Capel v Caram Finance Australia Ltd (formerly Marac Finance Ltd) [1998] QSC 110

, ~ THE SUPREME COURT OF QUEENSLAND Before the Hon. Justice Muir [Capel v Caram Finance Aust. Ltd] BETWEEN: AND: ELWYN JOHN CAPEL (for himself and as Assignee of the Trustee in Bankruptcy of Estate 1256 of 1988) CARAM FINANCE AUSTRALIA LIMITED ACN 000 098 402 (formerly called MARAC FINANCE AUSTRALIA LIMITED) REASONS FOR JUDGMENT - MUIR J. Judgment delivered 29 May 1998 SC C( /11 No. 589 of 1991 Plaintiff Defendant CATCHWORDS: CIVIL CONTEMPT - failure to observe undertaking - relevance of respondent's bankruptcy - remedy/penalty. Counsel: Mr B Thomas for the plaintiff/respondent Mr R.G. Bain S.C. for the defendant/first applicant Solicitors: Ellison Moschella for the plaintiff/respondent Clayton Utz for the defendant/first applicant Hearing date: 26 May 1998 -- 1 of 12 -- ~ IN THE SUPREME COURT OF QUEENSLAND Before the Hon. Justice Muir [Capel v Caram Finance Aust. Ltd] BETWEEN: AND: ELWYN JOHN CAPEL (for himself and as Assignee of the Trustee in Bankruptcy of Estate 1256 of 1988) CARAM FINANCE AUSTRALIA LIMITED ACN 000 098 402 (formerly called MARAC FINANCE AUSTRALIA LIMITED) REASONS FOR JUDGMENT - MUIR J. Judgment delivered 29 May 1998 No. 589 of 1991 Plaintiff Defendant The plaintiff in this action, Caram Finance Australia Limited, alleges that the defendant, Elwyn John Capel committed a contempt of court by failing to comply with undertakings given to the Court on 31 October 1996. It seeks to have him committed to prison for contempt. The respondent, who was represented by counsel, admits the contempt alleged but argues that his conduct does not warrant a tern:l of imprisonment. The Background to the Undertakings Given on 31 October 1996 The applicant and the respondent have been engaged in litigation since 11 October 1985. On that date the applicant, a finance company, commenced proceedings in the Supreme Court against the respondent alleging that the respondent had defaulted in making repayment of a loan of$40,000. Litigation between the parties has continued, with varying degrees of intensity, since that time. Something of the flavour of the litigation may be gained by reference to a few of the -- 2 of 12 -- 2 events in its long history. • 10 September 1987 The applicant presented a creditors' petition against the respondent • 11 November 1988 A sequestration order was made against the estate of the respondent • 3 April 1991 • 4 April 1991 • 9 May 1991 The respondent's trustee in bankruptcy, in consideration of the sum of $2,500, executed a deed assigning to the respondent, inter alia, claims against the applicant Action 589 of 1991 against the applicant is commenced by the respondent The respondent was discharged from bankruptcy • 25 September 1995 Thomas J. orders that the respondent's statement of claim in the • 26 March 1996 • 16 April 1996 • 31 October 1996 action be struck out The Court of Appeal dismissed the respondent's appeal from Thomas J.' s decision. The respondent applied for special leave to appeal to the High Court against the decision of the Court of Appeal on 26 March 1996 The hearing of an application by the applicant for, inter alia, an order staying the action until such time as costs orders made against the respondent in favour of the applicant were satisfied • 8 November 1996 The application for special leave was dismissed with costs • 14 March 1997 The respondent was served with a bankruptcy notice The Undertakings On the hearing of the applicant's stay application before Helman J. on 31 October 1996, -- 3 of 12 -- 3 consequent upon undertakings given to the Court by the respondent, it was ordered that the action be stayed until further order save that the respondent be at liberty - "(a) To pursue his application for special leave to appeal to the High Court of Australia from the decision of the Court of Appeal made on 26 March, 1996, and any resultant appeal; (b) to deliver a consolidated, particularized amended statement of claim." The undertakings were:- " (a) pay to the solicitors for the defendant the costs referred to in each of subparagraphs 2( a), 2(b) and 2(c) of the affidavit of Craig Anthony Wilkins made and filed herein on 15 October 1996 forthwith upon the dismissal of his application to the High Court of Australia for special leave to appeal from the decision of the Court of Appeal herein given on 26 March 1996; and (b) pay to the solicitors for the defendant the costs referred to in each of subparagraphs 2(d), 2(e), 2(t) and 2(g) of that affidavit of Craig Anthony Wilkins forthwith upon the delivery to him of a certificate of taxation for those costs [which delivery later occurred on or about 14 March 1997]. The costs referred to in sub-paragraphs 2(a), 2(b) and 2(c) are,$14,350, $1,933 and $8,583 respectively. The costs referred to in sub-paragraphs 2(d), 2(e), 2(t) and 2(g) amount to a total of$7,289.20. Events following the 31 October 1996 undertakings On 10 July 1997 the respondent applied to the Court to:- "be granted leave to withdraw or in the alternative, amend the voluntary undertaking given on 3 1 October 1996 on the grounds that the applicant is no longer in a position to comply with the undertaking." The application was dismissed. Derrington J., who heard the application, held that he had no power to vary or discharge the undertakings. He also concluded that the application lacked merit, stating in the course of his reasons:- "The material before the Court and Mr Capel's own submissions lead to a strong -- 4 of 12 -- 4 impression that he is not sincere in his statements relating to his financial affairs. He seems to be suggesting that he intends to borrow from a lady with whom he apparently has a close acquaintance and with whom, it seems, he sometimes resides. The implications of letters that he has written and statements that he has made, as exhibited in the material, strongly support the belief that he is capable of obtaining money as and when it suits him, and that he merely refuses to pay the various costs orders that have been made against him as a matter of choice associated with his continuing pursuit of the defendant in this litigation." The conclusions expressed by Derrington 1. were substantiated by subsequent events. On 23 and 24 March 1998 the respondent resisted (unsuccessfully) in the Federal Court a creditor's petition presented by the applicant which relied on a debt of $38,317. The debt was composed of the above costs orders, one other costs order and some interest. One of the grounds relied on by the respondent was that he was solvent and able, but unwilling, to pay the costs orders. In the course of or in connection with the hearing, the respondent gave the following evidence or made the following assertions - • "At all material times I have been able to borrow money to pay the taxed costs and interest thereon on which this petition is founded." Paragraph 4 of the respondent's affidavit filed in the Federal Court proceedings on 12 February 1998. • "As you are well aware I have sworn in affidavits I am in a position to pay the taxed costs. Simply I am not prepared to borrow the money to pay them until I am ready. The affidavit of Mrs Heather Langston will confirm that I have access to such funds. Mrs Heather Langston has about $60,000 on term deposit with the Metway Bank." respondent's letter to the solicitors for the defendant dated 8 February 1998 (annexure "CAW18" to the affidavit of Wilkins filed in the Federal Court proceedings on 13 March 1998; a copy of which affidavit is exhibit "B" to the affidavit of Wilkins filed herein on 11 May 1998). • "I have explained I do not intend to borrow any money to pay the taxed costs unless the only way I can achieve my objectives is to proceed with the litigation in the Supreme Court of Queensland when I will then also borrow sufficient to fund the solicitors I have already selected to undertake the litigation on my behalf" plaintiff's letter to the solicitors for the defendant dated 15 February 1998 (annexure "CAW19" to the affidavit of Wilkins filed in the Federal Court proceedings on 13 March 1998; • "I am able to pay the costs as taxed and any proper interest thereon ... I am not willing to pay the costs as taxed and any proper interest thereon ... " paragraph 5 of the respondent's outline of argument in the Federal Court proceedings (a copy -- 5 of 12 -- 5 of which is exhibit "D" to the affidavit of Wilkins filed herein on 11 May 1988). • "If I wanted to, I would be able to pay the costs and proper interest claimed by the judgment creditor by borrowing against my assets and, as I said, I refuse to borrow against those assets and pay the judgment debt on the grounds that I have a claim against the judgment creditor in the Supreme Court of Queensland which exceeds the judgment debt and could not be raised as a set off, cross claim or counter claim in the action where they obtained final judgment." transcript of the Federal Court proceedings, 23 March 1998, page 42 (a copy of which is exhibit "E" to the affidavit of Wilkins filed herein on 11 Mary 1998). • "Yes. I can answer it now. It would not be an acceptable course to me because I have no intention of borrowing any funds to pay the costs, and I will come to that later in my submission ... ": the respondent's response to Finn 1's suggestion that the making of a sequestration order be stayed to enable the plaintiff to pay the costs the subject of the petition: transcript, 24 March 1998, page 49 (a copy of which is exhibit "F" to the affidavit of Wilkins filed herein on 11 May 1998)." A sequestration order was made against the estate of the respondent on 9 April 1998. The respondent's assets and ability to honour the undertakings The respondent asserts that he has a claim for damages for negligence against another person or entity for damages suffered by him in a motor vehicle accident. He swore: "I have been advised by my solicitors that the insurance company for the driver of the other vehicle in the second accident has already admitted 100% liability and only the quantum of damages have to be agreed. . .. My solicitors have calculated the total of the '" claim would be in excess of $200,000." He also swears to having claims against his former solicitor in respect of this litigation. Apart from these and other claims against entities including the defendant, he swears to having "no assets of value". In an affidavit filed by leave on 26 May, the applicant swore that he gave the subject undertakings labouring under some misapprehensions, namely: a. that the special leave application would take between 12 months to 2 years to be finalised; b. his claim for personal injuries could be as high as $180,000; c. he thought, erroneously, that damages from his personal injuries claim would be -- 6 of 12 -- 6 available to his creditors; d. he thought Workers' Compensation Board payments he was then receiving would continue. He also swore in that affidavit that he thought he could comply with the undertakings within a year by way of funds received from: (a) proceeds from his personal injuries claim; or (b) funds borrowed from sources in the United Kingdom. He swore further that as his workers' compensation payments have stopped, he does not wish to borrow from the United Kingdom source because he "became unable to guarantee repayment of interest or in fact any principal". Part of the reason given for not pursuing the contemplated United Kingdom borrowings was that "as a result of the medical report received from Dr Martin the quantum of my personal injuries claim came under some question ... ". The respondent did not attempt to elaborate on this somewhat obscure assessment of the status of his personal injuries claim. He did not give evidence as to matters of obvious relevance such as the time by which it was likely to be heard or prospects of settlement. Nor was there any attempt made by the respondent to explain the evidence in the bankruptcy proceedings, to which I have referred above. In the course of submissions, I raised with the respondent's counsel the prospect of payment of moneys to satisfy the undertaking out of the fruits of the personal injuries action and the possibility of an undertaking being given as to the prosecution of that action and the setting aside offunds to meets the costs order. His counsel responded: "Certainly there's a very strong expectation that money will be coming but the particular amount seems to vary with who makes the assessment of what will happen .... " In response to the query: -- 7 of 12 -- 7 "Does your client offer any undertaking in respect of a prosecution of that action and the disposition of the funds, say in order to meet the costs?", the respondent's counsel said: "No, your Honour. My client's attitude is that the defendants will get everything they are entitled to under the law .. , This exchange then occurred - "His Honour: In any event his position I take it is that he is not going to pay them if he can avoid -- Mr Thomas: That's so, your Honour." The proceeds of the respondent's claim for damages for personal injuries are not available to creditors in his bankruptcy. The submissions on behalf of the respondent The submissions by the respondent's counsel may be summarised as follows. The applicant by causing the sequestration of the respondent's estate, put it out of the respondent's power to raise finance and put his assets under the control of the trustee in bankruptcy. The respondent has apologised to the Court. His sincerity or, at least, his respect for the Court, is demonstrated by his application to be released from his undertakings. The undertakings were given at a time when the respondent had a belief that he would have the time and means available to meet them. Also, it was relevant to penalty that the applicant had exhausted its legal remedies against the respondent by bankrupting him. Other relevant circumstances The respondent is 58 years of age. He has tertiary qualifications in engineering. He has a substantial history of major entrepreneurial activities in the United Kingdom where is was born. In the course of those activities and subsequently, he became experienced ~n litigation, making many court appearances personally. He is now unemployed and in receipt of Social Security benefits. -- 8 of 12 -- 8 Relevant principles of law An undertaking in a civil action has the same force as an injunction made by the Court. Its breach is misconduct amounting to contempt. 9 Halsbury's Laws oj England 4th ed. para. 75; Kerr on Injunctions 6th ed. pp. 668-9; Midland Marts Ltd v Hobday [1989] 1 WLR 1143 and Williams v Fawcett [1986] 1 QB 604 at 607. The remedy for civil contempt is punishment by way of committal or by way of sequestration. 9 Halsbury's Laws of England 4th ed. para. 87; 5 Halsbury's Laws oj Australia para. 105-500 and 0.84 r.2 of the Rules of the Supreme Court. Order 84 r.8 gives the Court power to impose a fine instead of, or in addition to committal. It is also within the inherent jurisdiction of the Court to impose a fine for deliberate breach of an undertaking. AMIEU v Mudginburri Station Pty Ltd (1986) 161 CLR 98 at 113. It is no answer to proceedings for contempt "to say that the act was not contumacious in the sense that, in doing it, there was no direct intention to disobey the order". AMIEU at 113. A purpose of punishment for a contempt involving wilful disobedience to a court order or undertaking is the "very substantial purpose of disciplining the defendant and vindicating the authority of the court". AMIEU at 113. After discussion of the orders made in contempt cases it was observed in the joint judgment in AMIEU at 115: "These are considerable powers, resort to which imposes a heavy responsibility upon a court confronted with a determined challenge to its authority. The propriety of their exercise cannot be measured solely by reference to the established procedures attending the prosecution of ordinary breaches of the law. Contempt of court is a distinctive offence attracting remedies which are sui generis: Morris v Crown Office [1970] 2 QB 114 at 129. It is required of the chosen remedy that it be effective, no more but no less. For, if it is not effective, serious and lasting damage to the fabric of the law may result." The Penalties and Sentences Act 1992 does not apply to punishment for contempt of court. -- 9 of 12 -- 9 Harris v Muirhead [1993] 2 Qd R 527. Penalties, such as community service orders, provided for under that legislation are not available in these proceedings. Application of the above principles of law to the facts I have no reason to doubt that at the time the respondent gave the undertakings he had no intention of breaching them. That he did not simply ignore his obligations to the court is apparent from his application to withdraw or amend the undertakings. When he failed on that application he resolved not to honour the undertakings because, to do so, would benefit the applicant. That is something he cannot contemplate. He has a strong sense of grievance against the applicant which he has tenaciously pursued in litigation. There is nothing before me which leads me to the conclusion that the respondent's sense of grievance is justified and, in any event, that was not a matter which the parties litigated on this application. I do not suggest that they should have. The respondent has been made bankrupt by the applicant as a result of non payment of the moneys the subject of the undertakings. From this it would normally follow that the respondent has no ability to honour the undertakings through no particular fault of his own, and that the applicant assisted in bringing about that state of affairs. However, as the above narrative discloses, there are some unusual features of the facts under consideration. The respondent's case on the bankruptcy hearing was that he was solvent and able to pay his debts as and when they became due but that he refused to do so. He asserted an ability to borrow the moneys required to pay the applicant from a Mrs Heather Langston (who supported his contention). He also relied on his personal injuries claim to show solvency. By inference, the fruits of the latter were more than sufficient to cover the respondent's debt to the applicant. An affidavit of the respondent filed by leave on the hearing of this application stated inter alia - "I ask this Honourable Court to take notice that I am now an undischarged bankrupt as a result of a sequestration order and as such -- 10 of 12 -- 10 am unlikely to be able to borrow any funds to comply with any undertaking." In the bankruptcy proceedings, as here, the respondent declined to provide evidence to corroborate his claim or even to provide much in the way of particulars of it. The most obvious reason for this course of conduct seems to me to be an unwillingness to make full disclosure to the applicant in case the applicant was able to use the information disclosed in pursuing the respondent for the judgment debt. The respondent has made manifest an intention to ensure that the applicant receives no moneys from him whatever the legal consequences of adhering to that intention. I have concluded that it would be inappropriate and undesirable for the respondent's wilful breach of his undertakings to be overlooked. It was submitted by his counsel that it would be sufficient penalty if a conviction were to be recorded and that the respondent be placed on a good behaviour bond. I do not regard a penalty of the nature submitted by the respondent's counsel sufficient to assert the Court's authority. The applicant submitted, in reliance on Director General of the Department of Fair Trading v Finnie (5.12.1997 Supreme Court of New South Wales, Graham A.J. unreported), that as the respondent is a bankrupt, a fine is an inappropriate penalty. I accept that it would normally be inappropriate for a fine of any magnitude to be imposed on a bankrupt. In this case though I find that, on the balance of probabilities, the respondent • could have produced the moneys required to meet the costs orders; and • could still purge his contempt by the payment of such moneys if he so desired. I propose to give the respondent the option of paying a fine similar in amount to the moneys the subject of the undertakings. Ifhe elects not to exercise that option or defaults in its performance, he will be imprisoned. I accept that the respondent's contempt is not as serious as the acts of contempt -- 11 of 12 -- 11 considered in a number of reported and unreported cases to which counsel referred. I also accept that it is relevant to have regard to the history of the litigation, including the fact that the applicant has pursued the respondent to bankruptcy after the respondent failed to honour the undertakings. Even before being bankrupted, it is probable that the respondent could not have honoured the undertakings without borrowing unless he settled his personal injuries claim. In my view there is a likelihood that the respondent has become obsessed with his grievances against the applicant and that his judgment has been clouded. I regard that as relevant to my consideration also. But the fact remains that the respondent has chosen to allow his obligation to the Court to be overridden by his obsession with the applicant. Further, his position would have been much stronger ifhe had followed a course of making candid and full disclosure of his financial position. He deliberately elected not to follow that course. I order that the respondent pay a fine of $3 0,000 before 4 p.m. on 13 July 1998 in default of payment of which he stands committed to Her Majesty's Prison at Brisbane for a term of imprisonment of 21 days. -- 12 of 12 --