MJH Group Pty Ltd v Stockhausen

[2017] NSWSC 1702

Supreme Court

New South Wales

Medium Neutral Citation:	MJH Group Pty Ltd v Stockhausen [2017] NSWSC 1702
Hearing dates:	24 November 2017
Date of orders:	24 November 2017
Decision date:	24 November 2017
Jurisdiction:	Equity
Before:	Parker J
Decision:	Application for a stay of proceedings dismissed
Catchwords:	Civil Procedure – stay of proceedings – where defendant involved in concurrent criminal proceedings – disclosure of affidavit material – prejudice – effect on defendant’s right to silence in criminal proceedings – effect on plaintiff’s ability to pursue allegedly misappropriated moneys
Legislation Cited:	Uniform Civil Procedure Rules 2005 (NSW), r 21.7
Cases Cited:	Caesar v Sommer [1980] 2 NSWLR 929
Category:	Procedural and other rulings
Parties:	MJH Group Pty Ltd (Plaintiff) Mackael Stockhausen (Defendant)
Representation:	Counsel: P Kondich (Plaintiff) B Le Plastrier (Defendant)   Solicitors: K&L Gates (Plaintiff) O’Brien Winter Partners (Defendant)
File Number(s):	2017/259258
Publication restriction:	Nil

Judgment – EX TEMPORE

(revised and issued 28 November 2017)

1. This is an application for a stay of pending proceedings in the Court.

2. The proceedings were commenced in late August. The matter came before me on 11 September on an urgent application for freezing orders. I refused the application on that day, but adjourned it for hearing in the Duty List on 14 September. On that occasion, interlocutory orders were made by consent of the parties. Those included an order in the nature of an account. It also included freezing orders against the defendant.

3. The defendant is a former employee of a company known as AdminDirect Pty Ltd, which apparently provided a type of labour supply service to the plaintiff. He worked for the plaintiff as an administrator between March 2015 and August 2017. In that position, he was responsible for managing the orders of computer software and hardware placed by the plaintiff, which appears to have had a business which required it to undertake substantial purchases of software and hardware from external suppliers.

4. In the proceedings, the plaintiff alleges that between November 2016 and July 2017 the defendant, in effect, misappropriated a sum exceeding $1 million by causing the company to pay invoices purportedly rendered by a business known as IT Supplies Direct. The plaintiff alleges that IT Supplies Direct was a business entity of the defendant himself and that the goods and services referred to in the invoices were never supplied.

5. The plaintiff also alleges that the defendant was responsible for having the plaintiff pay for items from third party suppliers which were then installed or used for the benefit of third parties.

6. No defence has yet been filed in the proceedings, but the consent order made on 14 September was as follows:

Within 14 days (or such further period as the Court may on application allow), the defendant file and serve his detailed account, verified by affidavit … of all moneys and property received from the plaintiff.

7. No verified account was filed within the 14 day period. On 3 October, the defendant filed an affidavit. The affidavit is not in the form of a verified account and so far as I can see there is still no account in conventional form identifying all of the transactions which were the subject of the consent order. But the affidavit does refer to the allegations made in the Statement of Claim. The defendant in the affidavit admits various payments were made, although not all, and provides a partial explanation for some of the transactions in question, but again, not all of them.

8. Criminal proceedings have now been instituted against the defendant. The proceedings have been instituted in the Local Court at Maitland.

9. Twenty instances are alleged against the defendant which are said to amount to committing the offence of dishonestly obtaining a financial advantage or causing a disadvantage by deception contrary to the Crimes Act 1900 (NSW), s 192E(1)(b). Of those twenty alleged offences, two are not the subject of the civil proceedings. The other eighteen are. There are further transactions which are the subject of the civil proceedings which are not the subject of the criminal proceedings.

10. Although the offences are currently being prosecuted in the Local Court, it may be that they will proceed on indictment in the District Court. The criminal proceedings will be before the Maitland Local Court for their first mention on 6 December.

11. The defendant now seeks a stay of these proceedings until the criminal proceedings are disposed of. The basis of the application is that, so the defendant contends, there is a potential for these proceedings to interfere with his defence of the criminal proceedings: Caesar v Sommer [1980] 2 NSWLR 929. In particular, counsel for the defendant submitted that the continuation of these proceedings would have the potential to interfere with the defendant's exercise of his right to silence in the criminal proceedings.

12. Counsel evidently had in mind that the defendant's affidavit of 3 October already contained admissions which could be used against him in the criminal proceedings, and that the further continuation of these proceedings might result in further such evidence being made available and then operating to the prejudice of the defendant in his defence of the criminal proceedings.

13. In evaluating this submission, I think it is important to recognise that the affidavit of 3 October and any further affidavit material which may be produced as part of the defence of this case cannot be disclosed without the leave of the Court until and unless it is read in evidence in open Court. This is the consequence of the implied undertaking which covers material produced by compulsion in civil proceedings and requires that the other parties to the proceedings not use that material for any purpose other than for the purpose of conducting the litigation until and unless it is in the public domain. That implied undertaking is now supplemented in some respects by the provisions of Uniform Civil Procedure Rules 2005 (NSW), r 21.7.

14. It would be a clear contempt of court for the plaintiff to provide the affidavit of 3 October, or indeed any other material produced for the purposes of this litigation, including subpoenaed material, to the police until and unless it actually comes into the public domain by being read or tendered in open court. There is nothing in the evidence before me which would suggest that the bringing of the criminal proceedings against the defendant is a result of any such disclosure by the plaintiff.

15. Accordingly, the prejudice that concerns the defendant is one which cannot arise until the point at which these proceedings go to trial, if they ultimately do.

16. As I have mentioned, no defence has yet been filed. It may be that relevant details of the transactions, or even liability for them, may be admitted. Alternatively, the defendant may choose at the hearing to deny or not to admit the allegations against him and to put the plaintiff to proof.

17. The affidavit of 3 October to which I have referred is not an affidavit which has been produced pursuant to a direction that the defendant file his evidence. It may ultimately come to be used for that purpose, but no such directions have yet been made because the issues have not even been defined. The order was made because, as the defendant appears to have accepted at least at an interlocutory level, there was an obligation on him as a person holding a fiduciary position in the plaintiff's organisation to account to the plaintiff for his conduct in that position. But that obligation will not require the defendant to go into evidence or to explain himself at the trial of the allegations which are made against him in the civil proceedings.

18. Even if the defendant does propose to advance some affirmative defence which might prejudice his defence of the criminal proceedings, it will always be possible for this Court by orders made at the hearing to restrict the dissemination of affidavits or other evidentiary material which might give rise to such specific prejudice.

19. For his part, counsel for the defendant submitted that there was no prejudice to the plaintiff from a stay. I cannot agree. The reason why interlocutory orders in the nature of an account are often made in cases of the present type is because the plaintiff is concerned to find out where the money which is the subject of the impugned transactions has gone.   This is because if the plaintiff sustains its allegations at the hearing and the Court finds that the defendant was a fiduciary who has broken his fiduciary obligations, there will be a possibility of tracing the moneys into assets held by the defendant and also the possibility of claims against third parties.

20. It is important in such circumstances for the plaintiff to be given every opportunity to investigate where the moneys have gone so that such proprietary claims and claims against third parties can be identified and pursued before the trail goes completely cold. The fact that the defendant himself has submitted to a freezing order provides the plaintiff with some protection but by no means complete protection.

21. On the evidence, should the criminal proceedings go to the District Court (something which appears by no means unlikely) a hearing date would not be available until February 2019 or thereabouts. In my opinion, there is a clear risk that if the proceedings are stayed at this point, the plaintiff may be prejudiced in its ability to pursue all of the potential means for recovery of the moneys which it claims have been misappropriated.

22. I should add that the stay of the proceedings would prevent the plaintiff from pursuing other means of ascertaining that information if it cannot be obtained through the account which the defendant has already agreed to give, for example, by way of subpoena and the like. Furthermore, there are allegations against the defendant in these proceedings which are not part of the alleged offences in the criminal proceedings.

23. Overall, in my opinion, the balance of convenience is against a stay. There is a lack of particularity in the defendant’s allegation that the proceedings may prejudice his defence. In any event, any such prejudice has not yet arisen and may never arise depending upon the further interlocutory steps in this case. In short, it is too early to tell whether these proceedings will prejudice the defendant at all in the conduct of the criminal proceedings. On the other hand, there is, in my view, an immediate and demonstrated prejudice to the plaintiff if the Court were to stay the proceedings.

24. For these reasons, I must refuse the defendant's application.

25. The orders of the Court are:

1.   Order that the defendant's notice of motion for a stay dated 23 October 2017 be dismissed.

2.   Order that the defendant pay the plaintiff's costs of that motion.

3.   Adjourn the proceedings for further mention before me at 9.30am on 8 December 2017.

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Decision last updated: 07 December 2017