Nedroc Pty Ltd v Welling

Case [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.)

  1. 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.

  2. 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…

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AGLC
Nedroc Pty Ltd v Welling [2016] WASC 363
Case
[2016] WASC 363
Decision Date

CaseChat Overview and Summary

Nedroc Pty Ltd, a family-run transport company, brought proceedings against its former employee, the First Defendant, and another party, the Second Defendant, alleging breaches of contract and fiduciary duties. The Plaintiff sought a freezing order to restrain the Defendants from disposing of assets that may satisfy any judgment against them. The Court had to determine if the Plaintiff had a good arguable case, if there was a danger that the prospective judgment would be unsatisfied, and if the balance of convenience favoured the grant of a freezing order. The Plaintiff's case against the First Defendant was that she had placed orders for office supplies far in excess of the company's requirements, resulting in significant payments to suppliers. There was evidence suggesting that the First Defendant had received gifts from these suppliers, including a prepaid Visa card and electronic devices. The Plaintiff also alleged that the First Defendant had misused company fuel cards and received payments from cashing cash cheques, which she was not entitled to.

The Court found that the Plaintiff had established a good arguable case against the First Defendant, as there was evidence supporting the allegations of breach of contract and fiduciary duties. The Court noted that while many aspects of the case were still unclear due to the preliminary nature of the investigation, it was clear that the First Defendant had engaged in conduct that suggested a breach of her employment and fiduciary duties. The Court also found that there was a danger that the prospective judgment would be unsatisfied if a freezing order was not granted, as the Plaintiff had identified significant sums of money that appeared to have been misappropriated by the First Defendant. Finally, the Court determined that the balance of convenience favoured the grant of a freezing order, as the Plaintiff had demonstrated a strong likelihood of success on the merits and the potential for dissipation of assets if the order was not granted. The Court therefore granted a joint freezing order against the Defendants.

The Court made a joint freezing order against the Defendants, restraining them from disposing of assets that could satisfy any judgment against them. The order applied to the First and Second Defendants, as well as any other persons who were in possession of or control over the Defendants' assets. The order was intended to preserve the Defendants' assets until the Plaintiff's claims against them were determined. The Court also made an order that the freezing order would remain in place until the next court sitting or until further order of the Court.

Orders

Orders of the court

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Background

Background to the litigation

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.

Evidence

Evidence Before The Court

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.

Decision

Reasons for decision

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Ratio Decidendi

Legal Principle Established

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.