Nedroc Pty Ltd v Welling - [2016] WASC 363

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: NEDROC PTY LTD -v- WELLING [2016] WASC 363

CORAM: PRITCHARD J

HEARD: 17 OCTOBER 2016

DELIVERED : 17 OCTOBER 2016

FILE NO/S: CIV 2756 of 2016

BETWEEN: NEDROC PTY LTD
Plaintiff
AND
PAULINE LESLEY WELLING
First Defendant
BARRY KIM WELLING
Second Defendant

Catchwords:

Freezing order - Rules of the Supreme Court 1971 (WA) O 52A - Principles applicable to grant of freezing order - Whether plaintiff has good arguable case - Whether there is a danger that prospective judgment would be unsatisfied - Whether the balance of convenience favours the grant of a freezing order

Freezing order - Joint freezing order - Whether appropriate to have freezing order restraining multiple parties

Legislation:

Rules of the Supreme Court 1971 (WA), O 52A

Result:

Freezing orders granted

Category: B

Representation:

Counsel:

Plaintiff:     Mr J E Scovell
First Defendant              :     No appearance
Second Defendant         :     No appearance

Solicitors:

Plaintiff:     Vogt Graham Lawyers
First Defendant              :     No appearance
Second Defendant         :     No appearance

Cases referred to in judgment:

Barnes v Addy (1874) 43 LJ Ch 513
BCBC Singapore Pte Ltd v PT Bayan Resources TBK [No 3] [2013] WASC 239
Bell Group Ltd (In Liq) v Westpac Banking Corporation [No 9] [2008] WASC 239
Cardile v LED Builders Pty Ltd [1999] HCA 18; (1999) 198 CLR 380
Delryk Pty Ltd v McKay atf Kaylin Retirement Fund [2009] WASC 305
Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89
Finn Kayaks Pty Ltd v Harwood [2013] WASC 339
Jackson v Sterling Industries Ltd [1987] HCA 23; (1987) 162 CLR 612
Mitchell v Saengjan (1994) 117 FLR 273
Mort v Woolf [2002] VSC 503
Ninemia Maritime Corporation v Trave GmbH & C KG [1984] 1 All ER 398
Patterson v BTR Engineering (Australia) Ltd (1989) 18 NSWLR 319
Perdaman Chemicals & Fertilisers Pty Ltd v Griffin Coal [2011] WASC 188
Uniflex (Australia) Pty Ltd v Hanneybel (Unreported, WASC, Library No 980465, 17 August 1998)
Victoria University of Technology v Wilson [2003] VSC 299

PRITCHARD J:

(This judgment was delivered extemporaneously on 17 October 2016 and has been edited from the transcript.)

This is an application by the Plaintiff by chamber summons dated 6 October 2016 for a freezing order pursuant to O 52A of the Rules of the Supreme Court 1971 (WA) (RSC) as against both the First and Second Defendants jointly. For the reasons which follow, I have come to the conclusion that a freezing order should be made as against the First Defendant, and that a separate freezing order should be made as against the Second Defendant, but that each freezing order should be for a different sum than is sought in the minute of proposed orders before the Court.
In these reasons, I deal with the following matters:
1.The factual background;
2.The application before the Court, the basis for it and the evidence relied upon;
3.The principles applicable to the grant of a freezing order;
4.Whether the Plaintiff has made out a good arguable case on a cause of action in this Court as against the First Defendant;
5.Whether the Plaintiff has made out a good arguable case on a cause of action in this Court as against the Second Defendant;
6.The risk of dissipation of the assets of the First Defendant;
7.The risk of dissipation of the assets of the Second Defendant; and
8.The appropriate quantum of the freezing orders.

The factual background

The Plaintiff appears to be a relatively small family‑run company which is engaged in transport services. The First Defendant was employed by the Plaintiff from about September 2011. Her salary over time increased from $45,000 to about $62,000. Her duties during that period were in the nature of an accounts administrator, involving the processing of payments and cheques, bank reconciliations, the reconciliation of creditor accounts, processing entries into business records, reconciling the use of fuel cards of the Plaintiff, dealing with customers in relation to the services provided by the Plaintiff and their costs, and the processing of salary and wages. I note that the First Defendant's employment with the Plaintiff appears to have come to an end in or about August of this year, at which point in time the First Defendant ceased attending work for the Plaintiff.
The present action has been commenced by a writ of summons which has been indorsed to indicate that the claim as against the First Defendant is for a breach of contract by the First Defendant arising from her contract of employment, or, alternatively, a breach of fiduciary duties owed by the First Defendant as an employee of the Plaintiff.
In respect of the Second Defendant, the indorsement on the writ indicates that the Plaintiff's claim is that the Second Defendant knew, or, alternatively, ought to have known, that the First Defendant has engaged in conduct constituting a breach of her fiduciary duties and the Second Defendant has been the recipient of funds of the Plaintiff as a consequence of the breach of those duties.
The factual basis for the Plaintiff's application for a freezing order is set out in the affidavits relied upon by the Plaintiff in support of its application for a freezing order. Those affidavits are the affidavit of Kim John Ray sworn 6 October 2016 (Mr Ray is the operations manager for the Plaintiff); the affidavit of Mr Denys Andrew Dumbreck sworn 6 October 2016 (Mr Denys Dumbreck is the sole director of the Plaintiff); the affidavit of Kim Dumbreck sworn 6 October 2016 (Mr Kim Dumbreck is the son of Mr Denys Dumbreck); the affidavit of Coralie Dumbreck sworn 6 October 2016 (Ms Coralie Dumbreck is the administration manager for the Plaintiff); the affidavit of Katelyn Alexandria Dumbreck sworn 6 October 2016 (Ms Katelyn Dumbreck is the marketing and operations officer for the Plaintiff); and the affidavit of Michael Shanahan sworn 6 October 2016 (Mr Shanahan is a Chartered Accountant and a partner at McGrathNicol Chartered Accountants). McGrathNicol was engaged by the Plaintiff to carry out a forensic accounting investigation of the Plaintiff's financial accounts and provide an interim investigation report, which was prepared by Mr Shanahan (the Report).
The affidavits in support of the freezing order refer to evidence which has come to the Plaintiff's attention of what appear to be unauthorised payments made by the Plaintiff, in respect of which it appears that the First Defendant has been involved. Those payments include a number of cash cheques which appear to have been drawn, to the benefit of the First Defendant personally, as well as certain other unauthorised transactions, on which I will elaborate later in these reasons.

The application before the Court, the basis for it and the evidence relied upon

I will turn now to the affidavit of Mr Shanahan in more detail to briefly sketch out the basis for the Plaintiff's application for a freezing order as the contents of Mr Shanahan's investigation form the basis, in large part, for that application.
The result of the preliminary investigations undertaken by McGrathNicol, as outlined in the Report, suggest that some $586,447.28 worth of 'inappropriate' payments have been made by the Plaintiff's business over time. Those payments include various payments to suppliers which do not match invoices issued by those suppliers including, in very large portion, payments to suppliers of office stationery. The Report indicates that there is some information which suggests that the First Defendant was responsible for placing orders for the purchase of the stationery supplies in question. At this stage, it is considered that $481,670.95 worth of payments for office stationery were 'inappropriate'. The payments appear to have been made primarily for purchasing items such as toner and drums for use in printers, yet the information before the Court suggests that the requirements of the Plaintiff's business for such items are very modest indeed and would not, in any way, support the volume of those items ordered from the stationery suppliers in question.
In addition, the Report indicates that the First Defendant has been the recipient of numerous gifts including a $35,000 prepaid Visa card, televisions and an iPad, which appear to have been gifted to her by the stationery suppliers in question, in recognition of her value to them as a customer.
The Report also suggests that there has been an inappropriate use of cash cheques by the Plaintiff's business and that the First Defendant has been involved in the cashing of those cheques. At this stage, it is not entirely clear to whom a large part of the proceeds of those cheques has been paid, but the Report indicates that there is some information that suggests that an amount of just under $20,000 has been paid to the First Defendant personally.
Another matter to note from the Report, which is of present relevance, is that there appears to have been a misuse of fuel cards of the Plaintiff, and there is information to suggest that that misuse was by the First Defendant and persons who appear to be connected to her. Text messages recovered from a backup of the First Defendant's mobile telephone suggest that persons with the same names as the First Defendant's family members have sent text messages to her with respect to the use of fuel cards. Those family members include a person with the same name as the First Defendant's son and a person referred to as 'Baz' (who is thought to be the Second Defendant).
The final matter arising from the Report to which I should make reference is that one of the 'inappropriate' payments which appears to have been made to the First Defendant was apparently used to fund a payment to a mortgage account held jointly by the First and Second Defendants in respect of a property at Muchea, which is said to have been purchased in 2015. The value of that property appears to have been approximately $350,000 at the time of purchase.

The principles applicable to the grant of a freezing order

The principles applicable to the grant of a freezing order under O 52A RSC are well-established.[1]
[1] See, for example, Perdaman Chemicals & Fertilisers Pty Ltd v Griffin Coal Mining Co Pty Ltd [2011] WASC 188 [129] ‑ [144] (Beech J).
A freezing order may be made under O 52A r 5(4) RSC against a prospective judgment debtor arising from a cause of action in this Court if certain requirements are met. Those requirements are, first, that the applicant must have a good arguable case on an accrued or prospective cause of action that is justiciable in this Court. Secondly, the Court must be satisfied, having regard to all of the circumstances, that there is a danger that the prospective judgment will be wholly or partly unsatisfied because, amongst other things, the prospective judgment debtor may abscond or because the assets of the prospective judgment debtor may be disposed of, dealt with or diminished in value. Finally, given that a freezing order is a discretionary remedy, the Court must consider whether the balance of convenience favours the grant of the freezing order.
The purpose of a freezing order under O 52A is to ensure the efficacy of the execution which would lie against an actual or prospective judgment debtor by preserving funds to meet a judgment, or prospective judgment, of the Court. Accordingly, the object of such an order is to prevent the abuse or frustration of the Court's processes. That does not necessarily require that the defendant have any intention to frustrate those processes.[2]
[2] See Perdaman Chemicals & Fertilisers Pty Ltd v Griffin Coal Mining Co Pty Ltd [2011] WASC 188, 134 ‑ 135 (Beech J).
The High Court in Cardile v LED Builders[3] has made clear that the grant of a Mareva order (which is similar to a freezing order under O 52A) should be approached with a high degree of caution. That is because as a matter of practical reality, a freezing order operates as a tight 'negative pledge' species of security over property and a contempt sanction is attached to the order.[4] As Beech J noted in Perdaman Chemicals & Fertilisers Pty Ltd v Griffin Coal Mining Co Pty Ltd, a Mareva order is 'a drastic remedy which should not be granted lightly'.[5] A further reason for exercising caution is that, in many cases, there may be difficulties associated with the quantification and recovery of damages pursuant to an applicant's undertaking as to damages if it were to turn out that the order should not have been made.[6]
[3] Cardile v LED Builders Pty Ltd [1999] HCA 18; (1999) 198 CLR 380.
[4] Perdaman Chemicals & Fertilisers Pty Ltd v Griffin Coal Mining Co Pty Ltd [2011] WASC 188 [139] (Beech J).
[5] Perdaman Chemicals & Fertilisers Pty Ltd v Griffin Coal Mining Co Pty Ltd [2011] WASC 188 [139] (Beech J).
[6] Perdaman Chemicals & Fertilisers Pty Ltd v Griffin Coal Mining Co Pty Ltd [2011] WASC 188 [140] (Beech J).
Before turning to the particular requirements of O 52A as they apply in this case, I should add that an application for a freezing order is typically made on an ex parte basis. That has not been the case here, somewhat unusually. Counsel for the Plaintiff has confirmed that the Plaintiff has served each of the Defendants with the writ and copies of all of the documentation in support of the application for the freezing order, including the chamber summons. Affidavits of service have been provided to the Court to indicate that those documents were served on the Defendants on 12 October 2016. Counsel for the Plaintiff has advised the Court that there have been discussions between the solicitors for the Plaintiff and solicitors apparently engaged by the Defendants. However, no appearance has yet been filed on behalf of the Defendants and there has been no appearance today by any legal representative of the Defendants or by the Defendants themselves in respect of the freezing order application.

Whether the Plaintiff has made out a good arguable case on a cause of action in this Court as against the First Defendant

In Ninemia Maritime Corporation v Trave Schiffahrtsgesellschaft mbH & Co KG (The Niedersachsen),[7] Mustill J considered that a good arguable case in the context of a Mareva order is one which 'is more than barely capable of serious argument, and yet not necessarily one which the judge believes to have a better than 50% chance of success'.[8] In BCBC Singapore Pte Ltd v PT Bayan Resources TBK [No 3],[9] Le Miere J observed that he did not think that there was any difference between that test and the requirement that the applicant for a Mareva order show 'a reasonably arguable case on legal as well as factual matters', which was the test set out by Gaudron, McHugh, Gummow and Callinan JJ in Cardile.[10] Justice Le Miere applied the same approach in respect of a freezing order application under O 52A. In other words, the requirement that an applicant for a freezing order must establish that there is a good arguable case, for the purpose of O 52A r 5 RSC, is a relatively modest threshold.
[7] Ninemia Maritime Corporation v Trave Schiffahrtsgesellschaft mbH & Co KG(The Niedersachsen) [1984] 1 All ER 398.
[8] Ninemia Maritime Corporation v Trave Schiffahrtsgesellschaft mbH & Co KG (The Niedersachsen) [1984] 1 All ER 398, 404.
[9] BCBC Singapore Pte Ltd v PT Bayan Resources TBK [No 3] [2013] WASC 239 [75] (Le Miere J).
[10] Cardile v LED Builders Pty Ltd [1999] HCA 18; (1999) 198 CLR 380 [68] (Gaudron, McHugh, Gummow & Callinan JJ).
Having regard to the evidence before the Court at this stage, I am satisfied that with respect to the case as against the First Defendant, the Plaintiff has made out a good arguable case on the cause of action that it intends to pursue in this Court. I should observe that having regard to the preliminary nature of the inquiries made by McGrathNicol so far, many aspects of the case which it appears the Plaintiff wishes to advance as against the First Defendant, remain a little unclear. However, it is sufficiently clear at this stage that there is some evidence to support the conclusion that the Plaintiff has a good arguable case that the First Defendant has breached her contract of employment or, alternatively, her fiduciary duties to the Plaintiff insofar as it appears that she has been involved in making orders for office supplies far in excess of those required by the Plaintiff in circumstances where she has, as a consequence, been the recipient of gifts from those office suppliers. In addition, there is a good arguable case shown on the evidence that the First Defendant has herself misused fuel cards of the Plaintiff which she had no entitlement to use, or has enabled or permitted others to use those fuel cards, without any entitlement on their part to do so. Finally, the evidence also suggests that the First Defendant has been the recipient of payments as a result of cashing cash cheques in circumstances where it does not appear that she was entitled to any payment for the sums that she has received as a result.
As I have observed, there are a number of other unauthorised or 'inappropriate' transactions which have been identified in the Report. The extent to which, if at all, those transactions are referable to the First Defendant, or of which she might have been the beneficiary, remains to be seen. However, with respect to the other matters to which I have referred, a good arguable case has been made out that there has been a breach of the First Defendant's contract of employment and further, or, in the alternative, her fiduciary duties as an employee.

Whether the Plaintiff has made out a good arguable case on a cause of action in this Court as against the Second Defendant

In respect of the Second Defendant, the position is rather less clear. The Second Defendant was not an employee of the Plaintiff and the case against him is that he was the knowing recipient of trust property, or, alternatively, was an accessory to a trustee's breach of trust. Those principles emerge from the decision in Barnes v Addy.[11]
[11] Barnes v Addy (1874) 43 LJ Ch 513.
The first limb of Barnes is concerned with the liability of a person as recipient of trust property. For the recipient of trust property to be held liable for knowing receipt, the trustee must have misapplied trust property and the third party must have received the trust property. At the time of receiving the trust property, the third party must have known of the trust and of the misapplication of the trust property.[12]
[12] Bell Group Ltd (in liq) v Westpac Banking Corporation [No 9] [2008] WASC 239 [4748] (Owen J).
The second limb of Barnes is concerned with the liability of a person as an accessory to the trustee's breach of trust. The third party must knowingly have participated and assisted in breaches of duty by the fiduciary. Any breach of trust or fiduciary duty must be dishonest and fraudulent.[13]
[13] See Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89 [179]; and, see generally, Delryk Pty Ltd v McKay atf Kaylin Retirement Fund [2009] WASC 305, 16 - 17 (Le Miere J).
There is some evidence before the Court in the affidavit of Mr Shanahan that suggests that the Second Defendant was a party to the misuse of the fuel cards to which I have already referred. That evidence, as I have outlined above at [12], is in the form of a text message to the First Defendant's mobile telephone which refers to 'Baz' having use of the fuel card. As I have indicated, it is thought that that is a reference to the Second Defendant.
There is also evidence in relation to at least one payment to the joint loan account, which the First and Second Defendants have in respect of the Muchea property. As one of the two joint registered proprietors of the Muchea property, I am satisfied that the Plaintiff has made out a good arguable case that the Second Defendant knew or ought to have known that that payment had been derived from funds which appear to have been improperly obtained by the First Defendant from the Plaintiff.

Counsel for the Plaintiff also urged me to rely upon the gifts received by the First Defendant from office suppliers as forming the basis for an inference that the Second Defendant would have known of those gifts, and, therefore, would have known that they were obtained as a result of unauthorised orders being placed with those office suppliers. I am not persuaded that that link can, at this stage, be drawn on the evidence, having regard to the nature of the gifts involved, most of which were in the form of either a prepaid Visa card or gift vouchers, in circumstances where there is no indication as to knowledge on the part of the Second Defendant of those gifts. Nor do I think it can be assumed that the Second Defendant knew or ought to have known of those matters simply by virtue of his marriage to, and cohabitation with, the First Defendant.
Finally, I should mention that counsel for the Plaintiff also urged me to draw an inference that in applying for the loan in respect of the Muchea property, the First and Second Defendants must have relied upon deposits made in 2015 attributable to the 'inappropriate' transactions to which I have already referred. As there is no evidence in relation to those matters at this stage, I am not satisfied that that inference can be drawn.
Nevertheless, having regard to the use of the fuel card and the mortgage repayment made in respect of the Muchea property, I am satisfied that the Plaintiff has made out a good arguable case on its cause of action as against the Second Defendant.

The risk of dissipation of the assets of the First Defendant

Insofar as the risk of dissipation is concerned, the authorities make clear that the Court's jurisdiction to grant a freezing order is not to be invoked for the purpose of providing a plaintiff with security for its claim, even it if appears that a claim is likely to succeed and even if there is no reason to suppose that the restraint would cause any real hardship to a defendant.[14]
[14] Ninemia Maritime Corporation v Trave Schiffahrtsgesellschaft mbH & Co KG (The Niedersachsen) [1984] 1 All ER 398, 1422.
In Jackson v Sterling Industries Ltd,[15] Deane J said that the purpose of a freezing order:
[I]s not to create security for the plaintiff or to require a defendant to provide security as a condition of being allowed to defend the action against him. Nor is it to introduce, in effect, a new vulnerability to imprisonment for debt, or rather for alleged indebtedness, by requiring a defendant, under the duress of the threat of imprisonment for contempt of court, to find money, which he may or may not have (whether or not at some point of time it may have been available to him), to guarantee to a plaintiff that any judgment obtained will be satisfied. It is to prevent a defendant from disposing of his actual assets (including claims and expectancies) so as to frustrate the process of the court by depriving the plaintiff of the fruits of any judgment obtained in the action.
[15] Jackson v Sterling Industries Ltd [1987] HCA 23; (1987) 162 CLR 612.
Accordingly, the authorities make clear that the Court cannot make a freezing order simply on the basis that a defendant might not meet a judgment debt. More is required to demonstrate that, having regard to all of the circumstances, there is a danger that a prospective judgment will be wholly or partly unsatisfied because the judgment debtor's assets may be disposed of, dealt with or diminished in value.
In cases where there is said to be a risk of dissipation of assets in circumstances where dishonesty is involved,[16] the interests of justice may support the grant of a freezing order to prevent the dissipation of assets in the hearing of an action even though the risk of dissipation is less probable than not.[17] As for the evidence to establish the risk of dissipation, it is rarely the case that there is any direct evidence to establish a danger of dissipation of assets. It is more often the case that the Court will be invited to draw the inference that a danger exists having regard to other conduct of a party. In this respect, it is well established that in determining whether there is a danger of a party disposing of assets in order to defeat a judgment, the Court is permitted to consider the evidence adduced by the applicant to establish its claim to the substantive relief sought. In Patterson v BTR Engineering (Australia) Ltd, Meagher JA observed:[18]
Normally proof of the first ingredient alone [i.e. a good arguable case against the defendant] will not suffice; normally one cannot infer a risk of dissipation of assets from the mere fact that the plaintiff has a prima facie cause of action. In normal circumstances this is particularly so in cases like the present, where there is no evidence at all what the defendant's assets are. However, in exceptional cases (of which the present is unfortunately one) one can infer the existence of the latter ingredient partly or wholly from proof of the former. This may well be the situation in all cases where the plaintiff's prima facie case against the defendant involves proof of gross dishonesty.
[16] See, for example, Finn Kayaks Pty Ltd v Harwood [2013] WASC 339, where an employee of a company was alleged to have been involved in the misappropriation of the company's funds.
[17] Patterson v BTR Engineering (Australia) Ltd(1989) 18 NSWLR 319 [325] (Gleeson CJ); BCBC Singapore Pte Ltd v PT Bayan Resources TBK [No 3] [2013] WASC 239 [97] (Le Miere J). See also, to similar effect, Uniflex (Australia) Pty Ltd v Hanneybel (Unreported, WASC, Library No 980465, 17 August 1998) 9 (White J); Mort v Woolf [2002] VSC 503 [2], [8] ‑ [9] (Beach J); Victoria University of Technology v Wilson [2003] VSC 299 [33] (Redlich J).
[18] Patterson v BTR Engineering (Australia) Ltd(1989) 18 NSWLR 319 [326] (Meagher JA).
The Plaintiff relies on four matters which it says supports the conclusion that there is a danger that a prospective judgment against the First Defendant would be unsatisfied on the basis that the assets of the Defendants may be disposed of, dealt with or diminished in value.
Those considerations are, first, the fact that the inappropriate payments and misuse of funds appears to have taken place over a lengthy period of time, that is, about two years, involved a significant amount of money, and the First Defendant has admitted to at least part of the conduct complained of. (That admission pertains to the misuse of the fuel card and the receipt of gifts.)
Secondly, the Plaintiff points to the fact that the First Defendant, it has been discovered, was in the process of making an application for a personal loan in about August 2016. The Plaintiff does not know whether any of the properties owned by the First Defendant or her husband were proposed to be used to secure the loan, but is concerned that the very fact that a personal loan was being sought suggests that there is a risk of dissipation of the assets involved.
Thirdly, the Plaintiff points to the fact that bank statements of the First Defendant discovered in her desk following her departure from her employment suggests that she makes regular payments to wagering or betting providers.
Fourthly, the Plaintiff relies on text messages sent between the First Defendant and persons who appear to be her family members, which demonstrate that she knew what she was doing was wrong but, nevertheless, continued to engage in that conduct.
In the present case, the evidence, as I have indicated, is rather limited because of the preliminary stage of the investigations pursued by the Plaintiff in respect of both its financial affairs and in respect of the involvement of the First Defendant in unauthorised transactions. I should also observe at this stage that, at present, no criminal charges are being pursued as against the First Defendant, but that position may change depending on the outcome of further investigations.
I do not place any reliance on the second and third factors on which the Plaintiff relies. Nevertheless, having regard to the first and fourth factors on which the Plaintiff relies, it is very clear that the allegations presently made as against the First Defendant involve alleged dishonesty on her part over a lengthy period of time and involving not insignificant amounts of money. In making that observation, I have in mind the ordering of office supplies which resulted in gifts to the First Defendant, the misuse of the fuel card, and the cash cheques attributable to payments made to the First Defendant personally. The amounts involved in that sense, as I have outlined above at [9] ‑ [11], are not insignificant.
Although the case is at a preliminary stage, I am of the view that the evidence leaves me with such a feeling of unease that I am satisfied that there is a sufficient danger that the First Defendant will, in some fashion, deal with her assets in such a way that the Plaintiff, if it were to succeed in this action, would not be able to have its judgment satisfied.[19]
[19] See Mitchell v Saengjan (1994) 117 FLR 273, 284 (Mildren J).

The risk of dissipation of the assets of the Second Defendant

The Plaintiff's case is that the Second Defendant has been involved in the alleged dishonesty allegedly perpetrated by the First Defendant in the sense that he appears to have personally used and benefited from the Plaintiff's fuel cards, in circumstances where he had knowledge of the First Defendant's unauthorised use of the fuel cards. There is also evidence that the Second Defendant may have benefited from the First Defendant's conduct due to the mortgage payment to which I have referred above at [13]. Rather less clear is the extent to which the Second Defendant has benefited from, or had any knowledge of, the First Defendant's involvement in the other 'inappropriate' transactions to which I have already referred.
Nevertheless, the evidence of the Second Defendant's alleged involvement in the misuse of the fuel card, and the mortgage payment, causes me (as in the case against the First Defendant) to have some unease that there is a risk that the Defendants together may well dissipate their assets if they are not restrained by the Court and, were that to occur, any judgment against them might be rendered nugatory.

The quantum of the freezing order and the assets restrained

The Plaintiff seeks a joint freezing order, that is, a freezing order as against both the First and Second Defendants together. Given that a freezing order is in the nature of a penal order to which a contempt sanction is attached, I am not satisfied that it is appropriate to proceed by way of a joint order in the form sought by the Plaintiffs but, rather, that separate orders should be made as against each Defendant in amounts appropriate to each Defendant, having regard to the arguable case that has been made out against each of them thus far.
The Plaintiff seeks to restrain the First and Second Defendants together for an amount of just over $1.56 million but counsel for the Plaintiff recognised that the amount which should properly be restrained may be less. The amount of in excess of $1.56 million represents the totality of the 'inappropriate' payments identified by McGrathNicol thus far together with a very large sum for cash cheques presented against the Plaintiff's operating account which cannot be identified as going to a proper payment. The Plaintiff seeks to restrain that total amount, including the amount referable to the cash cheques, on the basis that the evidence suggests that the First Defendant was involved in the drawing of large sums of cash cheques which are not referable to legitimate debts of the Plaintiff. Having regard to the limited nature of the evidence in respect of those cheques at this stage, it seems to me that the just outcome would not be to restrain the assets of the First Defendant to the entire amount of $1.56 million. Rather, the amount to be restrained should be for the instances where there is evidence of 'inappropriate' transactions, for which the First Defendant was responsible, in the sum of $900,238.98.
In respect of the Second Defendant, the appropriate sum to be restrained is, in my view, less than that sought by the Plaintiff.
The evidence that suggests the Second Defendant participated in the knowing receipt of funds obtained by the First Defendant in breach of her fiduciary duties appears, at this stage, to be confined to his alleged knowledge of the use of funds for a mortgage repayment in respect of the Muchea property and his alleged misuse of the fuel card.
The evidence of the extent to which the Second Defendant had knowledge of the other payments is, at this stage, so vague that I am not satisfied that an order should be made to restrain him with respect to the entire amount which is sought (that is, in the vicinity of $1.56 million). At this stage, I am not satisfied that any judgment debt that the Plaintiff might be able to pursue as against the Second Defendant would be in such a quantum. Instead, in my view, the appropriate and just outcome is to restrain the Second Defendant from the disposition of his assets up to and including the value of the Muchea property, together with an additional modest sum to reflect the value of any benefit he may have obtained from the use of the fuel card. Accordingly, the amount that would appear to be appropriate in those circumstances is an amount in the vicinity of $400,000.
I will discuss the terms of the orders which should be made with counsel in a moment.
Although this was not an application brought without notice to the Defendants, I will nevertheless order that there be a return date for the freezing order application so that if the defendants wish to be heard in respect of the orders that I propose to make, and to adduce any evidence, they may do so.
A final matter which I would emphasise is that the orders that I propose to make reflect the state of the evidence at this stage. Should further evidence come to light which bears on these matters, it will be open to the Plaintiff, or the Defendants, to seek the amendment of those orders. Any such amendment may be addressed at the return date for the application.