Nocelle Foods Pty Ltd v Melillo - [2021] SADC 98

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
NOCELLE FOODS PTY LTD AND OTHERS v MELILLO
[2021] SADC 98
Reasons of his Honour Judge Slattery (ex tempore)
18 August 2021
CORPORATIONS - SEARCH AND SEIZURE OF COMPANY'S BOOKS AND PROPERTY
Ex parte application by the six applicants for a search order under UCR 112.
Whether the requirements of UCR 112.3 are satisfied.
Held:
Search order granted.
Uniform Civil Rules 2020 (SA) R 112, referred to.

NOCELLE FOODS PTY LTD AND OTHERS v MELILO
[2021] SADC 98

Application by interlocutory application for a search order under UCR 112. In order to grant such an invasive order, I must be satisfied of the matters prescribed in UCR 112.3. That rule provides as follow:
112.3—Requirements for grant of search order
The Court may make a search order if the Court is satisfied that—
(a)an applicant seeking the order has a strong prima facie case on an accrued cause of action;
(b)the potential or actual loss or damage to the applicant will be serious if the search order is not made; and
(c)     there is sufficient evidence in relation to a respondent that—
(i)    the respondent possesses important evidentiary material; and
(ii)     there is a real possibility that the respondent might destroy such material or cause it to be unavailable for use in evidence in a proceeding or anticipated proceeding before the Court.
The six applicants are related companies. They are called the Nocelle businesses. The respondent was employed by the first applicant as a chief financial officer but he exercised those and other such broader responsibilities in relation to each of the six companies which are the applicants in these proceedings. It appears that these responsibilities evolved over time.
The respondent commenced employment with the Nocelle businesses on 21 January 2019 under a formal employment contract. In his role as Chief Financial Officer he had oversight of all of the transactions involving the Nocelle businesses, he had access to company credit cards and bank accounts and he could authorise transactions on those cards and accounts through internet banking facilities.
He also controlled all of the financial information and records of the Nocelle businesses. In that role, he was also responsible for payroll and salary payments, he managed all financial aspects of the businesses and he managed human resources duties with oversight by a consultant. The businesses did not, until recently, have a Chief Executive Officer or, it seems, a number of what might be described as the usual executives of a business of this size. That fact underscores the importance and responsibilities of the position of the respondent who appears to have fulfilled a number of senior executive roles.
I am satisfied on the evidence before me, especially the affidavit of Mr Josef Capobianco sworn 18 August 2021, that following a decision by the Nocelle companies to change their executive structure, Mr Josef Capobianco has commenced to fulfil what may commonly be understood as the role of the chief executive. In that role, he has identified a number of transactions which he describes as suspicious. I have reviewed the material identified by Mr Capobianco which has led to the formation of his suspicion. I consider that these suspicions are well based. I am also satisfied that each of those suspicious transactions had a connection to the respondent and that the respondent appears to have been drawing expenses on company accounts for his own personal benefit.
There is also evidence that he has been making purchases on company accounts in relation to matters totally extraneous to the businesses of the Nocelle Group and connected entirely with his own personal interests or those of his family. There is also another series of payments that have been made which are to outside service providers such as Apple store, the basis of which is not yet plainly understood.
A meeting was called between Mr Matthew Capobianco, Mr Josef Capobianco and Mr Melillo for 6 August 2021. I am satisfied on the evidence which is described in the 10th exhibit of Mr Capobianco's affidavit, that on the day of the meeting, some 45 separate files in the records of the company were deleted, it appears, by Mr Melillo. Those files are described within Exhibit 10 to the affidavit. Some of the names of those files appear to be unremarkable and without any particular aspect of interest, however the important feature is that each of those 45 files have been deleted. A search has been made by the expert Mr du Plessis of the company’s computer records. Within Exhibit 12 to the affidavit, Mr du Plessis has set out a series of permanent files of the businesses which are not within the business records of the companies but are recorded or stored upon a document described as a Seagate USB external hard drive.
On the material before me it is very difficult to understand why it would be that these corporate records would only be stored upon the Seagate USB external hard drive. In the ordinary course, it may be the case that those files are to be found upon that hard drive. This would allow the respondent to work upon those files independently of his workplace but that those files would be primarily found upon the computer records of the businesses. A significant suspicion arises in relation to each of the files and that the material contained within those files requires further examination. Many of these files again appear by their descriptions to be unremarkable, however that merely underscores the difficulty of attempting to assess why it would be that they would be recorded upon a Seagate USB external hard drive and not upon the company's computer records.
I am satisfied that, on the balance of probabilities, a case is made out by the applicants that this hard drive must be examined, as must any other hard copy documents relating to any transactions involving Nocelle Foods which are available and any documentation concerning other matters identified as suspicious transactions. Such transactions involve a Nespresso coffee machine, a Lenovo P17 laptop and a HP Probook laptop that have been purchased using company funds. I am therefore satisfied that the applicants have made out a strong prima facie case on an accrued cause of action.
For the stated reasons, I am satisfied that absent an inquiry into, for example, the Seagate USB external hard drive, there is a demonstrable potential for actual loss or damage to the applicants because of the absence of records belonging to the company in relation to the transactions of the companies and about which the companies must be fully informed. The absence of that material in the background of the affidavit material satisfies me that if the search order is not made, there is a potential for actual or significant loss to the applicant because of the potential for misappropriation of company funds or company assets.
There is sufficient evidence before me to satisfy me that the respondent possesses important evidentiary material. An example is the Seagate USB external hard drive to which I have earlier made reference. This hard drive should not be in his exclusive possession and I am satisfied on this evidence that an enquiry must be made of the files stored upon that hard drive.
In relation to the real possibility that Mr Melillo might destroy such material, I am satisfied, having regard to Exhibit 10 to the affidavit, and the inquiries made by Mr du Plessis, that there is no reasonable explanation for the deletion by the respondent of the 45 files as identified in Exhibit JC10 to the affidavit. A strong suspicion arises about a connection between the removal of that material and the enquiries then being undertaken by the Nocelle companies.
That being the case, I am satisfied that there is at least a reasonable and I think real possibility that the respondent will destroy any material, or cause it to be unavailable for use in evidence, in any anticipated proceedings against him in relation to the misuse of his position, breach of fiduciary duty, breach of contract, and other claims connected with his position of trust as an employee.
In those circumstances, I am satisfied of each of the matters that I am required to be satisfied under UCR 112.3, to be in a position to grant a search order.
I have received a search order in draft. Schedule A sets out the list of things sought to be seized. The applicants withdraw their application for those lists of things set out in paragraphs 3d, 3e and 3f. I agree with those deletions, because I am not satisfied that a search for those matters would fall within the purview of UCR 112. Those are matters that can be raised and ventilated at a later time.
I am satisfied that a search order should be made in the form of annexure A, but I will hear counsel further in relation to the content thereof.