Australian Securities Commission v Cook & Anor [1992] QSC 17

, .. ( ') TRANSCRIPT OF PROCEEDINGS State Reporting Bureau, 4th Floor, The Law Courts, George Street, BRISBANE. 0. 4000 Tel. (07) 227.4360 (Copyright in this transcript is vested in the Crown. Copies thereof must not be made or sold without the written authority of the Director, State Reporting Bureau.) SUPREME COURT OF QUEENSLAND CIVIL JURISDICTION DOWSETT J No 101 of 1991 AUSTRALIAN SECURITIES COMMISSION . Date S/ <?' I 9 Plaintiff . and MAXWELL LEONARD COOK and GLENYCE DEVELLE COOK BRISBANE DATE 14/02/1992 JUDGMENT 1 First Defendant Second Defendant -- 1 of 28 -- ---·-----..--~-, ( 140292 HIS HONOUR: I publish my reason in this matter. I make an order in terms of the draft. 10 10 ( ) 20 2\., ' 0 30 30 () 40 50 50 60 60 2 -- 2 of 28 -- ( \ \ I -~ ' _./ TRANSCRiri OF PROCEEDINGS State Reporting Bw-eau, 4th Floor, The Law Courts, George Street, BRJSBANE, Q. 4000 Tel. (07) 227.4360 (Copyright in this transcript is vested in the Crown. Copies thereof must not be made or sold without the written authority of the Director, State Reporting Bureau.) SUPREME COURT OF QUEENSLAND CIVIL JURISDICTION DOWSETT J No 101 of 1991 AUSTRALIA SECURITIES COlfu\ii SS I ON and· MAXWELL LEONARD COOK and GLENYCE DEVELLE COOK BRISBANE •. DATE 14/2/92 / ORDER 1 Plaintiff First Defendant second Defendant -- 3 of 28 -- · -------------;~--=-l--4 =o 2...-:;;9~2 HIS HONOUR: ORDER In respect of the second defendant Glenyce 10 20 rievelle cook, I have found that she has been gUilty of acts in breachof the undertaking given to Mr Justice Shephe:rdson on 5 February 1991. However, the proceedings against her were treated on behalf of the plaintiff upon the basis that she relied substantially upon her husband for the conduct of her business affalrs and that any breach by her should be seen as, for want of a better word, technical. I have proceeded in that way. The consequence.in her case .will be that although I have tound·contempt to be established, ! will decline to make any 10 20 order in respect thereof other than to order her to pay the c; 40 so plainti·ff' s costs of the proceedings pursuant to the Notice of Motion filed on 4. December l99l, including reserved cos.t.s. I have been asked to make that order upon a"solicitor and own client' basis, but I decline to do so. It does not seem appropriate where the breaches are said to be technical only. As to the first defendant, I have found contumacious contempt on his part. The amount of money involved was substantial, and I am satisfied that the contempt was quite deliberate and knowing, It seems to me that the most important aspect in fixing th~ appropriate punishment in cases of this kind is the need to vindicete the authority of the Court. rn· coinmercial 11 tigation in particular, much depends·upon the use of·interlocutory orders. I! we did not have the system.of interlocutory orders which we presently have, it would be very difficult to hold the status quo 30 () , :I 50 60 . ' J "'• '"'••·•- .. • • • -· "' ••'"'"' "'"' ••••• "'"" •• ,.. "•• ··-·-···-· • • • _,, ... •••• J< •• ••• ·-•· ••-· • ·- ...... -"··-·•• .... ,,_ •• • • • '•J ~ •"'- .... ,. • ••-•._u, ...... -.. ..... w,• •. ••••----··- ·--, ··- 6Q Gov\, PM!Ca, Old 2 -- 4 of 28 -- 10 20 I \ I 140292 ORDER pending determination of actions. However the con!idence of the profession and therefore of litigants in the system of interlocutory orders will only be maintained if, when ·' ' breach is detected, notable consequences'follow. counsel for the first defendant has submitted that there will be difficulties placed in the way of preparation for the trial of this action, which is fixed tor 9 March ,.if the first defendant is in gaol. This is to some extent true; however, it is very substantially mitigated by the fact that the trial is apparently to be upon affidavit~ and affidavits have already been exchanged. Preparation for trial whilst a party is 1n prison is bY no means unknown in the criminal jurisdiction. No doubt there is additional inconvenience to ( ·\ the legal advis,ers where that is the case, but if that be 30 ( .'ito 50 • ·--~0. the consequence of the conduct of the first defendantt then I do not think that the mere prospect, no matter how like1y such inconveniencef should have a substantial affect upon the sentence imposed. ~ I .. , ' . It was also s~bmitted for the first defendant that~! might '. make the sentence in some sense,o conditional upon restitution being made or o~herwise de+aY its effect until after the trial. I am not minded to take either of these courses. The conduct complained of wa~ conduct designed to improve the financial position, in the s4ort term,. of the defendants. It would, I think, encourage the v~ew th~t one can take a risk ~nd b1JY off the consequ~nces .if I ·were to allow SOE\e form of reduction dependent upon an .ability to make !1nancial restitution. . .. ----- ... --·-- -· ····- ... -···· ·-··--- ...... - ..... ,, ",.,.,,.,, ...~ ............. - . -- ·-· --· .. ' . ··-· .... -- . ···-· .. ---··- -.- - 3 .. ,. .. ,., I I .. ·.,. 10 20 50 40 ...... so . .. J 60 -- 5 of 28 -- . I ------- - -------~~- . .-I J 10 10 30 40 50 ~ .. ·••'· • i'( I . •J .... For the reasons which I have given/ I consider'·!.'~ ·., ·~ inappropriate to delay the effect of any sentence to be imposed until after the trial. I have consulted with the trial JUdge, and I am satisfied that the difficulties inherent in instructing at trial may be avoided by my making an order now for the production of the first defendant upon the first day of the trial ... The. trial juoge ea~ from that point make appropriate a:t;rangements by orders directed to the prison authority. In the circumstance~.r order that Maxwell Leonard Cook be i imprisoned at the Brisbane corrective E:,st.ablishment for a period of two months. I further order that the Corrective Services Commission produce the said Maxwell Leona~d Cook at the Supreme court in Brisbane on 9 March 1992 for the purpose of attending the - .... :.· ' . ' trial of this actio~ and from day to day thereafter as the Commission may be directed by tha presiding JUdge. .I I further order the first defendant Maxwell LeQhard Cook to pay the costs of the plaintiff of the motion f~i·e·d on 4 December 1991 including reserved costa.· .In his case, I consider that those costs should be ta~ed upon ·~-~·solicitor and own client"basis. ~·- .... 9Q- -·~· ...... .. -... ----.. .• , ". . . . .. . . ·--- ·-·-· ··- ...... ···-··-- ... ' ..... -·---- ........... -.' ······- ·--. ···•· . -- ··------ -- -GoY! Pdnler, Qla 4 '' ' ' -~··. -------~~ __ ... _______ , ___________,_,,, ____·~- .. ---~--~· -~---- 10 20 I 30 0 40 0 /i o· ·::·:' ,. '·i, so I ..J 60 -- 6 of 28 -- ( \ \ (\ (' IN THE SUPREME COURT OF QUEENSLAND BETWEEN: AND: No. 101 of 1991 AUSTRALIAN SECURITIES COMMISSION Plaintiff MAXWELL LEONARD COOK First Defendant GLENYCE DEVELLE COOK Second Defendant JUDGMENT - DOWSETT J. Delivered the Thirteenth day of February, 1992. Counsel: Mr. J. S. Douglas Q. C. and Miss Atkinson for the Plaintiff Mr. P. H. Morrison Q. C. and Mr. . Morris for the Defendants Solicitors: R.A. Champman, Regional General Counsel for the Plaintiff Freehill Hollingdale & Page for the Defendants. Hearing Dates: 9th, 10th, 11th December, 1991. -- 7 of 28 -- IN THE SUPREME COURT OF QUEENSLAND No . 1 0 1 of 1 9 91 BETWEEN: AND: AND: AUSTRALIAN SECURITIES COMMISSION Plaintiff MAXWELL LEONARD COOK First Defendant GLENYCE DEVELLE COOK Second Defendant JUDGMENT- DOWSETT J .. Delivered the Thirteenth day of February, 1992. For present purposes it is sufficient to say that this action concerns alleged misappropriations by the defendants in connection with certain corporate activities. Incidental to such proceedings was an application by the plaintiff to restrain the defendants from disposing of their assets. As a result thereof, the defendants gave undertakings to Shepherdson J. on l/ 5th February, 1991 in the following form:- " undertaking that until determination of this action or further earlier order, whether by themselves, their servants or agents:- (a) subject to (c) hereof, to refrain from disposing of, encumbering, transferring or otherwise dealing with in any manner whatsoever any of their property including the funds held in bank accounts at:- ( i) the Commonwealth Broadbeach in the first defendant defendant; Bank at name of theand second -- 8 of 28 -- 2 (ii) the Chase AMP Bank at Brisbane in the name of the first defendant and second defendant; (b) to authorise the Commonwealth Bank at Broadbeach and Chase AMP Bank at Brisbane to provide to Robyn Ann Chapman and to John Angus Reyment forthwith any information sought by them in respect of those two accounts; (c) notwithstanding the foregoing they be atliberty to spend two hundred dollars ($200) in any one 24-hour period to pay personal living and incidental expenses out of the said accounts." The plaintiff submits that it has demonstrated numerous breaches of these undertakings and asks that the defendants be dealt with accordingly. The alleged breaches relate to operation 0 of account no. 484-001-8318674-5 with Metway Bank in the joint () names of the defendants. This account existed for some years prior to 5th February, 1991 but was dormant. It is not disputed that in April, 1991 the account was re-activated, nor that there have been numerous deposits and withdrawals since that time. Despite heroic attempts by counsel for the plaintiff to simplify the allegations of breach, the matter remains rather complex. The defendants have regularly drawn the sum of $200 from the accounts mentioned in the undertaking, but not always to pay specific outgoings. Frequently, amounts have been deposited in the Metway account. This appears to have been contrary to the undertaking, which contemplated the drawing of funds only to pay expenses. The defendants said that anticipated outgoings were often in amounts exceeding $200 and that it was necessary to accumulate funds to enable such outgoings to be met. Whilst the undertaking may not have made adequate provision for the defendants' needs in this respect, that would not justify a breach of the undertaking. The purpose of the undertaking was to regulate the disposition' of assets by the defendants, and the () 0 ------ ---~ ------- ----- -- 9 of 28 -- ( \ 3 figure of $200 was obviously intended to be an upper limit on spending for any particular day. If the undertaking was not appropriate to accommodate their reasonable needs, they should have sought to vary it. In the course of the hearing, I observed that the transfer of funds to the Metway account was merely a technical breach, at least to the extent that those funds were paid out to meet genuine expenses within the prescribed limit. Although in breach of the undertaking (the defendants do not concede this), I would not take a stringent view of these dealings unless the surrounding circumstances proved an ulterior purpose. Consistent with this attitude is the fact that the plaintiff did not concern itself to ensure that all drawings were being expended in accordance with the undertaking. Other moneys deposited in the Metway account were allegedly received by way of gift. There would be no breach of the undertaking if a third person paid the defendants' debts. However if a gift were made to the defendants, and they then applied it in discharge of a debt, they would breach the undertaking by disposing of property. Neither transaction would be contrary to the spirit of the undertaking as the defendants' assets would not be diminished in either case. I would not punish the defendants simply because the transaction took the latter form rather than the former. Before considering other receipts which have been banked and expended, I should say something about credibility. Suspicion surrounds the re-activation of the Metway account. Mr. Garland, the defendants' solicitor was unaware of the account, although he had given detailed and repeated advice to the defendants as to their obligations pursuant to the -- 10 of 28 -- -~~--- ~~~~~-'------- '~~---~-~- 4 undertaking. No satisfactory explanation was given for its re-activation other than the need to accumulate funds, to which I have previously referred. It was accepted at the hearing that Mrs. Cook left the administration of financial affairs to Mr. Cook, although she also drew cheques on the Metway account. I was not greatly impressed by either of the defendants as witnesses. Mrs. Cook was generally able to avoid any difficulties by attributing to Mr. Cook responsibility for decisions as to their financial affairs. The most I can say for Mr. Cook is that he was anxious to maximise every opportunity to find and utilise funds in addition to those available to him pursuant to the undertaking. Broadly speaking, the line adopted by him in evidence was that he understood the undertaking to relate only to funds in possession at the date thereof and not to funds coming into possession thereafter. I cannot read the undertaking as having that meaning. The restraint was on dealing with any property. Had it been intended that the undertaking be limited to property held at the time of the undertaking, it would have said so expressly. If this interpretation were the product of Mr. Cook's own thinking, I would reject it out of hand as a transparent attempt to avoid the consequences of the undertaking. However he claims to have had the benefit of legal advice on the matter, substantially to the same effect. I will deal with this aspect later. I do not accept the Cooks' evidence at face value in any respect, although I assume the truth of much of their evidence for the purpose of allowing them the benefit of the doubt. Between 5th February and 26th November, 1991 a total of $74,852.45 was deposited in the Metway account, excluding amounts apparently deposited on 24th May and 6th September, which were 0 0 C \) -- 11 of 28 -- 5 accounting entries only and a credit of interest on 30th September. That was a period of 295 days during which, at $200 per day total drawings of $59,000 were authorized. The first relevant deposit to the Metway account was made on 15th April, with further deposits on 24th April, 9th and 10th May, all allegedly from accumulated drawings. On 17th May, $3,657.45 was deposited, of which $600 was said to be from accumulated drawings. The balance was in the form of a cheque, but Mr. Cook was unable to explain the source. I infer that such balance was, or became the property of either or both defendants. On 20th May, 1991 Mr. Cook deposited $11,374 in the form of two tax refund cheques, one in favour of each defendant. The relevant income tax returns were lodged in March 1991. It was submitted that the refunds were not caught by the undertaking. I reject this assertion. As previously observed, I can see no logical basis for construing the undertaking as relating only to property in possession at the time thereof. On 7th June, 1991 Mr. Cook deposited a cheque in the Metway account in the sum of $5,000. This was said to have been a donation made by the drawer, one Larry Westward or his company, Tavlir Pty. Ltd. to assist the Cooks in their difficulties. On 18th June, 1991 Mr. Cook deposited two cheques from Drake Pty. Ltd., each being in the amount of $1,203.95. These allegedly represented commission earned by Mr. Cook and payable by a company called Drake Pty. Ltd .. On 3rd July, 1991 Mr. Cook deposited a cheque in the amount of $20,000, drawn by TPS Finance Pty. Ltd. and allegedly representing payments for services rendered by him. Mr. Cook said that those services were performed during a period commencing in March of 1991. On 4th July, 1991 Mr. Cook deposited a cheque in the amount of -- 12 of 28 -- 6 $7,348.45, being moneys given to him by his daughter, Alana and received by her by way of tax refund. Similarly, on 8th July, 1991 he deposited a cheque in the amount of $4,251, being a tax refund received by his daughter, Abigail. For present purposes, I treat these two amounts and the cheque from Tavlir as not being subject to the undertaking for reasons already given. In proceedings before Moynihan J. on 1st August, 1991 the first defendant swore that the defendants then had no accumulated surplus from drawings. Notwithstanding this, he swore before me Q that on 7th August, 1991 he deposited one amount of $1,911.50 comprising $111.50 from Medicare refund cheques (possibly belonging to his daughter) and the balance from daily drawings. He swore that the further sums of $800 deposited on that day, $1,000 deposited on 9th August and $3,500 deposited on 28th August, 1991 also came from drawings. Thus from a position in which there were no cash accumulations as at 1st August, 1991 he was able to deposit $7,100 by 28th August. Obviously enough, for the period 1st - 28th August, the total entitlement to drawings from the nominated accounts was $5,600. 0 () It is appropriate to set out the relevant evidence given 0 before Moynihan J .. It appears at p. 5 of the transcript of proceedings on 1st August, 1991, at 11. 50 to 60 as follows:- "You filed two affidavits in the Court today which youswore on 29 July. In the shorter of those affidavits you outlined to the court typical weekly expenditure of $1,400 per week being a daily allowance of $200 per day. Since 5 February this year you have drawn $200 per day on the Commonwealth Bank at Broadbeach? Yes. Is there any accumulation from those drawings or has it all been spent? It has all been spent." -- 13 of 28 -- 7 As at that date, the balance in the Metway account had, in fact been reduced to $246.84. In cross-examination before me, when the difficulties with these amounts were drawn to Mr. Cook's attention, he asserted that the three deposits made on 7th and 9th August were loans from one Wayne Ryder with whom he had business dealings. On 31st July, the day prior to the day of the hearing before Moynihan J., a substantial amount was withdrawn from the Metway account, of which sum $3,500 was, as Mr. Cook said, paid to Ryder. It is difficult to understand why $3,500 should have been paid in cash to Ryder on 31st July and $3,600 lent by Ryde~ to Cook between 7th and 9th August. Neither is there any explanation as to why it was necessary to make the alleged loan in three instalments over the three-day period. The alleged payment to Ryder was contrary to the undertaking of 5th February as it was not for an authorized purpose. Mr. Cook said that it was to discharge a debt owed to Ryder for preparation of a report () in respect of the debtors' ledger of TPS Finance Pty. Ltd .. (__) Mr. Cook did not assert that the payment of this debt was authorised by the undertaking, but rather that the moneys so expended came from sources which were not subject thereto. The Medicare refunds pose difficulties for present purposes. If the payments were gifted by Abigail to her parents, then for reasons I have previously given, their subsequent disposal of such amounts would be only a technical breach of the undertaking. On the other hand, if the refunds were to either Mr. or Mrs. Cook, then the money would be property caught by the undertaking. In view of the relatively small amount, it is appropriate to treat it as of uncertain provenance, resulting in the defendants being given the benefit of the doubt. -- 14 of 28 -- -~~~~~ ---~---~---- 8 Deposits from accumulated drawings were also made on 10th and 16th September and 2nd October, 1991. On 4th October, 1991 $36.15 was deposited, being a Medicare refund, posing difficulties similar to those discussed above. A further sum of $400 was also deposited, allegedly a cheque drawn by Barclays Bank in favour of the first defendant upon the closure of a small account. Further deposits from accumulated drawings were made on 8th and 25th October, 1991. On the latter date, a further cheque from Barclays in the sum of $4.74 was deposited, together with () $19.15 from Medicare and a cheque from Liberty Life in the amount of $104.11. This Medicare item should also be treated as of doubtful origin. The Liberty Life payment related to the sale of certain insurance products by the male defendant. Further deposits were made from accumulated drawings on 1st, 8th and 14th November. On the last-mentioned date, an additional sum of $318.00 was deposited, being a cheque received from Bellvedere 0 Finance in reimbursement of an air fare paid by Mr. Cook on () behalf of one John Green. On 20th November, 1991 a deposit from accumulated drawings was made, together with a sum of $320 received by cheque from the Medical Benefits Fund relating to dental expenses incurred by Mrs. Cook. At the risk of being repetitive, it is appropriate to summarise Mr. Cook's various explanations of deposits to the Metway account as follows: Date Accumulated "Gifts" Payments Doubtful Drawings Received 15th Apr $200 24th Apr $700 9th May $1,200 10th May $500 (Over) --- ----~~- ~ -- 15 of 28 -- 9 Date Accumulated "Gifts" Payments Doubtful Drawings Received 17th May $600 $3,057.45 20th May $11,374 7th June $5,000 18th June $2,407.90 3rd July $20,000 4th July $7,348.45 8th July $4,251 7th Aug $111.50 $1,800 7th Aug $800 9th Aug $1,000 28th Aug $3,500 10th Sept $650 16th Sept $400 2nd Oct $1,700 4th Oct $400 $36.15 8th Oct $700 25th Oct $1, 1 00 $108.85 $19.15 1st Nov $650 8th Nov $2,700 14th Nov $200 $318.00 20th Nov $1,700 $320.00 A number of qualifications should be placed upon the above table. Firstly, it will be recalled that the deposits (other than the amount of $111.50) made on 7th and 9th August were of doubtful provenance in view of the conflict between Mr. Cook's affidavit and his oral testimony, both of which versions I am reluctant to accept. Secondly, he described a number of payments as simply "cash payments". I understood this to imply that such -- 16 of 28 -- ~~~~~------ 10 payments were derived from drawings, and I have treated them accordingly. Fina.lly, the whole of the table reflects his assertions, but does not reflect any necessary acceptance of them by me. In addition to these amounts, there were cash payments made from drawings. In other words, not all drawings have been deposited to the Metway account. On 1st August, 1991 Mr. Cook asserted that there were no accumulated savings from drawings. At that date, insofar as concerns the Metway account, this was substantially true in that only $246.84 then stood to credit of that account, the opening balance prior to any deposits having been $164.60. In the period () between 5th February and 1st August inclusive, the defendants () were entitled to draw, and presumably drew $35,600. In that time, Mr. Cook deposited $56,638.80, of which (as he said) only $3,200 was from drawings. Since $32,400 of the drawings must have been expended other than through the Metway account, actual total expenditure in cash and through the account for the period to 1st August was therefore $89,038.80 less $82.24, the variation () between opening and closing balances. Excluding the expenditure of amounts received by way of gift (totalling $16,599.45), there C ', ,' was unauthorised expenditure in the sum of $36,757.11. This included some ve'ry small amounts for bank charges and state taxes, totalling less than $100. Turning to the period after 2nd August, 1991 Mr. Cook allegedly deposited $13,300 from accumulated drawings and almost $5, 000 from other sources (including the deposits on 7th and 9th August). The period from 2nd August to 26th November -- 17 of 28 -- 1 1 inclusive was 117 days, showing total authorised drawings of $23;400. Transactions between 2nd August and 26th November can be summarized as follows:- Opening Balance (2.8.91) Closing Balance (26.11.91) Net Increase Total Deposits Plus Interest Credited Less Income Tax Debited Less Net Increase in Balance Total expended through account $246.84 $522.41 $275.57 $18,213.65 $146.03 $18,359.68 $70.45 $18,289.23 275.57 $18,013.66 The figure of $18,013.66 included bank charges and state taxes totalling $36.65. $10,100 from drawings was not deposited and presumably spent or held in cash. Thus total expenditure for the period was $28,113,66 about $4,700 in excess of permitted drawings, excluding bank charges and state taxes and extending the benefit of the doubt to the defendants in relation to sums of doubtful provenance totalling $166.80. This may include some cash held by the defendants. The true source of the deposits on 7th and 9th August totalling $3,600, if known, would affect these figures. If it came from accumulated drawings (despite Mr. Cook's evidence before Moynihan J.), then the extent of excess expended prior to and after 1st August would be reduced. If the $3,600 were a loan (as he claimed in evidence before me), then to the extent of the loan, there would be no breach of the -- 18 of 28 -- 12 undertaking. I do not share the view expressed by Mr. Garland in his affidavit that borrowing was prohibited. The defendants must be given the benefit of the doubt in respect of this sum of $3,600. However the matter has adversely affected my view of Mr. Cook's credit and his contradictory explanations are some evidence of guilty intent. I should also point out that there is no direct evidence dealing with drawings after 20th November. No amount was banked to the Metway account as far as I know. The defendants may have had cash in hand, although I would have expected some evidence of this if there were a significant amount. It may have been a technical breach to have accumulated drawings in possession, but c=) that would be only a minor matter. I cannot safely infer that there were other than technical breaches after 1st August. It is possible to identify particular days on which more than $200 was drawn from the Metway account. Taking as the relevant date in each case the date shown on the appropriate cheque, such dates include 23rd April, 8th, 9th, 16th, 21st, (J 22nd, 30th and 31st May, 5th, 7th, 11th, 18th, 20th, 26th and 27th June, 4th, 5th, 8th, 9th, 1Oth, 11th, 12th, 15th, 16th, (\ 17th, 18th, 19th, 20th, 22nd, 23rd, 24th, 25th, 26th, 29th and 30th July, 6th, 15th and 28th August, 3rd, 28th and 31st October and 8th November. One could deal with this matter upon the basis that breaches occurred on those days. However, because of the difficulty in meeting outlays in excess of $200, such breaches may, in many cases be only technical. The more serious aspect is that amounts substantially in excess of the permitted total amount for the whole period have been expended, particularly in ----~~~-~~-~- -------~~---- -- 19 of 28 -- 1 r 13 the period prior to 1st August, even allowing for amounts allegedly received as gifts, loans or from doubtful sources. I prefer to approach the matter in this way. I turn first to consider the degree of involvement of the second defendant. Her affidavit indicates that she was aware of the re-activation of the Metway account, a party to its use, and therefore to the breach of the undertaking committed by its use. On occasions she signed cheques drawn on that account. I would infer that she knew that her income tax refund was deposited in the account. Her affidavit reveals that on 9th May, she signed one cheque for $65 and one for $144, a total of $209 in connection with repair work following a burglary. On 11th July she signed a cheque in the sum of $1,530, apparently for the valuation of certain furniture. On 23rd July she signed a cheque for $265.63 in favour of Australia Post. She cannot remember the reason for this payment. The cheques signed on 9th May were clearly for "personal living and incidental expenses". It is not quite so clear that the payment for valuation of furniture and fine art works fits that description. The payment to Australia Post is simply unexplained. The amounts are in excess of the authorised daily drawing amount. Whilst I have considerable doubts about Mrs. Cook's attitude to the undertaking, I was invited by the plaintiff to treat her upon the basis that she left financial affairs to her husband. Although I am satisfied she has committed technical breaches of the undertaking as outlined above, in the light of that invitation it would be inappropriate -- 20 of 28 -- -------------·- 14 to impose any penalty upon her other than, perhaps, by way of costs. I will hear further submissions in this regard. Mr. Cook is in a more-difficult situation. To the extent that expenditure in excess of $200 per day is demonstrated, he submits that such payments were justified by virtue of the fact that they came from moneys not subject to the undertaking, or which he believed were not so subject. He further asserts that this view was based upon legal advice received from two solicitors. This defence raises three questions: firstly, whether or not the view is justified as a matter of construction; secondly, assuming that it is not justified, whether Mr. Cook had a bona fide belief in it, in reliance upon legal advice received; () l/ and thirdly, whether or not the defence applies to all of the amounts (other than drawings) deposited to the Metway account. As to the first question, I have already made it clear that I reject the argument that the undertaking applies only to some part of the property of the defendants. It is, to my mind clear and unambiguous, restraining the defendants from, "disposing of, ( )\._ encumbering, transferring or otherwise dealing with ... any of their property ... " The undertaking was obviously intended to continue for some time, being expressed to continue, "until determination of this action or further earlier order". To impose upon the undertaking some limitation designed to exclude property acquired after the date of the undertaking is not justified by the text. I recognise that a solicitor, Christopher Disspain who has sworn an affidavit in this matter, apparently took a different view of the meaning of the undertaking. I have given that matter some ------------- ----·----- -- 21 of 28 -- 15 weight in reaching the conclusion expressed above. I find his view untenable. Even if such an interpretation be indefensible as a matter of construction, it would be a substantial defence to proceedings for contempt that Mr. Cook acted in reliance upon legal advice. Although such conduct would still constitute contempt, no punishment would be justified, other than as to costs. Thus in respect of the proceedings against Mr. Cook, it is necessary to ascertain whether or not there is a reasonable doubt as to his state of mind concerning the undertaking and its true meaning, based upon advice received from lawyers. He received advice from two lawyers, Mr. Garland and Mr. Disspain. As previously indicated, Mr. Garland was the, principal of the firm acting for him and gave quite substantial advice as to the meaning of the order. This appears in Mr. Garland's affidavit read by leave and sworn on 11th December, 1991 . Although there had been previous discussions about the operation of various interim orders made prior to 5th February, 1991, the first substantial advice as to the present undertaking ,I was tendered by letter dated 6th February, 1991, exhibit JCG1 to "-,. _ ___/ Mr. Garland's affidavit. To understand that advice, it is necessary to appreciate that there are other proceedings against companies associated with the Cooks in which similar interlocutory relief was obtained. Mr. Garland forwarded copies of the orders, although as appears from the letter, there had previously been discussions with counsel in the presence of Mr. Cook as to their effect and impact. The following passage appears in the letter:- -- 22 of 28 -- 16 "The companies listed as defendants have undertaken to the Court embodied in the order enclosedherewith, that until further order, they will refrain from disposing ... or otherwise dealing with in any manner any of their property which includes any bank accounts held by the various companies. Obviously neither you nor any other officer of the companies or their servants or agents ... are not permitted to make any payments from companies' funds or incur any debts on the companies' behalf." The double negative is obviously a typographical error and could not possibly lead to any honest mistake on the part of a reader The extract continues:- "Further, if the companies own assets are generating income (such as the Golden Sands Motel), such income without deducti9n must as soon as practical be banked to that company's bank account. The one exception relates to yourself and your wife, and you will note in paragraph (c) on the second page, that you are permitted to spend $200 in any one 24 hour period for personal living and incidental expenses. This undertaking will be strictly construed by the Court, and you must ensure that no more than $200 a day is spent in any period. This does not permit you to average the spending per week, and if a sum of less than $200 is spent on one day, it does not permit you to spend a sum greater than $200 the subsequent day,even though the averaging of the two days expenses would not exceed $200. It does permit you to use credit cards, provided that payment of the credit cards is made from the $200 per day, and that no more than $200 is spent on the credit card onany day." The last paragraph is perhaps ambiguous in that it may be open to the interpretation that a credit card debt in excess of $200 could be paid on any day. I am not sure that this is correct. However I have previously indicated an appropriately indulgent attitude to the accumulation question. Mr. Garland in effect advised that with the exception of the authorized expenditure, the Cooks were said to be in the same position as the companies. It was made clear that company income is affected by the orders. ---------------- (~) -- 23 of 28 -- 17 On 27th February, a copy of the order was sent to Mr. Cook and on 10th April, an application for variation was made. In connection with that hearing, Mr. Garland had a discussion with Mr. Cook about his asset position and in the course of that conversation, Mr. Cook inquired as to whether he was permitted to earn income. Mr. Garland swore that he advised (correctly) that the order did not preclude him from earning income and:- "However, I told him he needed to ensure that any moneys which were to be paid to himself or his companies were banked into a separate account which he should establish solely for that purpose so that such moneys could be clearly identified and did not form part of a mixed or blended fund which contained moneys which were tainted by funds traceable to the Family Security Friendly Society. Mr. Cook had previously informed me that moneys were due to be paid by the Friends Provident Insurance Company to either Portfolio Holdings Limited or Portfolio Nominees Pty. Ltd .. which were in no respects derived from funds which originated from the Family Security Friendly Society. To the best of my recollection and belief I said to Mr. Cook that money such as this should be paid into a separate account of the company, and that any application to use those moneys would probably not be as strenuously defended by the Crown or the Australian Securities Commission. To the best of my recollection at that time, no discussion took place which related to the use of those funds by Mr. Cook for personal living expenses. I do recall however informing Mr. Cook that if he was to earn income, the Crown or the Australian Securities Commission would be likely to apply to the Court to reduce his daily living allowance of $200." A number of observations should be made about this extract from Mr. Garland's affidavit. Firstly, it should be realised that the major allegation made against the Cooks is that various of their own assets were derived from misappropriation, including misappropriation in respect of the affairs of Family Security Friendly Society. Thus when Mr. Garland spoke of establishing a separate account, "so that such moneys could be clearly identified', he had this aspect in mind. Secondly, Mr. Garland -- 24 of 28 -- 18 made it very clear to Mr. Cook that to spend moneys earned by him, he would require approval from the Court, although he predicted (reasonably in my view) that an application to do so would not be strenuously opposed. Thirdly, he suggested that if income were earned, there would probably be a reduction in permitted daily drawings. There is a certain ambiguity in this aspect of the advice in the sense that it might imply that until the drawing limit was reduced, Mr. Cook was permitted to spend his daily living allowance plus any income. It would not be the daily living allowance which would be reduced. Rather, the source would be changed so that the allowance would come from income rather than accumulated (; cash. Although the stated inference is barely open if the passage be taken in isolation, when it is read in the context of the rest of the advice, particularly the advice as to maintaining a separate account and the need to obtain approval to expend such funds, I do not consider that Mr. Cook could reasonably have inferred from Mr. Garland's advice that he was at liberty to () spend funds in the nature of income earned by him after the date of the undertaking. It may have been more appropriate had Mr. Cook not be restrained from dealing with future income, having regard to the nature of the substantive proceedings, but he gave the undertaking to ensure access to a substantial weekly sum. He cannot now complain that he gave it. That leaves for consideration Mr. Disspain' s advice. To the extent that Mr. Cook's evidence as to the advice differed from that of Mr. Disspain, I would prefer the latter's evidence, as ("·., L_'; -- 25 of 28 -- 19 I have no confidence in Mr. Cook as a witness. Mr. Disspain gave his advice in mid-to late February, 1991 whilst visiting Mr. Cook on other business. There is no suggestion that he ever acted for Mr. Cook in connection with . the present proceedings. Mr. Disspain said that Mr. Cook, " ... sought my advice in relation to the orders of the Supreme Court which, in effect, I understand prevents him from dealing in his assets or in those assets of his companies. Based on the information Max gave me about the orders I told him that I considered that the orders did not prevent him from accepting gifts, earning income or obtaining new employment. I specifically recall telling Max that, in my opinion, if he won Lotto his prize money would not be caught by the orders. At the time of giving Mr. Max Cook this informal advice I had not seen a copy of the orders in question". It is important that Mr. Disspain had not seen the orders in question. There is also no evidence that he was familiar with the nature of the proceedings. Mr. Cook said that he familiarised Mr. Disspain with the terms of the orders, but even if I were considering the evidence of an apparently credible ( witness, I would have serious doubts about the likelihood of the \_i solicitor having received sufficiently reliable information as to the contents of the order to enable him to give reliable advice. Mr. Cook is a business man and obviously was aware that Mr. Disspain had not seen the orders. It would be quite unreasonable for Mr. Cook to choose to act in reliance upon Mr. Disspain 1 s advice rather than Mr. Garland 1 s, given the favoured position of the latter as to knowledge of the terms of the order and the circumstance in which it was granted. Having regard to my view of Mr. Cook as a witness, I am satisfied beyond reasonable doubt that he did not act in reliance upon any belief -- 26 of 28 -- 20 that he was entitled to spend money received after the date of the undertaking. In any event, this defence would not justify all of the amounts received other than by way of drawings and expended. Only some of those amounts could be called "income" in the sense intended by Mr. Cook in his enquiry of Mr. Garland. The tax refunds and the major part of the amount deposited on 17th May could not be so described. In view of my conclusion as to reliance, this aspect is of no significance. I am satisfied that Mr. Cook knew at all material times that he could not ~xpend moneys beyond the authorized drawings, including funds coming into possession after the date of the undertaking. I am satisfied that his explanation of reliance on such advice is no more than an ex post facto rationalisation. As to Mr. Cook, I am therefore satisfied beyond reasonable doubt as follows:- (1) That between 5th February and 26th November, 1991 he knowingly expended sums totalling in excess of $200 () per day, particularly in the period prior to 1st August; (2) That this was in breach of his undertaking; (3) That he knew that it was in breach of his undertaking and that he so acted in contumacious disregard of the undertaking; ( 4) That there were other breaches of the undertaking, including the deposit of drawings to credit of the Metway account and disbursement of funds allegedly -------- ------------- --------- - -- 27 of 28 -- I 21 received by way of gift, but that such breaches should be treated as technical only. As to Mrs. Cook, I am satisfied beyond all reasonable doubt as follows: (a) That she was aware of the re-activation of the Metway account and a party thereto; (b) That she knew that funds were being deposited into that account from drawings pursuant to the undertaking and that her tax refund was so deposited; (c) That she knew that funds were being drawn from that account to meet outgoings; (d) That she left all of her financial affairs in the hands of her husband. I am not satisfied that her conduct constituted other than technical breaches of the undertaking. I will hear submissions as to penalties and costs. -- 28 of 28 --