Koko Black Group Pty Ltd (Administrators Appointed) v Kallure
[2016] VSC 484
•12 AUGUST 2016
| IN THE SUPREME COURT OF VICTORIA AT MELBOURNE | Not Restricted |
COMMERCIAL COURT
COMMERCIAL LIST
S ECI 2016 000012
| ACN 113 603 357 PTY LTD (ADMINISTRATORS APPOINTED) (ACN 113 603 357) (FORMERLY KOKO BLACK GROUP PTY LTD) | |
| and | |
| ACN 600 166 667 PTY LTD (ADMINISTRATORS APPOINTED) (ACN 600 166 667) (FORMERLY KOKO BLACK CHOCOLATE PTY LTD) | Plaintiffs |
| v | |
| SHIVASHANKAR BHIMAREDDY KALLURE | |
| and | |
| RANJANA BASAPPA GIRIRADDER | Defendants |
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JUDGE: | ELLIOTT J |
WHERE HELD: | MELBOURNE |
DATE OF HEARING: | 12 AUGUST 2016 |
DATE OF RULING: | 12 AUGUST 2016 |
CASE MAY BE CITED AS: | KOKO BLACK GROUP PTY LTD (ADMINISTRATORS APPOINTED) v KALLURE |
MEDIUM NEUTRAL CITATION: | [2016] VSC 484 |
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DECLARATORY RELIEF – Jurisdiction – Discretion – Circumstances where properly exercised – Proposed relief consented to or unopposed – No defences filed – Privilege against self-incrimination – Admissions – Proceeding settled subject to certain declarations being made – Supreme Court Act 1986 (Vic), s 36.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr J Mereine | HWL Ebsworth |
| For the First Defendant | Mr C Rechnitzer, solicitor | RG Legal Pty Ltd |
| For the Second Defendant | Mr A Condello, solicitor | Condello Lawyers |
HIS HONOUR:
A. Introduction
The plaintiffs seek final relief in this proceeding, including certain declarations. The defendants consent to most of the proposed relief, and do not oppose the remainder. The principal issue for the court was whether it is appropriate to grant the declaratory relief sought when there has been no trial of the merits of the issues raised in the proceeding.
For the reasons that follow, the relief sought will be granted.
B. Background
This proceeding was commenced in January 2016, when the plaintiffs, without notice, sought freezing orders against the defendants. On 22 January 2016, Hargrave J made orders (“the Freezing Orders”), which included the following:
FREEZING OF ASSETS
6.You must not remove from Australia or in any way dispose of, deal with or diminish the value of any of your assets which are in Australia.
7. For the purposes of this order—
(a) your assets include—
(i)all your assets, whether or not they are in your name and whether they are solely or co‑owned;
(ii)any asset which you have the power, directly or indirectly, to dispose of or deal with as if it were your own (you are to be regarded as having such power if a third party holds or controls the asset in accordance with your direct or indirect instructions); and
(iii) the following assets in particular—
(A)the property known as 7 Walton Heath Crescent, Mount Waverley, Victoria 3149, more particularly described as Certificate of Title, Volume 08722 Folio 143 or, if it or any part of it has been sold, the net proceeds of the sale;
(B)any shares owned by the first defendant or, if any shares have been sold, the net proceeds of the sale;
(C)Commonwealth Bank of Australia account allocated BSB 062000 Account Number 11996655 and Australia & New Zealand Banking Group bank account allocated BSB 013350 and Account Number 200589796; and
(D) any other bank accounts held in your names,
(b)the value of your assets is the value of the interest you have individually in your assets.
PROVISION OF INFORMATION
8. Subject to paragraph 9 —
(a)you must, at or before the further hearing on the return date (or within such further time as the Court may allow), to the best of your ability inform the plaintiffs in writing of all your assets in Australia, giving their value, location and details (including any mortgages, charges or other encumbrances to which they are subject) and the extent of your interest in the assets;
(b)without limiting the generality of paragraph (a), by 4.00 pm on 29 January 2016 the first defendant must produce to the plaintiffs a copy of all bank statements in the period 1 May 2010 to present for the following bank accounts:
(i)Commonwealth Bank of Australia account allocated BSB 067167 Account Number 10663283;
(ii)Commonwealth Bank of Australia account allocated BSB 063138 Account Number 10443476;
(iii)Commonwealth Bank of Australia account allocated BSB 067167 Account Number 11687930; and
(iv)Commonwealth Bank of Australia account allocated BSB 062000 Account Number 11996655;
(c)without limiting the generality of paragraph (a), by 4.00 pm on 29 January 2016 the second defendant must produce to the plaintiffs a copy of all bank statements in the period 1 May 2010 to present for the Australia & New Zealand Banking Group bank account allocated BSB 013350 and Account Number 200589796;
(d)by 4.00 pm on 29 January 2016, you must swear, file and serve on the plaintiffs an affidavit setting out the above information.
In the seeking of those orders, affidavits were filed by the plaintiffs setting out the basis for a claim that the first defendant, Shivashankar Bhimareddy Kallure (“Kallure”), had breached fiduciary duties owed to the first plaintiff, ACN 113 603 357 Pty Ltd (administrators appointed) (formerly Koko Black Group Pty Ltd) (“Koko Black Group”) and had misappropriated funds. The affidavit evidence also suggested the second defendant, Ranjana Basappa Giriradder (“Giriradder”), who is the wife of Kallure, had knowingly and dishonestly been in receipt of some of the misappropriated funds.
Subsequent to the making of the Freezing Orders, further affidavits were filed by the plaintiffs. Those affidavits contained more details of the allegations made, essentially to establish that all assets in the name of Kallure or Giriradder were rightly the plaintiffs’ property. This was put on the basis that a remedial constructive trust ought to be imposed, primarily because of the breaches of fiduciary duties.[1]
[1]See, for example, Nolan v Nolan [2004] VSCA 109, [60] (Ormiston JA, with whom Chernov and Eames JJA relevantly agreed).
Further, on 3 February 2016, Kallure filed an affidavit pursuant to the Freezing Orders. In that affidavit he affirmed that the assets and liabilities set out were all the current assets and liabilities of the defendants.
On 13 May 2016, the plaintiffs filed a statement of claim. The statement of claim pleaded the material facts reflecting much of the evidence that had been provided by affidavit before then.
Pursuant to orders made by consent on 7 April 2016, Kallure and Giriradder were required to file and serve a defence by 4.00 pm on 3 June 2016. The defendants failed to do so. The defendants’ solicitors informed the court today that the defendants had elected not to file a defence. Further, Kallure’s solicitor stated from the bar table that Kallure was exercising his right to claim privilege against self-incrimination in his refusal to file a defence in accordance with court orders.
It was in this interlocutory context that the court was informed by all the parties that the proceeding had settled. However, it was a condition precedent to the completion of settlement that certain declarations be made by the court.
C. Power of the court to make declarations
The court has inherent and statutory power to grant declaratory relief.[2] The power is discretionary. It is neither possible nor desirable to fetter the manner of its exercise.[3] However, the power, while wide, is not unlimited. The exercise of the discretion is confined by considerations that mark out the boundaries of judicial power. Such considerations include:
(1)The declaratory relief must not be directed to answering abstract or hypothetical questions, but instead must be directed to the determination of legal controversies.[4]
(2)The person seeking relief must have “a real interest” in seeking the relief.[5]
(3)The power to make a declaration will not be exercised “when the court is called upon to answer a question that is purely hypothetical”[6] or if relief is “claimed in relation to circumstances that had not occurred and might never happen”.[7]
(4)Declaratory relief may not be appropriate where the “declaration will produce no foreseeable consequences for the parties”.[8]
[2]Ainsworth v Criminal Justice Commission (1992) 175 CLR 564, 581-582 (Mason CJ, Dawson, Toohey and Gaudron JJ); Supreme Court Act 1986 (Vic), s 36.
[3]Forster v Jododex Australia Pty Ltd (1972) 127 CLR 421, 437.9 (Gibbs J).
[4]In Re Judiciary and Navigation Acts (1921) 29 CLR 257, 267.2 (Knox CJ, Gavan Duffy, Powers, Rich and Starke JJ).
[5]Forster v Jododex Australia Pty Ltd (1972) 127 CLR 421, 437 (Gibbs J).
[6]University of New South Wales v Moorhouse (1975) 133 CLR 1, 10.2 (Gibbs J).
[7]At 10.5.
[8]Gardner v Dairy Industry (NSW) (1977) 18 ALR 55, 69.7 (Mason J, with whom Jacobs and Murphy JJ agreed). See also 71.6 (Aickin J), cf 60.7 (Barwick CJ).
D. The declarations sought
The first of the declarations sought is unopposed; namely, that Kallure breached fiduciary duties which he owed to Koko Black Group. In addition, the following relief is sought by consent:
(1)A declaration that each of the defendants holds the property located at 7 Walton Heath Crescent, Mount Waverley, 3149, more particularly described in certificate of title volume 08722 folio 143 on trust for Koko Black Group.
(2)A declaration that Kallure holds the following shares in his share trading account with Commonwealth Securities Limited, allocated account number 4099836, on trust for Koko Black Group:
(a) 30,000 shares in Austin Engineering Limited.
(b) 94,500 shares in Arrium Limited.
(c) 50,000 shares in BC Iron Limited.
(d) 65,000 shares in Dick Smith Holdings Limited.
(e) 40,000 shares in Liquefied Natural Gas Limited.
(f) 250,000 shares in NRW Holdings Limited.
(g) 15,000 shares in Santos Limited.
(Referred to below as “the Shares”.)
E. The defendants’ submissions
On 11 August 2016, Kallure filed an outline of submissions as to why the declarations, with the exception of the first declaration, ought to be made. In essence, it was put on the basis that the declarations should be made as that is what the parties had agreed. Kallure was given the opportunity to make oral submissions to the court in respect of the relief that is sought, which were much to the same effect. Essentially, Giriradder adopted the submissions of Kallure. The mere fact that the parties have agreed to the relief is not, of itself, a proper justification for granting declaratory relief.[9]
[9]See par 10 above.
F. The plaintiffs submissions in reliance upon admissions
In response to the position of the defendants, the plaintiffs also submitted the court should declare that Kallure breached fiduciary duties that he owed to Koko Black Group and, in those circumstances, make the declarations sought in the proposed consent orders. However, in addition to the agreement of the parties, the plaintiffs submitted as follows:
(1)First, the declaratory relief is directed to the determination of a real controversy: namely, that Kallure owed fiduciary duties to Koko Black Group; that Kallure breached those fiduciary duties; and that Kallure used proceeds which he obtained from his breaches of the fiduciary duties to acquire real property and shares.
(2)Secondly, Koko Black Group has a real interest in seeking the relief. Koko Black Group seeks to recover its property for the benefit of its creditors. Koko Black Group is currently under administration.
(3)Thirdly, notwithstanding that they are substantially consenting to the orders, the defendants are the proper contradictors. The real property which is the subject of the proposed consent orders is in the name of both of the defendants. Further, the Shares are in Kallure’s name.
(4)Fourthly, the declaratory relief will produce real foreseeable consequences for all the parties. Koko Black Group will have its interest in the real property and the Shares recognised. It was submitted this will effectively allow Koko Black Group to direct the realisation of those assets so that it can recover Koko Black Group’s property for the benefit of its creditors.
As noted above, the defendants have failed to file and serve defences. In those circumstances, the matters the subject of the statement of claim are taken to be admitted.[10] Accordingly, the court is in a position to make the requisite findings which establish the basis for the imposition of a constructive trust in respect of the real property and the Shares. This is particularly the case in circumstances where extensive affidavits have been provided and filed in this proceeding underlying the allegations made in the statement of claim and the defendants have, on advice, declined to file any court document to challenge those allegations.
[10]Finlayson v Indigenous Business Australia [2014] VSCA 95, [32] (Almond AJA, with whom Ashley JA agreed).
Relevantly, the following matters are taken to be admitted by the defendants:
(1)By written agreement, made on 17 May 2010 between Koko Black Group and Kallure, Koko Black Group agreed to employ Kallure on a fulltime basis as an accounts manager (“the Employment Contract”).
(2)There were terms of the Employment Contract, amongst others, that Kallure would perform his duties in good faith and fairly having regard to the best interests of Koko Black Group.
(3)Kallure was employed as an accounts manager from 17 May 2010 to about 28 October 2011 and as a financial controller from about 28 October 2011 to about 3 July 2015, when he resigned (“the Period of Employment”).
(4)During the Period of Employment, Kallure's responsibilities and duties were, amongst other things, to:
(a)Manage the accounting and book keeping function of Koko Black Group and other companies within the group of companies known as Koko Black.
(b)Manage the accounts payable function of Koko Black Group and other companies within Koko Black, including paying suppliers of Koko Black Group from funds in Koko Black Group's bank accounts.
(c)Manage the accounts receivable function of Koko Black Group and other companies within Koko Black, including invoicing customers of Koko Black Group and directing the customers in relation to the payment of money owed to Koko Black Group.
(d)Report to the director of Koko Black Group regarding the financial performance and positon of Koko Black Group and other companies within Koko Black.
(e)Participate in making decisions that affected the whole, or a substantial part, of the business of Koko Black Group.
(5)For the purposes of performing his duties and fulfilling his responsibilities during the Period of Employment, Kallure was given access to:
(a)The payment platform known as CommBiz, which was used to process and record instructions to pay creditors of Koko Black Group and other companies within Koko Black directly from the relevant bank accounts.
(b)An email address known as “[email protected]”, from which Kallure could communicate with Koko Black Group’s customers on behalf of Koko Black Group and other companies within Koko Black.
(6)By reason of the matters set out above, during the Period of Employment, Kallure owed Koko Black Group a fiduciary duty to:
(a)Exercise the power and authority reposed in him by Koko Black Group solely for the benefit of Koko Black Group and not for his own benefit or the benefit of any other person or entity.
(b) Not make an unauthorised profit from his position.
(c)Unless authorised to do so, not place himself in a position where his duties to Koko Black Group conflicted with his personal interest or his obligations to third parties.
("the Fiduciary Duties").
(7) During the Period of Employment, Kallure, amongst other things:
(a)Accessed the payment platform known as CommBiz and submitted instructions for payment to be made to Koko Black Group’s suppliers and other creditors ("the Payment Instructions"). The Payment Instructions caused Koko Black Group to pay money into the bank account of Kallure, Giriradder and Smart Investments Pty Ltd (“Smart Investments”), instead of the suppliers and other creditors of Koko Black Group (“the Diverted Supplier Payments”).
(b)Caused Koko Black Group to ensure invoices to customers of Koko Black Group contained the bank account details of either Kallure or Smart Investments, instead of the bank account details of Koko Black Group.
(c)Directed customers of Koko Black Group to pay debts owed to Koko Black Group into the bank accounts of Kallure and Smart Investments, instead of Koko Black Group (“the Diverted Customer Payments”).
(d)Provided $250,000 to Hills 100 Co Pty Ltd (“Hills 100”) purportedly as a loan, using the Diverted Supplier Payments and Diverted Customer Payments and directed that the interest be paid to the bank account maintained by Giriradder at Australia and New Zealand Banking Group Ltd, BSB 013 350, account number 200589796 ("the Giriradder Account").
(8) Kallure breached the Fiduciary Duties for the following reasons:
(a)Kallure caused Koko Black Group to make Diverted Supplier Payments totalling $698,944.
(b)Kallure caused customers of Koko Black Group to make Diverted Customer Payments totalling $184,367.
(c)Kallure was not authorised by Koko Black Group to cause each of the Diverted Supplier Payments and the Diverted Customer Payments to be made.
(d)Kallure caused $31,666 to be paid into the Giriradder Account, purportedly for interest owed on the purported loan of $250,000.
(e)Kallure did not disclose to Koko Black Group: (i) that the Payment Instructions would cause Koko Black Group to pay money into the bank accounts of Kallure, Giriradder and Smart Investments instead of the suppliers and other creditors of Koko Black Group; (ii) each of the Diverted Customer Payments; and (iii) that $250,000 was paid to Hills 100 using the Diverted Supplier Payments and Diverted Customer Payments.
(9)Kallure's breaches of the Fiduciary Duties have caused Koko Black Group to suffer and continue to suffer loss and damage totalling $914,977, plus consequential losses.
In the circumstances, the court has a proper basis to find, and I do so find, that Kallure breached the Fiduciary Duties owed to Koko Black Group. Insofar as the imposition of a constructive trust over real property is concerned, the following matters are taken to be admitted by the defendants:
(1)The defendants are the registered proprietors of the property located at 7 Walton Heath Crescent, Mount Waverley, Victoria, 3149, more particularly described as certificate of title volume 08722 folio 143 (“the Walton Crescent Property”).
(2)The deposit for the purchase of the Walton Crescent Property was entirely funded from Diverted Supplier Payments.
(3)At least $23,500 of the settlement payment of $62,839 for the Walton Crescent Property was funded from Diverted Supplier Payments.
Insofar as the imposition of a constructive trust over the Shares is concerned, the following matters are taken to be admitted by the defendants:
(1)Diverted Supplier Payments funded Kallure's purchase of the 94,500 shares in Arrium Limited and 240,000 shares in NRW Holdings Limited.
(2)Diverted Supplier Payments and proceeds from the sale of shares which themselves were funded by Diverted Supplier Payments, funded Kallure's purchase of the Shares.
G. Conclusion
There is nothing to suggest any person other than Koko Black Group makes any claim with respect to the Walton Crescent Property or the Shares.
In the circumstances set out above, the court should declare that Kallure breached the Fiduciary Duties which he owed to Koko Black Group and that the other declarations, sought by consent, ought to be made. Without the declarations, there will not be a determination of the serious legal controversies raised in this proceeding. Further, there is utility in such declarations being made.
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