induced to pay money, both by the pyramid selling income streams and by these features which the card was represented as having. The marketing of the card as part of a scheme whereby participants would gain financial reward by introducing new participants constituted a contravention of ss 52, 53(aa), 53(c), 53(d), 57, 58, 59, and 61 of the Act.
8 On 1 November 2001, the ACCC filed a statement of charge pursuant to O 40 r 6 of the Federal Court Rules. An amended statement of charge was filed on 12 April 2002.
9 Counts 1 to 6 of this statement of charge allege a failure by Mr Butler to make refunds of monies paid by specific persons who participated in the scheme, as required by par 10 of my orders of 8 December 2000. That order was:
"The First and Second Respondents refund within 28 days of the making of this order any monies paid to the First or Second Respondents by each person participating or who has participated in the World Netsafe Scheme at any time whether in Australia or elsewhere, after deducting any monies paid to that participant by the First or Second Respondent in respect of their participation in the World Netsafe Scheme."
10 Counts 7 and 8 of the statement of charge set out specific conduct allegedly in contravention of par 1 of the orders of Cooper J of 27 January 2000. That order was:
"Until trial of the action or earlier order, the first respondent and the second respondent, by themselves, their servants or agents or otherwise, are restrained from:(a) attempting, in the promotion and operation of a scheme carried on under the name or style of `World Netsafe' being the scheme as pleaded and particularised in paragraph 7 of the amended statement of claim (`the Scheme'), to induce persons to become members of the Scheme by paying to the first respondent US$1,500 or AUD$2,389 by holding out to those persons the prospect of receiving payments or other benefits of the type particularised in sub-paragraphs 7(i) and 7(j) of the amended statement of claim by the introduction of other persons who become members of the Scheme;
(b) representing for the purpose of inducing a person to make a contract to acquire membership of the Scheme or to acquire a card described as a `World Netsafe ATTM Card' or other goods or services upon becoming a member of the Scheme, that after making such a contract to acquire membership or to acquire the said card or other goods or services upon becoming a member, the person in return for assisting the first respondent to supply goods or services to other persons would be paid a commission payable on the event of those other persons acquiring goods or services from the first respondent."
11 Count 9 of the statement of charge sets out a breach of par 6 of my orders, which breach is admitted by Mr Butler. That order was:
"The First and Second Respondents at their expense maintain the websites:a. http://www.worldnetsafe.com; and
b. http://www.worldnetsafe.com.au
and publish on the whole of the home page thereon the Notice at Schedule B (`the Notice'), as an htm page into the frameset of the homepage of World Netsafe in the same dimensions and layout as specified by the Applicant so that the htm page dominates the whole page of the homepage, providing a hotlink thereon to the web address http://www.accc.gov.au continuously for 6 months commencing forthwith."
12 Count 10 of the statement of charge is based on par 7 of my orders of 8 December 2000. That order relevantly was:
"World Netsafe Pty Ltd and Terence Butler at their expense publish the Notice by forwarding it forthwith:...
(b) by the postal service to all past and current members of the World Netsafe Scheme, a copy of the notice and a list of the names and addresses of the persons to whom it was sent being served immediately thereafter upon the Applicant."
The essence of the claimed breach of this count is not a failure to send the notice by post to all past and current members of the World Netsafe scheme, but is based on a claimed failure to serve immediately thereafter upon the ACCC a copy of the notice and a list of the names and addresses of the persons to whom it was sent. The ACCC alleges that no copy of the notice or a list of the names and addresses of the persons to whom it was sent had been served upon the ACCC at any time subsequent to 8 December 2000.
13 Count 11 of the statement of charge is based on par 12 of my orders of 8 December 2000, namely that :
"World Netsafe Pty Ltd and Terence Butler deliver forthwith to the Applicant particulars of each person participating, or who has participated in the World Netsafe Scheme at any time whether in Australia or elsewhere including:(a) the name and address of the person;
(b) the date the person joined the World Netsafe Scheme;
(c) the amount the person paid to the World Netsafe Pty Ltd, including any moneys held in trust;
(d) the designated number of any card paid for by the person;
(e) where World Netsafe Pty Ltd has paid any moneys to the person, the date, amount and purpose of each payment."
14 The breach by Mr Butler of this order is said to be constituted by the fact that he delivered documents purportedly in response to par 12 of the order, which were constituted by a table containing a list of certain World Netsafe members (the "Member List"), bundles of documents entitled "Release and Discharge", and documents relating to alleged payment of refunds by World Netsafe. This bundle was made up of forms entitled "Refund Request Form" and "Cheque Requisition", and bundles of signed pro forma letters of complaint to the ACCC (the "Material").
15 The second part of the statement of charge deals with Mr Butler's culpability for breaches by the first respondent, World Netsafe, of the orders of Cooper J. The first three counts of this part of the statement of charge relate to conduct and representations made by Mr Lindsay Birth, said to be an agent of World Netsafe, on or about 21 March 2000 at Level 11 of the Christie Centre in Brisbane. The ACCC asserts that Mr Butler is liable for the conduct of World Netsafe by its agent Mr Birch, because he is the sole director and shareholder of World Netsafe, he was aware of the orders made by Cooper J, he was aware of the conduct of agents of World Netsafe and failed to take any reasonable steps to ensure that the orders of Cooper J were obeyed, and he authorised the establishment of facilities for the receipt of monies paid by persons induced to become members of the Scheme.
16 On 13 December 2001, following a successful motion by counsel for the ACCC, an enforcement hearing in relation to refund orders took place before Deputy District Registrar Reynolds. This hearing was limited to an examination of World Netsafe's capacity to meet the orders made by Cooper J and myself. Mr Butler made a blanket claim for immunity from answering questions, on the basis that contempt proceedings had been instituted against him by this time and information given in respect of the enforcement proceedings could be used in the contempt proceedings.
17 It is not disputed by the parties that Mr Butler could claim immunity, or that if Mr Butler had responded to questions relating to his financial position, his answers may have tended to prove that he had or did have the means to comply with order 10 of my orders of 8 December 2000. Similarly, the applicability of s 128 of the Evidence Act 1995 (Cth) was not contested. On this basis, Mr Butler's immunity from self-incrimination was recognised by DDR Reynolds. However, the parties fundamentally disagreed as to the elements that had to be proved in the contempt proceedings with which I am presently concerned.
18 It is common ground that the ACCC must establish that Mr Butler had notice of the terms of the orders and did not comply with them. However, Mr P.L. O'Shea SC, Senior Counsel for the ACCC submitted that that was all that had to be shown, whilst Mr M.M. Stewart SC, Senior Counsel for Mr Butler contended that the ACCC must also establish that Mr Butler had, at the relevant time, assets or means capable of being used to satisfy the orders for refund of monies.
Law
19 The Federal Court has power, pursuant to s 31(1) of the Federal Court of Australia Act 1976 (Cth) ("the Federal Court Act") and s 24 of the Judiciary Act 1903 (Cth) ("the Judiciary Act"), to punish for civil and criminal contempts: AMIEU v Mudginberri Station Pty Ltd [1986] HCA 46; (1986) 161 CLR 98 at 105-106 ("Mudginberri").
20 Section 31(1) of the Federal Court Act provides:
"Subject to any other Act, the Court has the same power to punish contempts of its power and authority as is possessed by the High Court in respect of contempts of the High Court."
21 Section 24 of the Judiciary Act provides:
"The High Court shall have the same power to punish contempts of its power and authority as is possessed at the commencement of this Act by the Supreme Court of Judicature in England."
22 We are here concerned with alleged disobedience of civil orders of the Court. However, as proved contempt results in punishment, all contempt proceedings are criminal in nature, with the result that the criminal standard of proof applies (Witham v Holloway [1995] HCA 3; (1995) 183 CLR 525 at 534 and 548). Consequently, the facts relied upon to make out the contempt must be proved beyond reasonable doubt (Consolidated Press Limited v McRae [1955] HCA 11; (1955) 93 CLR 325 at 333), the terms of the order said to be breached must be clear and ascertainable (Australian Consolidated Press v Morgan [1965] HCA 21; (1965) 112 CLR 483 at 492 and 503; Re Plumbers and Gasfitters Employees' Union of Australia (1987) 72 ALR 415 at 424) and the breach must have been wilful, not accidental or unintentional (Mudginberri at 111-113).
23 In Re Agreement of The Mileage Conference Group of the Tyre Manufacturers' Conference Ltd [1986] 1 WLR 1137 at 1162, it was held that breaches may be wilful:
"... even though it were to be shown that they were things done, reasonably and [with] all due care and attention, in the belief, based on legal advice, that they were not breaches."
24 This approach was cited with approval by Gibbs CJ, Mason, Wilson and Deane JJ in the High Court in Mudginberri at 112-113, who added the comment:
... lying behind punishment for a contempt which involves wilful disobedience to a court order, is the very substantial purpose of disciplining the defendant and vindicating the authority of the court."
and:
"... a deliberate commission or omission which is in breach of an injunctive order or an undertaking will constitute such wilful disobedience unless it be casual, accidental or unintentional."
25 So too, the House of Lords in Heatons Transport v T.G.W.U. [1973] AC 15 at 109 said:
"... the party in whose favour an order has been made is entitled to have it enforced, and also the effective administration of justice normally requires some penalty for disobedience to an order of a court if the disobedience is more than casual or accidental and unintentional."
26 It is convenient at this stage to deal with the extent of requirements as to service of orders in respect of which contempt is alleged, and as to any requirement for a penal endorsement such as is referred to in O 37 r 2(3) of the Federal Court Rules.
27 Order 37 rule 2 of the Federal Court Rules provides:
"(1) Subject to the Rules, an order shall not be enforced by committal or sequestration unless:(a) the order or a certified or office copy thereof is served personally on the person bound; and
(b) if the order requires the person bound to do an act within a specified time, the order or a certified or office copy thereof is so served before that time expires.
(2) Subject to the Rules, where the person bound by an order is a corporation or organisation the order shall not be enforced by committal of an officer of the person bound or by sequestration of the property of an officer of the person bound unless, in addition to service under sub-rule (1) on the person bound:
(a) the order or a certified or office copy thereof is served personally on the officer; and
(b) if the order requires the person bound to do an act within a specified time, the order or a certified or office copy thereof is so served before that time expires.
(3) An order or a certified or office copy thereof served under this rule must bear a notice (naming the persons concerned) that the person served is liable to imprisonment or to sequestration of property if:
(a) where the order requires the person bound to do an act within a specified time, the person bound refuses or neglects to do the act within that time; or
(b) where the order requires the person bound to abstain from doing an act, the person bound disobeys the order.
...
(5) Where a person liable to committal or sequestration of his property by way of enforcement of a judgment or order has notice of the judgment or order:
(a) by being present when the judgment is pronounced or when the order is made; or
(b) by being notified of the terms of the judgment or order whether by telephone, telegram or otherwise,
the judgment or order may be enforced by committal of that person or by sequestration of his property notwithstanding that service has not been effected in accordance with this rule."
28 It is accepted by the ACCC that in the case of alleged breaches of the orders of Cooper J, service had not been effected in accordance with O 37 r 2(1) to (3). In the case of alleged breaches of my orders, the ACCC accepts that the order served did not contain the penal endorsement required by O 37 r 2(3).
29 I am satisfied that the Court has jurisdiction under O 37 r 2(5) to order the committal of Mr Butler for breaches of either order, should the Court be satisfied that a relevant contempt had been proved. Mr Butler was present in court in the proceedings before Cooper J on 23 December 1999, on 25 December 1999 was cross-examined upon an affidavit he had sworn in those proceedings, and he was present in court in person on 27 January 2000 when Cooper J pronounced his orders. The orders were also read aloud by the respondents' then solicitor to a group of people, including Mr Butler, at Romeo's Restaurant later that day.
30 Concerning the order I made on 8 December 2000, a copy of that order was served personally on the second respondent by Mr Rodney Dann, the solicitor for the applicant, on or about 22 December 2000, whereupon Mr Butler admitted he had seen the order previously and asked when the time limits for compliance with the order commenced. Further, on 24 February 2001, Mr Butler wrote to Mr Dann saying, amongst other things:
"I am well aware of the seriousness of this matter and that I am obliged to comply with all of the Court's orders."
31 It was submitted on Mr Butler's behalf in these respects that O 37 r 2 was invalid, and that the ACCC was bound to comply with O 41 r 5 and O 42 r 31(1) of the Rules of the Supreme Court, as those Rules stood in England in 1903. In the view I take of the matter, s 24 of the Judiciary Act 1903 (Cth) conferred on the High Court, and s 31 of the Federal Court of Australia Act 1976 (Cth) conferred on this Court, the same power as the Supreme Court of Judicature possessed on 25 August 1903 to punish for civil and criminal contempt. The Supreme Court of Judicature had power to punish as a contempt the wilful disobedience of an order of the Court. In my opinion, the power and authority of the Supreme Court of Judicature to punish contempt as at that date does not require that the practice or procedural law of England as at 25 August 1903 also apply. Nothing in any of the judgments of the High Court in Re Kolina ex parte Torney [1999] HCA 57; (1999) 200 CLR 386 affects this conclusion, in my opinion.
32 In the course of the proceedings, there were a number of rulings as to the admissibility of evidence and other matters. It is necessary to refer only to some of those rulings.
33 By an amended statement of charge the applicant sought to add further counts. Those counts were based on representations made in an email (the representations being of the same kind as were referred to in Order 1 of the Orders of the Court dated 8 December 2000). However, it was not suggested by the ACCC that it would prove that the representations made in the email constituted false and misleading conduct at the time they were made. In the course of refusing to permit the amendment of the statement of charge on 24 April 2002, I said:
"It is one thing to punish a person for engaging in conduct which constitutes a contravention of the Trade Practices Act 1974 (Cth) (the Act), the contravening of which has been enjoined by the Court. It is quite another to punish a person for conduct which does not, or does not necessarily, involve contraventions of the Act, but merely involves a contravention of one view of what the Orders were. I do not think I have power, for instance, to make an order prohibiting a person from making representations, unless the making of those representations also constitutes a contravention of the Act.Consequently if, as the ACCC contends, independently of whether these statements are correct, true, misleading or deceptive, the making of them constitutes punishable contempts, that would raise, in my opinion, a very real question as to the lawfulness of the injunctions.
For these reasons, it seems to me that the better view of the Orders the Court made is the view that puts them within power. On this basis I will not permit the amendments."
34 On 24 April 2002 in Reasons for Ruling on Evidence No. 3, I ruled that certain statements made by the corporate counsel for World Netsafe, Mr Mark McCluskey, were the subject of client professional privilege. On 30 April 2002 in Reasons for Ruling on Evidence No. 5, I ruled that the statement attributed to one Lindsay Birch at a meeting promoting membership of the World Netsafe scheme, namely "I am looking after the interests of World Netsafe in Australia" was not admissible to establish that he was the agent of World Netsafe. The question of any liability for contempt by World Netsafe arising out of admissible statements made by, and conduct of Mr Birch will be considered in detail in relation to a consideration of Counts 7 and 8 of the statement of charge.
35 Finally, on 24 April 2002 in Reasons for Ruling on Evidence No. 2, I permitted the affidavit of Mr McCluskey to be read, and allowed him to be cross-examined by video link. This order was made notwithstanding the wish of the respondent that unless he be present in person to be cross-examined the affidavit evidence should not be received. Mr McCluskey had been made bankrupt on 6 June 1991 and again on 23 November 2001. He left Australia in November 2001 without the consent of his Trustee, and notwithstanding the Trustee's demand that Mr McCluskey return to Australia, Mr McCluskey refused and has failed to provide a statement of his affairs. Mr McCluskey declined an invitation by the ACCC to return to Australia, but indicated that he was prepared to be cross-examined on his affidavit by means of video link. For the reasons which I gave on 24 April 2002, I directed that the evidence of Mr McCluskey be taken by video link pursuant to ss 47(1A) and 47(1C)(4) of the Federal Court Act and O 24 r 1A of the Federal Court Rules.
36 I turn now to consider the several groups of counts.
37 Concerning Counts 1 to 6 of Part 1 of the statement of charge, it was foreshadowed in closing submissions on behalf of Mr Butler that an application would be made based on a contention that the order for refunds made by the Court on 8 December 2000 were made without jurisdiction. However, the foreshadowed motion for declaratory relief and orders for prohibition and certiorari (under s 163A of the Act) or alternatively, an order under O 35 r 7(2)(a) or (d) of the Federal Court Rules setting aside the orders, or in the further alternative an order made pursuant to the Court's inherent jurisdiction to set aside that order, was not prosecuted. I am therefore not now concerned with the invidious prospect of being asked to allow an appeal from my own orders, or to certiorari myself, and the antecedent questions of the competency of such applications.
38 I am satisfied that Mr Butler did not refund within 28 days from 8 December 2000 any monies paid to himself or World Netsafe, concerning participation in the World Netsafe scheme. The evidence establishes, in respect of each of Counts 1 to 5 in Part 1 of the statement of charge, that the relevant person or persons paid monies to World Netsafe or Mr Butler, that the relevant person or persons participated in the World Netsafe scheme, and that no refund had been received by that person or persons in respect of that payment. Similarly in Count 6, the evidence establishes that Mr Butler did not comply with par 10 of the Court's orders of 8 December 2000 in that he did not pay any refunds to persons who were members within 28 days from the making of the order.
39 In a letter dated 30 January 2001 Mr Butler wrote to Mr Dann that: "World Netsafe is not in a position at present to pay refunds." In a letter dated 9 February 2001 Mr Butler again wrote: "We are still awaiting the deposit of funds promised to us by Greenstar to effect the refund requests that have come in.", again in a letter dated 23 April 2001 Mr Butler wrote: "We are still awaiting the payment from Greenstar so that we can pay the refunds to all existing members." And in a further letter of 8 June 2001, Mr Butler wrote: "I am currently working on several plans that will ensure that all members that are owed a refund are paid."
40 The evidence does not establish that all of the people described in Annexure A to the statement of charge as "members" were members, but it is clear that a number of them have been proved to be members, and the evidence is plain that repayments were not made to any member. There is direct evidence that a particular request by a Mr Dryland to have funds paid to World Netsafe refunded to him has not resulted in those funds being paid to him. There is further evidence from a Mr Proffitt that he has not received any refund or indeed any money from World Netsafe or Mr Butler. Mr Proffitt had also became a member and paid funds to World Netsafe.
41 The primary matter concerning the first six counts is the contention by the respondent that it is necessary for the ACCC to prove beyond reasonable doubt that Mr Butler had access to assets capable of being used to satisfy the refund order, before a contempt of that order is demonstrated. However, the ACCC argues that it was not necessary to show that Mr Butler had the means of complying with the order, and the question of means is irrelevant.
The letter of 19 March 2001 said in part:
"We recently sent you a copy of the contractual arrangements with the Cooperative Greenstar in Western Australia. Under the terms and conditions of that agreement Greenstar owe World Netsafe USD $750,000.00. We would appreciate your assistance in this matter as the ACCC and the Members are the Beneficiaries of this agreement. ..."
The letter concluded:
"I personally don't have any means at present to repay members, however Greenstar should be forced under our agreement to start repaying funds under the trust agreement. Perhaps we could setup a meeting with your client to work these matters out, as I am hopelessly lost at present as to how I can meet all these commitments."
42 The ACCC submits that it is sufficient if his conduct amounts to "conscious non-compliance". It was submitted that any incapacity to pay would go only to penalty.
43 It is submitted on Mr Butler's behalf that regard had to be had to the provisions of the Debtors Act 1869 (England) ("the Debtors Act") in considering whether there was power to commit for contempt.
44 Section 4 of that Act, as at 1903, provided:
"With the exceptions hereinafter mentioned, no person shall, after the commencement of this Act, be arrested or imprisoned for making default in payment of a sum of money."
Then followed a number of exceptions, none of which is applicable in the present case.
45 Section 5 of that Act, as at 1903, provided:
"(1) Subject to the provisions hereinafter mentioned, ... any Court may commit to prison for a term not exceeding six weeks, or until payment of the sum due, any person who makes default in payment of any debt or instalment of any debt due from him in pursuance of any order or judgment of that or any other competent Court: Provided...(2) That such jurisdiction shall only be exercised where it is proved to the satisfaction of the Court that the person making default either has or has had since the date of the order or judgment the means to pay the sum in respect of which he has made default, and has refused or neglected, or refuses or neglects, to pay the same.
Proof of the means of the person making default may be given in such manner as the Court thinks just; and for the purposes of such proof the debtor and any witnesses may be summoned and examined on oath, according to the prescribed rules."
46 The ACCC submitted firstly that the Debtors Act was irrelevant on the present application and secondly, that Act did not bind the Crown, relying on Attorney-General v Edmunds (1870) 22 LT 667, which was affirmed by the Court of Appeal in Attorney-General v Randall [1944] 1 KB 709.
47 Randall had been arrested on a writ of capias ad satisfaciendum issued at the instance of the solicitor for Customs, in respect of a sum of £3,500 being arrears of purchase tax due to the Crown. Mr Randall applied for an order that the writ of capias be discharged, and that he be forthwith discharged from custody. He was unsuccessful at first instance. On appeal the Court of Appeal held that "if the [Debtors] Act does not bind the Crown, the appeal must fail." The Court held that the Act does not bind the Crown. The ACCC contends that it is an instrumentality or agent of the Crown in right of the Commonwealth, and it is not therefore bound by the provisions of the Debtors Act. In any event, the ACCC contends, that Act is irrelevant on the present application.
48 In Buckley v Crawford (1893) 1 QB 105 an execution creditor made default in payment to the claimant, and an order was made committing the execution creditor for contempt of court. There was no proof that he had any means to pay. On an appeal from an order of commitment it was held that the case was one of default in payment of a sum of money within the meaning of s 4 of the Debtors Act, and there was no jurisdiction to make the order for attachment.
49 In Nesom v Metcalfe [1921] 1 KB 400, an appeal was allowed from a committal order made on the basis of non payment of instalments under an instalment order of a judgment debt. It was held on the appeal that:
"...there must be evidence that the debtor has at that time, or has had since the date of the instalment order, the means to pay the unpaid instalments and has refused or neglected to pay the same."
In his reasons for judgment, McCardie J said:
"The evidence that the debtor has means must be of a reasonably direct character."
50 These two cases are based on the applicability of the Debtors Act as requiring a capacity to pay before non payment can justify committal. They do not touch on the question of whether the Debtors Act might apply where the ACCC has obtained orders, not that monies be paid to it (the situation which would be analogous to Randall), but to other persons.
51 I am of the opinion that the Debtors Act has no application in the present case. The ACCC is not seeking to imprison Mr Butler because he has not paid a debt he owes to it; it is seeking his committal for disobedience of a court order. Further, and regardless of any possible application of the Debtors Act in the present application, I am of the opinion that to establish contempt of an order to pay money within 28 days of the making of the order, it has to be shown that a failure to comply with that order was wilful. That requirement will not be made out unless it is shown that the person the subject of the order had the capacity to comply with it, in whole or in part. A truly impecunious person who does not make a payment which a court has ordered him to pay is not guilty of contempt, in my opinion.
52 Next, the order of 8 December 2000 which is said to have been breached by Mr Butler is an order to make payments "within 28 days of this order". It has not been shown that during this period Mr Butler had the means to comply with that order. Contempt is not established.
53 The evidence as to whether Mr Butler had the means to pay did not focus on his capacity to pay within 28 days of 8 December 2000. The ACCC suggests that there were funds available as the result of the sale of a unit at Main Beach from which refunds could have been made. However, the evidence establishes that prior to September 2001 Mr Butler and his wife owned a unit at Main Beach for the purchase of which they borrowed funds from the Commonwealth Bank. They also conducted a Home Equity facility with the Commonwealth Bank which was also a transaction account, and either Mr Butler or his wife could draw on the funds of the account without the concurrence of the other. The unit at Main Beach was sold in about September 2001. The proceeds of sale were, on the instructions of Mr and Mrs Butler, collected by the Commonwealth Bank and from the proceeds, $482,936.28 was used to pay out the loan on the unit and $171,794.21 credited to the account. The bank statements for that account, (which are exhibit 9 in the proceedings before me), show that that sum was credited to the account on 14 September 2001. On 17 September 2001 the account had a credit balance of $188,135.02, and between 17 September 2001 and 9 November 2001, some twenty-six withdrawals were made from the account, ultimately reducing it to a debit balance.
54 It was submitted on behalf of Mr Butler that the funds in the account held with the Commonwealth Bank were held by Mr and Mrs Butler as trustees of a trust, and were not available to meet the obligations of Mr Butler. The bank manager, to a suggestion that the unit was owned by Mr and Mrs Butler as trustees of a trust, indicated that there was no mention of a trust in his file, and there is a bank document which positively suggests that the unit was not the subject of a trust. The dealing in the account subsequent to the sale of the unit seem to me to be inconsistent with the monies being held on trust. Some $188,000 was paid away by twenty-six transactions in less than two months. There were frequent cheques for $400 or $500 amounts, and a debit balance was left in the account on 12 November 2001, which is somewhat inconsistent with the claim that the funds were trust funds.
55 Mr Butler did claim in a letter of 15 June 2001 to Mr Dann, the solicitor for the ACCC, that:
"As for my unit on the Gold Coast it was purchased in a trust for my children and family. The bank loan was based entirely on the financial statements of my wife's business as I was not drawing any salary at the time of the loan."
56 Some funds of the order of $51,000 were paid into that account additional to the proceeds of the sale of the unit. There is nothing to suggest that these funds were held on any trust.
57 In the absence of any direct evidence from Mr Butler concerning the claimed trust, I am not prepared to find that the unit was held by Mr Butler and his wife as trustees. Nonetheless, the evidence concerning the unit, its sale, and the disposition of the net proceeds on sale are not such as to establish that in the 28-day period subsequent to 8 December 2000, Mr Butler had available to him, or access to, funds, from which he could comply, either wholly or in part, with the orders made on 8 December 2000.
58 I therefore am not satisfied to the requisite standard that there has been made out the contempts alleged in Counts 1 to 6 inclusive.
59 I turn to Counts 7 and 8 of Part 1 of the statement of charge. These counts are based on what is said to be the conduct of Mr Butler in Hong Kong on 21 March 2000 at the Hyatt Hotel.
60 A Mr Eddie Sit attended that meeting and gave evidence that Mr Butler spoke at that meeting and that a tape recording, exhibit 5, was an accurate recording of what occurred at that meeting. Mr Sit was not an impressive witness.
61 There are significant matters going to the accuracy and completeness and, perhaps more importantly, the context in which things were said on the tape. Whoever made the tape was not called as a witness before me, nor is there any evidence as to what had happened to the tape between its making and its receipt by Ms Darwin, a senior investigator of the ACCC, on 24 January 2001. There are what seem to me obvious breaks in the tape and there was no technical evidence produced to demonstrate that the tape was an accurate recording. Mr Sit initially gave evidence that side A of the tape recorded the beginning of the meeting. Later he said that side B of the tape in fact marked the beginning of the meeting. Mr Sit claimed that the tape recorded everything at the meeting which, in my opinion, it plainly does not.
62 Notwithstanding the cogent criticisms that can be made of the tape and of the weight which might be attributed to it, and the unreliability of Mr Sit as a witness, I am satisfied that Mr Butler said the things which the tape records him as saying. Taking the tape with all its limitations, I am quite satisfied that at the meeting at the Hyatt Hotel in Hong Kong, Mr Butler was attempting to achieve sales of further founder cards. He was seeking to create the impression that it was highly beneficial to acquire cards which were low in the sequential numbering order by emphasising the exclusive deals which he claimed to have done to secure such cards for on-sale.
63 The sales pitch, which is what I accept Mr Butler was making, was however not directed to persons who were not then members of the World Netsafe scheme, so that they would become members. I acknowledge that there are some statements by Mr Butler during the meeting which might suggest that the persons to whom he was speaking were or included persons who were not then members. In particular, Mr Butler said:
"However, I can personally guarantee you that the amount of money that you will make from that bonus, right, will pay for your card very quickly, and I will give you my personal guarantee here and now that if you want to sell that card in 3 months time or 6 months time, I personally will give you your money back, and I'll buy the card back myself."
64 There is a statement, however, which I am satisfied was made by Mr Sit, that "Everybody four star". These words are explicable only if the persons present were already members of World Netsafe. The meeting, it seems to me, has as its focus an urging or promotion by Mr Butler for these members to pursue new "down-line" members. This is consistent with evidence from Mr McCluskey in par 14 of his affidavit, which I accept:
Between January and June/July 2000, Terry Butler regularly in my presence spoke to key overseas members ... I heard Terry Butler speaking with Eddie Sit who was in Hong Kong, Andrew Worsley in London and Derek Yeoh in Malaysia and heard him offer batches of card numbers with lower numbers ... I heard Terry Butler offer to those persons a share of the membership monies obtained by them from new members as commission and as a contribution to their costs and overheads."
65 In cross-examination concerning this passage of his affidavit, Mr McCluskey was asked:
"Over on page 8, still within paragraph 14 - these extra cards you spoke of there being offered to Sit, Worsley and Yo - they were free were they? [To which he said]---No. The additional cards were an expansion of the founder card program that World Netsafe had implemented and for a lot of these people, the lower the number on the card - they were seen to be more valuable, at least in their minds. And Terry Butler was releasing additional founder cards, or offering to release additional founder cards, to those overseas members." [Emphasis added]
66 I think that Mr Butler at that meeting was seeking to secure the sale of additional founder cards through the efforts of persons who were already themselves members of the World Netsafe scheme. In any event I am unable to conclude that the conduct of Mr Butler, as exhibited on the tape, amounted to an attempt to "induce persons to become members of the Scheme" as enjoined by par 1(a) of the orders of Cooper J on 27 January 2000, nor that any representation made by Mr Butler at that meeting was for the purpose of "inducing a person to make a contract to acquire membership" of the World Netsafe scheme as was restrained by par 1(b) of Cooper J's orders of 27 January 2000. Mr Butler was seeking to induce persons who were already members to solicit persons to become new down line members.
Count 10 and 11
67 The contempt alleged of par 7(b) of the orders made by the Court on 8 December 2000 was not that Mr Butler did not carry out the mail-out as required by that order, but that he failed to serve a list of the persons to whom the mail-out was sent on the ACCC. Mr Dann has exhibited a letter dated 19 March 2001 which he received from Mr Butler in which Mr Butler, amongst other things, advised:
"Mail out of the Notice to Members has commenced and is being executed by DDM Communications in Newstead. We anticipate that this will be completed this week, a copy of the notice and a complete list of names and address will be delivered to your offices immediately once complete."
68 There is, then, some evidence that Mr Butler performed the mail-out required by sub-paragraph 7(b) of the orders, and the ACCC has not charged him with any failure to do so. Mr Butler delivered a list of clients to the ACCC's solicitors on 28 February 2001. It is important to note that this delivery pre-dates the letter of 19 March 2001.
69 A letter dated 5 April 2001 was sent to Mr Butler and World Netsafe by registered mail. The letter was returned unclaimed. In part, the letter said:
"Please detail the extent of your compliance with the Court's Order regarding the posting and emailing of the corrective notice to past and present members of the World Netsafe Scheme, ..."
and:
"(b) state the reason why you did not provide a list of the names and addresses of each person to whom the corrective notice was sent by post immediately thereafter to the ACCC;(c) state the reason why you did not simultaneously send to the ACCC, in the same email message, the email sent to each person containing the corrective notice; and
(d) state whether you have sent and emailed the corrective notice to all past and current members of the World Netsafe Scheme and, if not, state:
(i) why you have not done so;
(ii) the names and addresses (postal and email) of each person to whom the corrective notice is still to be sent; and
(iii) when you intend to send the corrective notice to each of those persons."
70 On 17 May 2001 a copy of the letter of 5 April 2001 was sent by facsimile, registered post and email to Mr Butler at 8 Blackman Court, Brookfield. On 5 June 2001, a letter was sent by facsimile to Mr Butler at that address which referred to a large body of correspondence and enclosed copies of all of that correspondence, including the letter of 5 April 2001.
71 Under the heading "Matters raised in past correspondence to which you have not responded", there appears:
"Our client has inspected the documents you caused to be delivered to our premises on 28 February 2001. It appears that none of the refunds to members claimed in that material was made subsequent to the Court's Order.It also appears that the World Netsafe membership details provided by you in that material are substantially incomplete."
72 On 8 June 2001 Mr Butler, by facsimile, wrote to Mr Dann saying:
"I have recently returned from overseas and are in receipt of your letter dated 5th June 2001."
The letter concluded:
"I am available and are willing to cooperate with the ACCC to resolve these matters."
On the same day, Mr Dann replied and in that reply said:
"When are you going to respond to the issues raised in our letter of 5 June 2001?"
73 On 15 June 2001, Mr Butler responded. That letter said, in part:
"As for my unit on the Gold Coast it was purchased in a trust for my children and family. The bank loan was based entirely on the financial statements of my wife's business as I was not drawing any salary at the time of the loan."
The letter concluded by saying:
"I will provide an answer for each of the questions in your previous letter and expect to have that finalised at the end of next week."
A letter dated 28 June 2001 commenced:
"We have almost completed our response to your latest letter ..."
74 Nicholsons Solicitors wrote to Mr Dann's firm on 5 July 2001, which letter said in part:
"We confirm that our client has provided us with instructions to take all steps necessary to ensure that the matters outstanding in respect of compliance with the Order are attended to forthwith. We will communicate with you further in this regard after tomorrow's hearing date."
75 Having regard to the chronology and to the correspondence to which I have referred, I am satisfied beyond reasonable doubt that Mr Butler failed to serve a list of the persons to whom the mail-out was sent on the ACCC, in breach of par 7(b) of the orders made by the Court on 8 December 2000. There is no reason to think that it was not possible to supply to the ACCC the list of members to whom the DDM Communications sent the Notice, as Mr Butler promised in his letter of 19 March 2001. There is no evidence to suggest that Mr Butler delivered to the ACCC a copy of the corrective notice as required by that order.
76 In respect of Count 11, the statement of charge acknowledges that Terence Butler delivered certain documents, purportedly in response to paragraph 12 of the order, consisting of the members list and the other material earlier set out. The statement of charge alleges that the material did not contain:
(i) the name and address of each person;
(ii) the amount that each person had paid to World Netsafe Pty Ltd, including any moneys held in trust;
(iii) the designated number of any card paid for by each person;
(iv) where World Netsafe Pty Ltd had paid moneys to a person, the date, amount and purpose of each such payment,
for all persons who were participating or had participated in the World Netsafe scheme at any time whether in Australia or elsewhere, and in particular the Member List delivered did not contain the said information in paragraphs (i) to (iv) above in respect of Geoffrey Thomas Dryland, Robert William Kemp, Geoffrey Youle Dean and, further, the Member List did not contain the information in paragraphs (i) to (iv) above in respect of any of the persons whose card number is not referred to in the card number column of the Member List. The Material did not contain the date each person who participated in the World Netsafe scheme joined the World Netsafe scheme and the only such information of that kind contained in the Material was in respect of some of the members only who had stipulated that information in their Release and Discharge form.
77 A letter to Mr Dann from Mr Butler of 24 February 2001 said:
"All of the records of past members held by us are being sent to your client this week."
and:
"With regards to the company records we are sending the ACCC all records as requested. As for other records we inform you that, Mark McCluskey holds all the relevant records to our court case with the ACCC. He has refused to give them back to us ..."
Towards the end of that letter, Mr Butler said:
"In closing, I would like to assure your client and the court that I am doing everything in my power to comply with the court orders. A complete list of members, together with a copy of the refunds will be delivered to your offices tomorrow."
78 Mr John Davies, who commenced as General Manager of World Netsafe in late September 1999, left at the end of August 2000. During cross-examination he said that Mr Butler was "not very good at all" at office work and paper work, and that he relied on others to do that for him. He was asked:
"Who did he rely on to keep accurate lists of things like who were members, what they had paid, what refunds they had received and what, if any, money other than refunds they had received from the company?---He relied on Noreen Messenger, which was in processing ..."
79 Ms Kay Tromans, an accountant, was Operations Manager at World Netsafe, in charge of accounting, administration and customer processing and support. She agreed in cross-examination that the records of World Netsafe were "incomplete or unreliable", the membership database could never be fully reconciled with the accounting record, and the financial records of the company were "in a terrible mess when I arrived and they were much better by the time I left, but they were still inaccurate." She said that when she left in September 2000 the records were still "in a bad state" and "still could not give you an accurate picture of precisely who were members and who weren't members" and "were incapable of giving you an accurate picture of which members had actually paid their subscriptions and which hadn't."
80 The documents that were in fact delivered by Mr Butler on 28 February 2001 are not in evidence.
81 Having regard to the correspondence and the evidence from Mr Davies and Ms Tromans, I am not satisfied that Mr Butler is in contempt of the obligations imposed by par 12 of the orders made by the Court on 8 December 2000. I am not satisfied that he failed to do that which he was able to do.
82 The final group of counts concerns the question of any culpability by Mr Butler for the breaches by World Netsafe of par 1 of the order of Cooper J of 27 January 2000. The three breaches alleged by ACCC of those orders depends upon a finding that the acts of Mr Lindsay Birch can be attributed to World Netsafe. There is no doubt that Mr Birch, in a meeting conducted at a room on level 11 of the Christie Centre, produced a large volume of promotional material designed to encourage those present, including a Mr Webb, to become a member of World Netsafe. I have no doubt that Mr Birch was promoting the World Netsafe scheme and seeking to sell the World Netsafe card. I am not satisfied, however, that he was, in so acting, relevantly an agent of World Netsafe. I accept he had a keen interest in the affairs of World Netsafe, was regarded as "a leader" and was "in the top lines of members" of World Netsafe, and was a regular visitor to the first respondent's office. It has not been established that the premises where he conducted his promotion were the premises of World Netsafe. I am not satisfied that Birch was acting as the agent of World Netsafe in promoting the World Netsafe scheme and attempting to enlist members of the scheme.
83 Mr Davies, the General Manager, said that subsequent to the orders made by Cooper J:
"... Mr Butler explained that World Netsafe and its staff could not sell the card or its packages or its members in Australia or overseas....
Did he say anything about whether individual members could promote or sell the card?--- Mr Butler showed some concerns that members were continuing to sell, and on that occasion and on many occasions when I in the future just asked, Mr Butler said, `Well, what can we do? You know, you can tell them not to sell the card, but if they're selling the card what can we do?'"
Mr Davies said of "leaders" like Mr and Mrs Birch:
"They are very sales oriented. They are very aggressive. They are trying to start their own personal businesses."
Mr Davies was asked:
"Did you ever provide a member, or rather, a leader such as Mr Birch with his own after hours access key to the Centre that would have allowed him to get into the World Netsafe premises without the consent of any member of the staff of the company?---No.
And:
"Did you ever authorise any member of the staff or did you, yourself, ever give a leader such as Mr Birch his own access key so that at his choosing he could gain access to the 11th floor of the Christie Centre?---Not that I can recall, no."
84 As to Mr Butler's culpability for the conduct of World Netsafe in its liability for the actions of Mr Birch, it is asserted by ACCC that Mr Butler did not take the steps reasonably necessary to ensure that members ceased promoting the scheme. What those reasonable steps were was never particularised or identified.
85 It was submitted that:
"...[Mr Butler] well knew that members would continue to promote the scheme and sell the card and stood idly by, accepting the benefit of the application moneys that continued to flow."
86 It is clear that there was no payment of commission by World Netsafe after 27 January 2001, so that Mr Birch was not paid to be an agent of World Netsafe in his promotional activities. Mr Stewart SC, Senior Counsel for Mr Butler, submitted, correctly in my view:
"The common law is that a director is liable in contempt for the company's breach of an order where he aids or abets the breach by the company, or does an act intending to subvert the effect of the order."
The authorities to which he referred were Arlidge, Eady & Smith on Contempt, 2nd edition, Sweet & Maxwell (1999) at 763; Contempt of Court, Miller, Oxford (2000) at 454-455; Seaward v Patterson [1897] 1 Ch 545 (CA) at 554, 557, 558; Attorney General v Newspaper Publishing Plc [1988] 1 Ch 333 (CA) at 368, 377, 384; LED Builders Pty Ltd v Eagle Homes Pty Ltd [1999] FCA 1213 at par 51. Each support that conclusion.
87 In my opinion, a director is not exposed to accessorial liability for contempt by a company, merely by failure to take reasonable steps to prevent a breach by the company. At the very least, the director has to know of the conduct said to constitute contempt by the company. For reasons earlier set out, the notion of mens rea is a core requirement of criminal responsibility, and I reject the notion of imputing criminal responsibility for contempt to a director who did not aid or abet the company's contempt, nor do an act intending to subvert the effect of the order binding the company.
88 It has to be remembered that at the time of Mr Birch's presentation, Mr Butler was overseas.
89 I am not satisfied that Mr Birch's conduct is properly to be characterised as the conduct of World Netsafe with the consequence that it would constitute a breach by World Netsafe of the orders of Cooper J. I am further not satisfied that Mr Butler, as director of World Netsafe, is liable for any contempt by World Netsafe in the absence of any aiding, abetting, or doing of an act intending to subvert the effect of the order made by Cooper J. The establishment by Mr Butler of financial and banking facilities, including those of Gillette Investments Pty Ltd, for the processing of funds paid to World Netsafe, reprehensible though that conduct be, does not in my opinion evidence a breach by World Netsafe of the first or second paragraphs of the orders of Cooper J of 27 January 2000.
90 For these reasons, the contempts alleged in Part 2 of the statement of charge are not made out.
91 In the result, the ACCC has proved beyond reasonable doubt the contempts alleged against Mr Butler in Counts 9 and 11 of Part 1 of the statement of charge. I dismiss the other counts in the statement of charge.
92 I will hear the parties as to the orders I should make, the appropriate penalty, and on costs.
I certify that the preceding ninety-two (92) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Spender |
Associate:
Dated: 7 March 2003
Counsel for the Applicant: |
Mr P.L. O'Shea, SC, with Mr A. Pomerenke |
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Solicitor for the Applicant: |
Corrs Chambers Westgarth |
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Counsel for the Respondent: |
Mr M.M. Stewart, SC, Mr C.A. Wilkins |
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Solicitor for the Respondent: |
Redmond van de Graaff Solicitors |
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Date of Hearing: |
23-24 April, 30 April, 27-28 May 2002 |
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Date of Judgment: |
6 March 2003 |
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