Rimex Wheel Pty Ltd v Wulff
[2018] WASC 180
•18 JUNE 2018
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: RIMEX WHEEL PTY LTD -v- WULFF [2018] WASC 180
CORAM: VAUGHAN J
HEARD: 18 JUNE 2018
DELIVERED : 18 JUNE 2018
FILE NO/S: CIV 2013 of 2018
BETWEEN: RIMEX WHEEL PTY LTD
Plaintiff
AND
JOHN ANTHONY WULFF
Defendant
Catchwords:
Freezing order - Turns on own facts
Legislation:
Rules of the Supreme Court 1971 (WA) O 52A
Result:
Application for freezing order granted
Category: B
Representation:
Counsel:
| Plaintiff | : | K L Christensen |
| Defendant | : | No appearance |
Solicitors:
| Plaintiff | : | Christensen Partners |
| Defendant | : | No appearance |
Case(s) referred to in decision(s):
Cardile v LED Builders Pty Ltd [1999] HCA 18; (1999) 198 CLR 380
Commonwealth Bank of Australia v Oswal [2011] WASC 84; (2011) 82 ACSR 626
Deputy Commissioner of Taxation v Hua Wang Bank Berhad [2010] FCA 1014; (2010) 273 ALR 194
Jackson v Sterling Industries Ltd [1987] HCA 23; (1987) 162 CLR 612
Koolan Iron Ore Pty Ltd v Rizhao Steel Holding Group Co Ltd (No 2) [2010] WASC 386
Manor Electrics Ltd v Dickson [1988] RPC 618
National Australia Bank Ltd v Bond Brewing Holdings Ltd [1990] HCA 10; (1990) 169 CLR 271
Ninemia Maritime Corporation v Trave Schiffahrtsgesellschaft mbH & Co KG [1983] 1 WLR 1412
Patterson v BTR Engineering (Aust) Ltd & Ors (1989) 18 NSWLR 319
Perdaman Chemicals & Fertilisers Pty Ltd v Griffin Coal Mining Co Pty Ltd [2011] WASC 188
Perth Mint v Mickelberg (No 2) [1985] WAR 117
VAUGHAN J:
Introduction
The plaintiff, Rimex Wheel Pty Ltd (Rimex), commenced these proceedings by a generally indorsed writ on 14 June 2018. On the same date it made an urgent ex parte application for a freezing order.
The defendant, John Wulff, is a former employee of Rimex. Mr Wulff was dismissed from his employment on 16 May 2018. The defendant has not been served with any papers in the proceedings or given notice of them. The hearing proceeded on an ex parte basis. Accordingly, only the plaintiff's version of the facts has been presented to me.
In those circumstances, while for the purpose of the determination of the application I accept the materials as presented in Rimex's supporting affidavit, I am not making any final factual determinations. It is not necessary to do so to determine the application. The evidence only needs to meet the test set out in O 52A r 5 of the Rules of the Supreme Court 1971 (WA) including, relevantly, that Rimex has a 'good arguable case' on an accrued cause of action that is justiciable in the court. Nothing in these reasons should be taken as amounting to any final and conclusive finding of fact.
Often it has not been the practice of the court to give reasons on an ex parte application for a freezing order. That is because the defendant will have an opportunity to contest the continuation of the order after service. However, I consider that, where possible, reasons should be given - if only so the absent defendant is informed in due course of the basis on which the court has imposed on him or her the drastic intrusion of a freezing order.
I intend, however, to truncate my reasons. The matter is urgent and has come on for hearing quickly. In circumstances where, as will be seen, I intend to only grant a freezing order of short duration it is unnecessary to provide extensive reasons. Mr Wulff will have a full opportunity to contest the continuation of the freezing order, or raise any other matter, on the return date.
Background facts
Rimex's application was supported by an affidavit of its national operations manager, Adam Hirst. That affidavit verified the following evidentiary matters.
Rimex is the Australian incorporated subsidiary of an overseas parent. It is a manufacturer of wheels and wheel assemblies. Its Western Australian operations are carried out in Welshpool.
Mr Wulff was employed as Rimex's Perth branch manager.
In mid‑May 2018 Rimex became aware of some potentially irregular financial activity when it received a demand for outstanding money from an entity named Runabout Metals. Demand was made as to what was said to be a short delivery of scrap metal. Runabout Metals was then unknown to Rimex. On investigation it became apparent that over a five month period Mr Wulff had diverted scrap metal and brass belonging to Rimex, sold it to Runabout Metals, and received proceeds of some $59,503.62.
The connection between the sale activity and Mr Wulff was established as Runabout Metals provided Rimex with proof of payment into a bank account which was the same bank account into which Rimex paid Mr Wulff's salary. Also, on 15 May 2018 Mr Wulff asked Rimex's assistant account manager to pay an invoice said to be an invoice from Runabout Metals. Mr Wulff requested that the invoice be processed that day as it was well overdue and 'we [Rimex] need to place another order with them in the next few days'. The invoice was in the amount of Runabout Metal's overpayment to Mr Wulff. Runabout Metals' director confirmed that the invoice was not issued by it.
Mr Wulff was interviewed by Mr Hirst on 16 May 2018 in the presence of Rimex's general manager. In the course of the interview Mr Wulff admitted receiving the funds from Runabout Metals in relation to the scrap metal dealings. A written record of the interview (as created by Rimex) records Mr Wulff as stating:
I'll put my hand up and acknowledge I've done wrong, it progressed into something else.
…
Unfortunately, it got out of control.
John explained where the other money has gone, i.e. a legal dispute ...
The scrap started purely for the company, saw a way to progress his legal dispute through the courts, was mentally in a bad place and this occurred to him shortly after starting …
…
Going out on a limb here, can I ask if I can make this right by RIMEX?
Happy to pay money back, take a pay cut
Following the interview Rimex terminated Mr Wulff's employment.
By a 17 May 2018 email to Rimex's general manager and Mr Hirst, Mr Wulff stated:
I sincerely apologise for betraying your trust and take full responsibility for my actions. While I understand my actions can not (sic) be undone I'm genuinely willing to cooperate fully and provide any further infomation (sic) relating to the investigation into my actions …
Mr Wulff then sent a further email to Mr Hirst on 18 May 2018. Mr Wulff sought to assure Mr Hirst that 'this behaviour is genuinely out of character for me'. Mr Wulff said that he was 'genuinely remorseful' and 'genuinely ashamed of my actions'.
After Mr Wulff's employment was terminated the scope of Rimex's investigation was expanded beyond the scrap metal dealings to other aspects of Rimex's business that Mr Wulff had influence over. In particular there was consideration of whether certain invoices that Mr Wulff had submitted to Rimex for payment were genuine. There were two such categories of invoices: (1) invoices purportedly from an entity called HD Plasma and Laser; and (2) invoices purportedly from an entity called Full Pen Welding and Inspection Services. Rimex had paid those invoices.
The evidence included four invoices over the period 19 to 27 April 2018 purportedly from HD Plasma and Laser totalling $31,092.60. There was also a series of emails from Mr Wulff requesting payment of the invoices, often so that goods could be collected. For example, by an email dated 19 April 2018 Mr Wulff attached one of the invoices (for $14,278) seeking that it be processed that day. In its investigation Rimex made contact with HD Plasma and Laser and asked it to verify the various invoices. HD Plasma and Laser informed Rimex that the subject invoices were not its invoices and that the bank account details on the invoices were not its bank details. Also, Rimex employees informed Mr Hirst that, to the best of their knowledge, none of the wheel disc products as mentioned in the invoices had been delivered to Rimex.
There is a similar body of evidence in relation to Full Pen Welding and Inspection Service. Here, however, there are nine invoices totalling $106,515.97 over the period 23 January 2018 to 19 April 2018. Again there were many emails from Mr Wulff submitting and seeking payment of the invoices.
Some of Mr Wulff's emails seeking payment of these invoices forwarded purported emails from a 'Reece Douglas' of Full Pen Welding & Inspection Services. The evidence does not allow any conclusion to be reached as to whether Mr Douglas existed; nor whether Full Pen Welding and Inspection Service was a real business. Unlike HD Plasma and Laser there is nothing to suggest that Rimex has been able to contact Full Pen Welding and Inspection Service to confirm that the invoices were fictitious. However, a Rimex employee has informed Mr Hirst that, to the best of his knowledge, none of the products mentioned on the invoices were delivered to Rimex. It was said that the invoices matched some of the jobs Rimex had built on site, ie that an invoice had been created to reflect what Rimex had done.
In terms of Mr Wulff's available assets, there is some evidence that he holds bank accounts with BankWest and Westpac. Based on Landgate searches there is no real property in Western Australia in his name. Otherwise the plaintiff is unable to provide the court with information as to Mr Wulff's assets.
Applicable legal principles
A freezing order is granted to prevent the frustration or inhibition of the court's process. The order restrains a defendant from certain dealings in relation to its assets. It may prevent the defendant from removing assets from Australia. But more broadly, a freezing order may restrain a defendant from disposing of, dealing with or diminishing the value of his or her assets. It does so to prevent the frustration of a monetary judgment and meet a danger that a judgment of the court will be wholly or partly unsatisfied by a defendant acting to make himself or herself judgment proof.
The plaintiff relied on O 52A r 5 of the Rules of the Supreme Court 1971 (WA). The relevant parts of the rule provide:
(1)This rule applies if … an applicant has a good arguable case on an accrued or prospective cause of action that is justiciable in … the Court …
(4)The Court may make a freezing order or an ancillary order or both against a judgment debtor or prospective judgment debtor if the Court is satisfied, having regard to all the circumstances, that there is a danger that a judgment or prospective judgment will be wholly or partly unsatisfied because … the assets of the judgment debtor, prospective judgment debtor or another person are … disposed of, dealt with or diminished in value.
The provisions of O 52A codify and potentially advance the prior general law authorities in terms of the available scope of potential asset preservation orders.[1]
[1] Koolan Iron Ore Pty Ltd v Rizhao Steel Holding Group Co Ltd (No 2) [2010] WASC 386 [7].
While the object of a freezing order is to prevent the frustration of the court's process - by preserving the efficacy of the enforcement process that will lie against an actual or prospective judgment debtor[2] - there is no requirement that the defendant have the intention of frustrating the court's process.[3] Nor, at least in theory, is the object of a freezing order to enhance the position of a plaintiff. It is not the purpose of a freezing order that a plaintiff be provided with security in relation to a judgment debt or prospective judgment debt.[4]
[2] See, eg, Jackson v Sterling Industries Ltd [1987] HCA 23; (1987) 162 CLR 612, 623; Cardile v LED Builders Pty Ltd[1999] HCA 18; (1999) 198 CLR 380 [25].
[3] National Australia Bank Ltd v Bond Brewing Holdings Ltd [1990] HCA 10; (1990) 169 CLR 271, 277; Cardile v LED Builders Pty Ltd [26].
[4] Jackson v Sterling Industries Ltd (619), (625 ‑ 626); Cardile v LED Builders Pty Ltd [43].
In the present case there are essentially two conditions that must be satisfied before the court's discretion to make a freezing order is enlivened. I must be satisfied that:
(1)Rimex has a 'good arguable case' against Mr Wulff on an accrued cause of action that is justiciable in the court; and
(2)there is a danger that the prospective judgment will be wholly or partly unsatisfied because assets of Mr Wulff might be removed or otherwise disposed of, dealt with or diminished in value.
Satisfaction of the two conditions does not mean that a freezing order will be made as of right. The interim remedy is discretionary. The court conducts a balancing exercise. The overarching question is whether, in all the circumstances, the case is one in which it is in the interests of justice to grant the freezing order. The court will consider the likely consequences to the applicant if the assets are dissipated and the hardship that the freezing order will inflict on the defendant. The rights of third parties who may be affected will also be borne in mind.[5]
[5] Deputy Commissioner of Taxation v Hua Wang Bank Berhad [2010] FCA 1014; (2010) 273 ALR 194 [13].
The question of what amounts to a good arguable case was set out by Beech J (as his Honour then was) in Perdaman Chemicals & Fertilisers Pty Ltd v Griffin Coal Mining Co Pty Ltd.[6] The test is to be understood in the sense of a case 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.[7] It is equivalent to the general law requirement that the applicant must establish that it has a reasonably arguable case on legal and factual matters.[8]
[6] Perdaman Chemicals & Fertilisers Pty Ltd v Griffin Coal Mining Co Pty Ltd [2011] WASC 188. That decision was overturned on appeal. However, no doubt was cast upon Beech J’s statement of legal principles.
[7] Perdaman Chemicals & Fertilisers Pty Ltd v Griffin Coal Mining Co Pty Ltd [143].
[8] Perdaman Chemicals & Fertilisers Pty Ltd v Griffin Coal Mining Co Pty Ltd [144].
The danger that the prospective judgment will be wholly or partly unsatisfied may be inferred from the nature of the case. For example, if there is a good arguable case of fraud or dishonesty then the court may infer a risk of dissipation of assets in the absence of a freezing order.[9] Where that is not the case there must be evidence to establish the danger of asset dissipation. The authorities express the relevant danger in terms of a 'real risk' that, by reason of dissipation, the judgment or prospective judgment will go unsatisfied.[10]
[9] See, eg, Patterson v BTR Engineering (Aust) Ltd & Ors (1989) 18 NSWLR 319, 326.
[10] See, eg, Cardile v LED Builders Pty Ltd [26]; Perth Mint v Mickelberg (No 2) [1985] WAR 117, 118; Patterson v BTR Engineering (Aust) Ltd & Ors (321 ‑ 322), (327); Deputy Commissioner of Taxation v Hua Wang Bank Berhad[8]; Commonwealth Bank of Australia v Oswal[2011] WASC 84; (2011) 82 ACSR 626 [40].
As mentioned, the applicant need not adduce evidence that the defendant has a positive intention to frustrate a judgment.[11] It is enough if there is a real risk of dissipation which would have the necessary effect of frustrating the enforcement of a judgment.[12] But it is not sufficient for the applicant to simply assert a risk that the assets will be dissipated; the real risk of dissipation must be demonstrated by 'solid evidence'.[13]
[11] See par 23 above.
[12] Deputy Commissioner of Taxation v Hua Wang Bank Berhad [10].
[13] Ninemia Maritime Corporation v Trave Schiffahrtsgesellschaft mbH & Co KG [1983] 1 WLR 1412, 1425.
Disposition
I am satisfied that Rimex has demonstrated that it has a good arguable case against Mr Wulff on an accrued cause of action that is justiciable in the court.
Based on the evidence adduced by Rimex it is open to find that Mr Wulff has converted Rimex's property, namely, the scrap metal and brass, in selling those materials to Runabout Metals. It is also open to infer that Mr Wulff, through the submission of fictitious invoices said to be from HD Plasma and Laser and Full Pen Welding and Inspection Services, has obtained money from Rimex by making false representations. That might give rise to a number of different causes of action. But at the least there is a good arguable case on a cause of action for money had and received.
The writ as issued by Rimex contains an indorsement as follows:
The plaintiff claims against the defendant, that whilst an employee of the plaintiff, he sold scrap metal and component stands owned by the plaintiff, and received funds totalling $197,112.17 from those suppliers which he did not account to the plaintiff.
Rimex seeks damages in the amount of $197,112.17.
The indorsement is satisfactory as concerns the claim based on the sale of the scrap metal and brass to Runabout Metals. However, it does not adequately capture the claims based on obtaining money from Rimex through the submission of the invoices said to be from HD Plasma and Laser and Full Pen Welding and Inspection Services. As a condition of the grant of the freezing order I will require that Rimex, through its counsel, undertake to amend the indorsement to the writ to properly describe the claims as based on obtaining money from Rimex through the submission of the invoices. In the course of submissions, counsel for Rimex informed me that he had instructions to, and did, proffer that undertaking on behalf of Rimex.
I am also satisfied, to the requisite degree, that there is a danger that the prospective judgment will be wholly or partly unsatisfied because assets of Mr Wulff might be removed or otherwise disposed of, dealt with or diminished in value.
My conclusion that there is a real risk of asset dissipation in the absence of a freezing order primarily relies on the evidence that Rimex adduces to support its contention that it has a good arguable case.
On its face that evidence strongly suggests apparent dishonesty on the part of Mr Wulff. There are apparent admissions in this regard as to the sales to Runabout Metals. But it is the apparently fictitious invoices, and Mr Wulff's emails seeking payment thereof, that are the most cogent danger signs of a risk of asset dissipation. The apparent creation of the invoices, and the apparent fictions advanced by Mr Wulff in support of their payment, bespeaks a premeditated subterfuge that is more than ample to infer a real risk of asset dissipation. That is particularly the case when the conduct was not isolated; it persisted over a number of months. The conclusion is fortified by Mr Wulff's apparent failure to inform Rimex of the issues as to the HD Plasma and Laser and Full Pen Welding and Inspection Services invoices when confronted with the investigation into the Runabout Metals sales.
The question of discretion remains. I must balance the nature and effect of the proposed freezing order on Mr Wulff with Rimex's need for the order to avoid frustrating enforcement of a prospective judgment and determine what best serves the interests of justice. Three matters are significant in that exercise. First, the duration of the freezing order will be relatively short; I will require a return date of Friday, 22 June 2018. Second, the freezing order will provide for the usual carve‑outs as to reasonable legal expenses and living expenses (although, as will be seen, I consider that the amounts proposed by Rimex are inadequate and must be increased). Third, Mr Wulff will be protected by the undertaking as to damages that is proffered by Rimex.
Rimex has not adduced any evidence by way of financial information to establish that it has capacity to satisfy compensation that may be payable pursuant to the undertaking as to damages. As this application is made ex parte, Rimex must disclose any financial information which may cast doubt on its ability to meet the usual undertaking as to damages from assets within Australia.[14] A failure to disclose financial information which casts doubt on the ability of an applicant to meet its undertaking as to damages is a material non‑disclosure which prima facie provides grounds for the discharge of the ex parte order.[15]
[14] Consolidated Practice Directions PD 9.6.1 par 19.
[15] Manor Electrics Ltd v Dickson [1988] RPC 618.
When I raised the absence of financial information with counsel for Rimex he informed me that limited inquiries had been made of Rimex. The matter was stood down so that counsel could make further inquiries and inform the court of any relevant matters. Upon resumption counsel for Rimex informed me that there were no material matters to disclose as to Rimex's ability to meet the usual undertaking as to damages.
One countervailing factor against the grant of the proposed freezing order was that it was not sought in respect of particular identified assets. Rather, it was a general or unlimited order against all of Mr Wulff's Australian assets (albeit that, consistent with the standard form for a freezing order, it was proposed that the restraint be confined to a particular amount in terms of the unencumbered value of the assets to be subject to the order).
The proposed form of order is, in my view, inevitable given that Rimex, having made inquiries, is unable to identify Mr Wulff's assets. I accept that this means that there is an additional risk that a freezing order may operate to the prejudice of Mr Wulff. But in my view the risk is mitigated by the proposed short duration of the freezing order and the undertaking as to damages.
In the circumstances I am satisfied that it is appropriate to make a freezing order. I will address the specific terms of the order when I provide my conclusion.
Rimex also sought an 'ancillary order'[16] that Mr Wulff be required to make disclosure on affidavit as to his assets including their value, location and details.
[16] Rules of the Supreme Court 1971 (WA) O 52A r 3. The court may make ancillary orders for, among other things, the purpose of eliciting information relating to assets relevant to the freezing order or prospective freezing order.
Such a disclosure order is granted in aid of the freezing order. It gives efficacy to the freezing order by enabling proper policing of the order. In the exercise of my discretion I am not prepared to make the disclosure order as sought at this time on an ex parte basis. The intrusive nature of the proposed disclosure order is such that, in my view, it would be preferable to defer such an ancillary order until after Rimex has sustained the freezing order on a contested basis. The question of whether the proposed disclosure order is appropriate may be reagitated on the return date of 22 June 2018.
Conclusion
I will make a freezing order against Mr Wulff but, as mentioned, will defer the making of any disclosure order. In addition to the usual undertakings on the part of Rimex, as proffered following the hearing and before I made the freezing order as sought, I noted Rimex's undertaking, by counsel, to amend the indorsement on its writ to properly describe the causes of action based on the money paid out on the invoices purportedly issued by HD Plasma and Laser and Full Pen Welding and Inspection Services. Leave was required to amend to add or substitute the new causes of action and I granted that leave at the conclusion of the hearing.
The freezing order will have a return date of Friday, 22 June 2018.
Rimex sought that the freezing order restrain dealings so that Mr Wulff retains Australian assets with an unencumbered value of $325,000. The difference between the $197,112.17 as claimed in the writ is explained by interest (estimated at $25,000) and costs (estimated at $100,000).
The value of the assets covered by a freezing order should not exceed the likely maximum value of the applicant's claim. But this may include interests and costs.[17] Rimex's estimate of interest is based on the action taking two years to get to judgment. The case is relatively simple; two years is unduly pessimistic. One year's interest, or an amount of approximately $12,000, ought to suffice. Similarly, the estimate of costs is overly generous. I will allow $50,000. Allowing for some rounding to arrive at an even number I will provide that the value of the unencumbered assets to be the subject of the freezing order is to be $260,000.
[17] Consolidated Practice Directions PD 9.6.1 par 11.
The proposed freezing order excludes dealings as to ordinary living expenses and reasonable legal costs. Rimex suggested proposed amounts of $100 per day as to living expenses and $500 as to legal costs. I consider those amounts are too low. The inadequacy is manifest as to the legal costs; but in submissions counsel for Rimex explained that this was a typographical error and the intention was to provide for $5,000. I will permit $150 a day on ordinary living expenses and up to $5,000 on reasonable legal expenses.
Otherwise the proposed freezing order departed in some minor respects from the example order that is provided in PD 9.6.1.1 of the Consolidated Practice Directions. The departure is most likely the product of Rimex's solicitors using their precedent rather than the example order in the Consolidated Practice Directions. I have required modification of the proposed freezing order so that the order as made conforms with the example order in the Consolidated Practice Directions.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
AD
ASSOCIATE TO THE HONOURABLE JUSTICE VAUGHAN7 DECEMBER 2018
8
9
1