O'Brien v Industry Skills Peninsula Pty Ltd

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE
PRACTICE COURT

S CI 2016 04872

O'BRIEN & ORS (According to the attached Schedule)	Applicants
v
INDUSTRY SKILLS PENINSULA PTY LTD & ORS	Respondents

(According to the attached Schedule)
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JUDGE:	McDONALD J
WHERE HELD:	Melbourne
DATE OF HEARING:	28 November 2016
DATE OF JUDGMENT:	28 November 2016
CASE MAY BE CITED AS:	O'Brien & Ors v Industry Skills Peninsula Pty Ltd & Ors
MEDIUM NEUTRAL CITATION:	[2016] VSC 744

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INTERLOCUTORY INJUNCTION – Freezing order – Arguable case – Danger of unsatisfied judgment – Balance of convenience – Search order - Supreme Court (General Civil Procedure) Rules 2015 OO 37A, 37B.

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APPEARANCES:	Counsel	Solicitors
For the Applicants	Ms E A Bennett	Gadens Lawyers
For the Respondents	No appearance

HIS HONOUR:

I have determined in this matter that I will make both a search order and a freezing order. My reasons are as follows.
The applicants seek a freezing order under O 37A of the Supreme Court (General Civil Procedure) Rules 2015 (‘Rules’) and a search order under O 37B of the Rules.
The application is made ex parte on the basis of affidavit material filed on 25 November 2016.[1]
[1]See Exhibit A: Affidavit of Biljana Apostolova sworn 25 November 2016.
The applicant undertakes to commence proceedings as soon as reasonably practicable, and has otherwise provided undertakings provided by the Rules. The orders are sought for the purposes of ensuring that the proceedings to be initiated in this Court are not frustrated by the dissipation of assets or destruction of relevant material.
I have ordered that the applicants are to file a statement of claim by 9.00 am on 2 December 2016. The application will be returnable before me at 10.30 am on that day.
The applicants represent Canonical Administrators who are responsible for the administration and operation of St John's Regional College. The college provides secondary school education to years 7 to 12. In addition, it was previously registered with the Vocational Registrations and Qualification Authority (‘the VRQA’), as a registered training organisation (‘RTO’).
The applicants' RTO status permits the delivery of hospitality qualifications to students in years 11 and 12 to students as part of a regional schools program.
As an RTO, the applicants sought and entered into a funding agreement with the Department of Education and Training which permitted the provision of funding for eligible individuals who were provided with training services in accordance with a vocational education and training funding agreement.
I am satisfied that the evidence before the Court supports the following findings.
The RTO received government funding between 2013 and mid-2016 exceeding $12 million. Mr Andersson, the second respondent, was responsible for the RTO in two ways. First, together with his wife, he was a director and shareholder of the company Industry Skills Peninsula Pty Ltd (‘ISP’), which is the first respondent. ISP was engaged by the college to provide various services to operate and administer the RTO.
Secondly, he was an employee of the college and as such was appointed as RTO manager from September 2010. In that capacity he engaged trainers and directed how they should undertake the task of student recruitment, training and record keeping. There is evidence that Mr Andersson took a leave of absence for illness in 2015, but nevertheless continued to provide direction and guidance about the operation of the RTO.
The services provided by an RTO could be by way of training, or by assessing student outcomes. The former involved providing instruction and teaching to students, while the latter process was referred to as recognition of prior learning (‘RPL’) and involved assessing students to determine if their skill levels were appropriate to justify the award of a certificate from the RTO. Both kinds of training were funded by the State, although from 2014, training generally attracted significantly higher levels of funding than RPL.
There is evidence before the Court regarding irregularities which were identified in relation to the conduct of the RTO between 2013 and 2016. That evidence supports, at least on the basis of the unchallenged evidence (yet to be meet by any evidence on behalf of the respondents), the following five findings:
1.That Mr Andersson suggested or directed the falsification of assessment books that were meant to be completed by students.
2.Mr Andersson instructed trainers to record the provision of training rather than RPL in the circumstances where training attracted a higher government subsidy.
3. Mr Andersson suggested the destruction and then fabrication of some documents required to obtain government funding. This was recorded in a contemporaneous email, and he was aware of the manipulation of some data.
4. Mr Andersson was aware of an instruction to destroy documents after the commencement of an audit by the VRQA.
5.The RTO received funding for some students who, when interviewed, said they did not enrol in any training and had never heard of the college.
The applicants invite the Court to infer that Mr Andersson has not been forthright with information that he might have had in his possession to assist an investigation.
First, investigators requested access to Mr Andersson's phone and laptop. Mr Andersson informed them the day after the notice was given that his laptop was lost and his mobile phone was broken.
Second, on 11 April 2016, the VRQA wrote to St John's requesting information relevant to an investigation into irregularities regarding the provision of a certificate IV course in commercial cookery, which had been conducted by St John's. On 4 May 2016, with the knowledge of the second respondent, documents regarding the provision of this course were destroyed.
Third, on 10 November 2016, the college requested documents relevant to the conduct of the RTO. The solicitors for the first and second respondent indicated that the requested information would be provided only to auditors. When the auditors requested the documents, an incomplete response was provided.
On 10 November 2016, the college requested a copy of Mr Andersson's insurance and on 23 November 2016, certificates were produced showing that insurance had only been taken out two days earlier.
There is also evidence that two properties associated with Mr Andersson, one owned by the first respondent and one owned by him and his wife, have recently been put on the real estate market.
The principles relevant to the Court's jurisdiction to make a freezing order are well‑established and are set out in a judgment of Forrest J in Zhen v Mo.[2] The eight propositions identified by His Honour are as follows:
[2][2008] VSC 300.

First, that a freezing order, by its very nature, is a drastic remedy and a court must exercise a high degree of caution before taking a step which will interfere with a party’s capacity to deal with his or her assets.

Second, the order is not designed to provide security for the applicant’s claim. It is solely directed to preserving assets from being dissipated, thereby frustrating the court process.

Third, the applicant bears the onus both in satisfying the Court that the order should be continued and in satisfying the Court as to the amount which is to be the subject of the order.

Fourth, that an order can only be made on the basis of admissible evidence which supports the contentions made by the party seeking the order. Speculation and guesswork is no substitute for either the facts or inferences properly drawn from proved facts.

Fifth, that before such an order can be made it is necessary that the applicant establish –

(a) an arguable case against the defendant; and

(b) that there is a danger that the prospective judgment will be wholly or partly unsatisfied as a result of the defendant’s actions in either removing the assets or disposing or dealing with them so as to diminish their value.

Sixth, the balance of convenience must favour the granting of the freezing order.

Seventh, that there is no set process determining the exact nature of an order. The order will be framed according to the circumstances of the case.

Eighth, the applicant must establish with some precision the value of prospective judgment. The order should not unnecessarily tie up a party’s assets and property.[3]

[3]Ibid [22]–[29] (citations omitted).

As to the first of those propositions above, I am satisfied that the applicant has a good arguable case against the first and second respondents.
The applicants' case is essentially that they contracted with ISP and Mr Andersson to provide training that was to be genuine and capable of attracting and retaining funding from the Department of Education and Training. The applicants contend that ISP and Mr Andersson failed to comply with that obligation because:
(i)they made claims for funding in relation to candidates who did not receive or complete training, or did not do so properly;
(ii)they oversaw RTO's recruitment of candidates for RPL certification where such students were inappropriate, or were not adequately trained or reviewed;
(iii)they altered or oversaw the alteration of documents necessary to claim and retain funding;
(iv)they instructed or oversaw the completion of part or all assessments by trainers on behalf of students;
(v)they instructed or oversaw reporting of non-RPL training where only RPL was actually delivered; and
(vi)they instructed or oversaw the signing off of student tasks on behalf of students.
The applicants will seek the recovery of funds paid in respect of students where training was not provided or completed, or where funding is not otherwise available or repayable because of the conduct of the respondents.
To date the applicants have identified the following causes of action they propose to pursue:
1.Breach of contract, both of the first ISP agreement and the second ISP agreement, and Mr Andersson's contract of employment;
2. Misleading and deceptive conduct;
3. Proceedings based on an indemnity under the second ISP agreement;
4. An action for money had and received or restitution, on the basis that the entitlement to funds was at all times dependent on the retention of proper records which was undermined by the conduct of the respondents in falsifying or destroying documents necessary for funding.[4]
[4]See Exhibit A: Affidavit of Biljana Apostolova sworn 25 November 2016, [53].
I am satisfied that there is a danger that a prospective judgment will be unsatisfied as a result of the respondents' actions. In this regard, I note:
1. The proposed sale of property belonging to the first respondent.
2. The proposed sale of property which the second respondent has an interest in.
3.The properties being offered for sale around the same time that Mr Andersson's employment was terminated.
Information about the operation of the RTO was requested from Mr Andersson. His mobile phone was apparently lost, and his laptop computer was allegedly stolen.
In Distinctive FX Pty Ltd v Wright,[5] Elliott J stated in addition to the eight criteria identified by Forrest J in Zhen v Mo:
The evidence relied upon by a plaintiff in seeking to establish an arguable case against a defendant may also be relied upon to demonstrate that there is a danger a prospective judgment will be wholly or partly unsatisfied as a result of the removal, disposal or diminishing of assets. Where the allegations made against a defendant concern serious dishonesty, that evidence of itself may satisfy the court that the requisite danger exists.[6]
[5][2015] VSC 299.
[6]Ibid [39] (citations omitted).
I am satisfied that the allegations made against the second respondent concern allegations of serious dishonesty, and I am satisfied that there is evidence in support of those allegations. In that respect, I place a particular weight on the fact that in the present proceedings the relevant evidence of dishonesty is not comprised simply of evidence sourced from the applicants. Rather, that evidence includes evidence from the relevant regulatory authority, that is the VRQA,[7] and it also includes the notice from the Department of Education and Training of termination.[8] I will return to those matters shortly.
[7]See Exhibit A: Affidavit of Biljana Apostolova sworn 25 November 2016, “BA-22”.
[8]Ibid “BA-20”.
As to the balance of convenience, the orders sought will restrain the respondents from disposing of real property until the applicants' case can be resolved, or until further order of the Court is made. In that respect I place considerable weight on the fact that the matter will return to Court on Friday, 2 December 2016, and the respondents will have an opportunity at that time to make any submissions they wish to in respect of the orders made, including any submission to the effect that the orders should be discharged. In the meantime, if the respondents were permitted to dissipate their assets, then there is a real risk that the proceedings by the applicants would be frustrated. In those circumstances, the balance of convenience favours the granting of the orders sought.
As to the search orders which are sought, again the principles in respect of the making of such an order are well‑established.[9] The criteria for the making of a search order first requires that an applicant has a strong prima facie case on an accrued cause of action.[10] Secondly, the potential or actual loss or damage to the applicant if the search order is not made must be serious and, thirdly, there must be sufficient evidence that the respondent possesses important evidentiary material, and that there is a real possibility that the respondent might destroy such material or cause it to be unavailable for use in evidence in the proceeding.[11]
[9]See Metso Minerals (Australia) Ltd v Kalra [2007] FCA 2093.
[10]Ibid [2], quoting Anton Piller KG v Manufacturing Processes Ltd[1976] 1 All ER 779, 784 (Ormrod LJ).
[11]Ibid.
I also note, consistent with the required criteria that the usual undertakings as to damages and costs have been proffered by the applicant. I am satisfied that the second respondent is likely to have in his possession important evidentiary material. I am satisfied that he was the guiding mind of the first respondent and was intimately involved in that company's provision of services as an RTO provider. Any information in his possession and that of the first respondent is likely to be of real significance to the applicant's case.
I am satisfied that there is a real possibility that the respondents might destroy such material if a search order is not made. That possibility arises from the allegation, supported by evidence, of dishonest conduct on the part of the second respondent. That evidence is constituted in significant respect by investigations undertaken by third parties, namely the Department of Education and Training and the VRQA.
The investigations undertaken by the Department of Education and Training support the conclusion that there had been significant irregularities in the provision of services by the first respondent, including the payment for training services which were not actually provided at all, payments in respect of students who have not participated in any training, and the provision of falsified documentation. Those matters are set out in the notice of intention to terminate the 2015 VET funding contract in a document dated 29 April 2016.[12] That document records a number of findings adverse to the respondents, including students enrolled but not receiving certificates, students being enrolled in courses without their knowledge or contrary to their interests, a trainer completing student assessment material, and a suggestion made by Mr Andersson to destroy and/or falsify forms. Those findings recorded in a document produced by a third party, that is a government agency not a party to this litigation, are matters on which I have placed considerable weight in concluding that the orders sought are justified.
[12]Exhibit A: Affidavit of Biljana Apostolova sworn 25 November 2016, “BA-20”. See also the VRQA letter regarding their investigation into St John's dated September 2016, Exhibit A: Affidavit of Biljana Apostolova sworn 25 November 2016, “BA-22”.
There will be orders in the terms sought by the applicant.

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SCHEDULE OF PARTIES

No. S CI 2016 04872

BETWEEN:

DANIEL DECLAN O'BRIEN, BRIAN COLLINS, ALBERT YOGARAJAH, XAVIER UBAGARA SWAMY CP AND MICHAEL SHADBOLT T/A ST JOHN'S REGIONAL COLLEGE DANDENONG (ABN 29 766 938 476) Applicants

- and –

INDUSTRY SKILLS PENINSULA PTY LTD (ACN 155 879 324) First Respondent

ROBERT CONNY ANDERSSON Second Respondent

VANESSA JO ANDERSSON Third Respondent

MALIN INDIGO PTY LTD (ACN 604 267 496) Fourth Respondent

[2016] VSC 744

28 November 2016